Court Opinion

ID: 7195441
Source: CourtListenerOpinion
Date Created: 2022-07-24 17:02:07.829949+00
Date Added: 2024-06-11T16:16:19.009672
License: Public Domain

Dissenting Opinion.
Watkins, J.
It appears that on April 24, 1889, the plaintiff bought of defendants five bonds of the State of Louisiana, of $1000 each, for which she paid $4448.75; and, alleging her subsequent discovery of the fact that said bonds were not valid, and that the State *228had refused to recognize them, she demands of the defendants restitution of the price paid therefor.
The grounds of nullity assigned are, viz.:
1. That four of said bonds, those numbered respectively 742, 842, 866 and 883, which heretofore formed a part of the consolidated bonds held by the State for the use and benefit of the Agricultural and Mechanical College, were, by the 233d Article of the State Constitution, declared to be null and void after the 1st day of January, 1880,. and for the payment of which the Legislature was, in terms, prohibited from making any provisions, and that it, also, commanded that same should be destroyed in such manner as the General Assembly may direct.
2. That the bond numbered 5611, being one of the series of consolidated bonds which had been exchanged under Act 121 of 1880, for constitutional bonds, — quoting from plaintiff’s brief, p. 3 — “is paid and extinguished.”
Against this action three defences are set up, viz.:
1. That defendants acted as brokers, and are only liable for frauds or faults, and are free from both.
2. That if the transaction was deemed a sale, it was of a specific-thing, and defendants delivered exactly what the plaintiff bought.
3. That the bonds in question are valid outstanding obligations of the State.
I.
On the first proposition my opinion is in accord with that of the majority of the court, for the reasons stated, that if the defendants acted as brokers in the transaction, and sold the bonds to plaintiff for other persons than themselves, their liability is that of vendors, for the reason that they failed to disclose the fact of their having-acted in that capacity, or the names of their principals.
Brokers buy and sell on their own account, customarily, as well as upon the account of others. If they sell on their own account they ere evidently responsible; and, to avoid such responsibility, they must show who their undisclosed principals are.
II.
On the second proposition I am also in accord with the majority of the court — that is to say, if the transaction is to be viewed as one of sale, or assignment, and therefore governed by the precepts of *229the Civil Code, and not as a transfer of negotiable instruments, and, therefore, controlled by the principles of the law merchant. For, as vendors of bonds, as articles of merchandise, defendants are bound under the law of warranty to protect plaintiff, while as bona fide holders and transferrers of negotiable securities a different rule obtains. For, says the Supreme Court, speaking through Mr. Justice Swayne in Murray vs. Lardner, 2 Wall. 110: “The general rule of the common law is that, except by a sale in market overt, no one can give a better title to personal property than he has himself. The exemption from this principle of securities, transferrable by delivery, was established at an early period.”
III.
But on the third proposition I can not agree with the majority of the court. The proof is clear to the effect that the bonds in question are genuine consolidated bonds of the State of Louisiana, regularly and properly issued, under and in pursuance of the funding laws, and the corresponding constitutional amendment. That they were duly signed by the Governor, Auditor and Secretary of State, and the interest coupons thereto attached were signed by the State Treasurer and Auditor as required by the provisions of Sec. 3 of the funding act of 1874.
That they were apparently issued by the Board of Liquidation provided by Sec. 2 of that act, and were by said board regularly exchanged for “valid outstanding bonds of the State, ” and possessed, primarily, a good consideration.
That they were payable to bearer at forty years from the first of January, 1874, regularly numbered, and bear interest at the rate of 7 per cent., payable semi-annually. f
That they composed and represented a part of the bonded debt of the State, the amount of which was fixed in the funding act of 1874 at §15,000,000, and which was intended to “ constitute a systematized issue of bonds, having uniformity in date, maturity and form.” Hope & Co. vs. Board of Liquidation, 43 An. 763.
These facts are not questioned by the opinion of the majority nor by counsel for the plaintiff, the theory of the latter being that said bonds heretofore formed a part of the consolidated bonds of the State, but for reasons assigned, as subsequently happening, same had ceased *230to be legal and valid obligations of the State. It is this latter proposition that the defendants deny.
In order to test the validity of said bonds in the hands of defendants, as holders thereof, on the 24th of April, 1889, the date plaintiff purchased them, the status of the bonds, primarily, must be ascertained and first determined.
For, on the foregoing state of facts, the defendants’ contention is that they were bona fida holders of the negotiable paper of the State of Louisiana, maturing at a date in the future, and are entitled to the protection of the law merchant; on the theory that a State like the United States, when she makes herself a party to negotiable instruments, through her duly authorized officers, acting under constitutional and statutory warrant, incurs all the risks and responsibilities of an individual maker or indorser of such instruments under-like circumstances.
Whilst,- on the other hand, counsel for the plaintiff admitting “ that as between holders of said bonds they are governed, in all particulars, by the jurisprudence applicable to negotiable instruments,” denies that “ as regards the State, the principles can be so sweeping.” For, says he, “ to admit such a proposition would concede the power of an officer charged with the emission of certain State or municipal securities to overwhelm the State or municipalities with an unlimited and incontestable debt.”
Therefore, the first question to be solved in the effort to test the primary validity of the bonds under consideration, is the capacity and character of the State as maker thereof.
(aa) Apparently these bonds are invested with the fullest sanction that could be given to any piece of paper which a sovereign State could issue, and put upon the markets of the world.
They have the fullest possible sanction of the Legislature of the State, as expressed in the funding statutes.
At the same session of the General Assembly whereat the funding laws were enacted, a constitutional amendment was proposed which declared, inter alios, that “ the issue of consolidated bonds authorized by the General Assembly of the State, at its regular session in 1874, is hereby declared to create a valid contract between the State and each and every holder of said bonds, which the State shall by no means impairand that “ the said bonds shall be valid obligations *231of the State, in favor of any holder thereof, and no court shall enjoin the payment of the principal or interest thereof, or the levy and collection of the tax therefor,” etc. [Italics are mine.] Act 3 of 18*74r Acts p. 42.
This amendment was adopted as a part of the organic law prior to the date of the issuance of said consolidated bonds, and constituted and remained a part thereof until the 1st of January, 1880.
Hence the whole series of consolidated bonds was not only authorized by statute and constitutional amendment, but in said amendment the bonds are declared to be “valid contracts between the State and each and every holder thereof,” and, also, “ valid obligations of the State in favor of any holder thereof.”
It were, in my opinion, a vain effort to search out words of more evident and emphatic import with which to clothe a statutory or constitucional mandate authorizing certain designated State officers to bind the State to a solemn contract than are those I have just quoted from the funding statute and constitutional amendment.
Manifestly, it was upon the faith of these laws — statutory and constitutional — that the public creditors of the State accepted such consolidated bonds and gave in exchange therefor other warrants and obligations of the State.
Then what is the position the State occupies in such a contract toward its creditors and other persons who acquire possession of such paper in market overt? An examination of the authorities will attest the truth of the rule to be, that the government of a State, like that of the United States, when she makes herself a party to negotiable paper, incurs all the risks and responsibilities of an individual maker or indorser of such instruments under like circumstances.
One author states the rule to be that “ government bonds payable to bearer, or otherwise negotiable in form, are negotiable instruments, and may be transferred as such.” 1 Randolph on Commercial Ins., p. 449, Sec. 348.
“The government of the United States, it has been held, may, by Its authorized officers, become a party to negotiable paper with all the rights and liabilities of an individual, except the liability to be sued.” Id., Sec. 350. >
*232Another states it thus:
“Except in so far as the power of the government may be restricted by constitutional limitations, there can be no doubt that both the State and Federal governments may, by their duly authorized agents, become parties to any species of commercial paper.” Tiedeman on Commercial Paper, p. 129, See. 132.
Another author puts it thus:
“ There is no doubt that when an officer of the government, Federal or State, who is authorized to bind the government as drawer, maker or acceptor of a negotiable instrument, draws or accepts a bill, or makes a note in behalf of the United States, or the State which he represents, its validity can not be questioned when it has passed into the hands of a bona fide holder for value, without notice of any defect.
“ The government would then be bound by its negotiable paper, just as an individual would.” 1 Daniel on Negotiable Instruments, p. 330, Sec. 436.
The foregoing opinions of text writers are founded, in the main, on the authority of United States vs. Bank of Metropolis, 15 Peters, 377; and Floyd Acceptances, 7 Wallace, 666.
And, in my opinion, I can not do better than quote a single parargraph from the former case, as presenting in the clearest light the view entertained by the Supreme Court on the question.
They say:
“ When the United States, by its authorized officer, becomes a party to negotiable paper, they have all the rights and incur all the responsibility of individuals who are parties to such instruments. We know of no difference except that the United States can not be sued. But, if the United States sue, and a defendant holds its negotiable paper, the amount of it may be claimed as a credit, if, after being presented, it has been disallowed by the accounting officers of the treasury; and if the liability of the United States upon it be not discharged by some of those causes which discharge a party to commercial paper, it should be allowed by a jury as a credit against the debt claimed by the United States.” 1 Story, 464; United States vs. Dunn, 6 Peters, 57; United States vs. Barker, 12 Whea. 561.
*233And one selected from the latter case puts the governing rule in ■even a stronger light, for in that case the court, speaking through Mr. Justice Miller, said:
“It must be taken as settled that when the United States becomes a party to what is called commercial paper — by which is meant that ■class of paper which is transferrable by endorsement or delivery, and between private parties, is exempt in the hands of innocent holders from inquiry into the circumstances under which it was put in circulation — they are bound in any court to whose jurisdiction they submit by the same principles that govern individuals in their ■relations to such paper.”
[Italics are mine.]
Those two cases involved time drafts, or bills of exchange drawn —one by a contractor for army supplies, on and accepted by the Secretary of War, and the other by a mail contractor, on and accepted by the Postmaster General — and in possession of third holders for value before maturity. But in Vermyle & Co. vs. Adams Express Company, 21 Wallace, 138, the court dealt with United States treasury notes, and in the course of its opinion, said:
“We can not agree with the counsel for the appellants, that the simple fact that they were the obligations of the government takes them out of the rule which subjects the purchaser of overdue paper 'to an inquiry into the circumstances under which it was made, as regards the rights of antecedent holders,” thus reaffirming the •same doctrine as that announced previously.
This principle has been announced in many recent cases, and notably Murray vs. Charleston, 96 U. S. 432, in which the court employed this emphatic language, viz.:
“The truth is, States and cities, when they may borrow money •and contract to repay it with interest, are not acting as sovereign-ties. Tney come down to the level of ordinary individuals. Their contracts have the same meaning as that of similar contracts between private persons. Hence, instead of there being in the undertaking of a State or city to pay, a reservation of a sovereign right to withhold, payment, the contract should be regarded as an assurance that such a right will not be exercised. A promise to pay, with a reserved right to deny, or change the effect of the promise, is an ■absurdity.”
*234In Louisiana vs. Jumel, 107 U. S. 711, the Supreme Court,' in. speaking of the identical issue of consolidated bonds we are now-considering, said:
“ Whatever may be, ordinarily, the effect of a promise or apledgeof faith by a State, the language employed in this instance showsr unmistakably, a design to make these promises and these pledges solar contracts that their obligation would be protected by the Constitution of the United States against impairment.”
'I have gone into this question very thoroughly on account of its-overshadowing importance, in my opinion, in this case; and, in so doing, I have confined myself to the views of text writers and opinions of the Supreme Court, not because I was dealing with a federal question, but because I regarded them as the best exposition of the-law merchant with respect to negotiable securities of the governments of the United States and of the States.
Having, as I confidently submit, made a demonstration of the-proposition that prefaces this paragraph — that is to say-that, in the-execution of negotiable instruments payable at a future date, governments come down to the level of ordinary persons and incur all the responsibilities of individuals who are parties to such instruments, while possessing all of their rights — I will next address myself to the charges of nullity and illegality which the plaintiff assigns as the ground she relies upon for recovery of defendants; and, at-the risk of being tedious, I will re-state the case as presented by the pleadings, and then analyze the evidence that is furnished us in the transcript, of the nullity and illegality of the bonds in suit.
We will first examine the case as applicable to the four bonds which are denominated Agricultural and Mechanical College bonds,, of $1000 each.
(bb) The plaintiff alleges that she purchased of the defendants, as brokers in bonds, doing business as such in the city of New Orleans, twenty bonds of the denomination of $1000 each, “known commonly as 4 per cent, bonds of the State of Louisiana,” with interest coupons attached, and for which she paid 88% cents on the-dollar, that being the price therefor at that date.
That said bonds have since remained in her possession and “ she has discovered only recently that four of said bonds, numbered respectively 742, 842, 866 and 883, are not legal bonds of the State of *235Louisiana; that they have never been lawfully issued; that they were not, at the time of said sale, and have never since been valid and legal obligations of the said State; and that they are a part of the consolidated bonds which were formerly held by the Treasurer of the State of Louisiana for the use of the Agricultural and Mechanical College fund, and that said bonds were declared by the 233d Article of the Constitution of Louisiana to be null and void after the first day of January, 18S0, and that the General Assembly of Louisiana was prohibited by said article from ever providing for the payment of said bonds.”
In addition, her petition contains the distinct admission that she collected the interest coupons on said bonds maturing on the 1st of July, 1889, subsequent to her acquisition of them from defendants, and avers that she presented these coupons maturing on the 1st of January, 1890, to the fiscal agent for payment, but payment thereof was refused.
It thus appears that plaintiff’s charges are founded exclusively upon the nullity resulting from the declaration of the Constitution and not upon any specific charge of fraud upon the part of any officer of the State government, or upon any averment of embezzlement or theft of said bonds from the custody of any State fiduciary or depository.
There is no averment that defendants acquired said bonds or any one of them mala fide, or with knowledge of the alleged nullities, other than such as may have been conveyed to them by the said constitutional provision.
Defendants’ answer alleges that they are and have been large dealers, as broker or otherwise, in the bonds of the State of Louisiana, which are negotiable securities, not yet due; are customarily bought and sold in open market, here and elsewhere, and as such, they pass daily from hand to hand without other warranty than that the signatures thereto are genuine.
They aver that these bonds are such negotiable instruments as were put in circulation by and through the duly appointed officers of the State for value and that in their hands same are and were good and valid obligations of the State, and unimpeachable as to all equities existing between the State and her officers, and consequently plaintiff is without any right of complaint.
*236Now, what is the evidence furnished by the transcript on the issues thus presented?
Taking the facts chronologically, I find the following, viz.:
(a) That on the 30th of November, 1874, there were presented to the Board of Liquidation 327 Agricultural and Mechanical College bonds, of §1000 each, for exchange in consolidated bonds, under and in conformity with the provisions of the funding act of 1874.
(b) That up to and inclusive of the date March 11, 1889, the following is the exact status of the bonded indebtedness of the State of Louisiana, viz.:
Wliolo amount of consolidated......................................................$12,110,500
Less constitutional bonds................................................................ 290,200
Difference..............................................................................$11,820,300
And that of that amount there had been issued consolidated bonds 'of the denomination of §1000, bonds numbered from 1 to 10,000. To this effect was the report of the present State Treasurer to the Secretary of the New York Stock Exchange on the date specified.
(c) A like statement is contained in the Auditor’s report for the years 1888 and 1889, from which is deducted the sum of §196,200, as representing Agricultural and Mechanical College bonds.
(d) The official report of the Treasurer made for the year 1879 shows that there were, in general terms, on hand at that date, viz.: “ One hundred and ninety-six bonds of §1000 each, issued by the State of Louisiana under Act 3 of 1874, numbered 710 to 905 inclusive; two bonds of $100 each. * * * Total held for account of Agricultural and Mechanical College, §196,200.”
(e) The present Auditor and Treasurer — the former having been the incumbent for eight or ten years consecutively — state, as witnesses, that they “ have never seen any of these bonds until recently,” and that all of their knowledge in-that respect is “derived from official documents.”
(f) The Treasurer states that the interest coupons upon the bonds in question, maturing on the 1st of July, 1888, and the 1st of January, 1889, were paid by the banks in New Orleans that were acting as fiscal agents of the State; and the plaintiff’s agent states, as a witness, that he collected the interest coupons falling due on the 1st of July, 1889, but that those falling due on the 1st of January, 1890, were refused payment.
*237(g) The Treasurer states that he has in his office no evidence of his predecessor having made any report under act 121 of 1880, in reference to the surrender of consolidated bonds.
(K) Whilst there was a joint committee of the General Assembly of 1880 appointed, and which, in a general way, represented in its report that the A. and M. College bonds, inter alios, were on hand, and recommended the appointment of a committee with authority to destroy them, this appears never to have been done. House Journal of 1880, p. 472.
('i) Another joint committee of the General Assembly of 1882 adopted a resolution, authorizing the Auditor and Treasurer to destroy the bonds referred to in the resolution of 1880, but no action seems to have been taken under it. Resolution of 1882, No. 127.
(j) Up to July, 1888, all the coupons carried by the banks, as stated in paragraph /, were subsequently destroyed by a joint committee of the General Assembly.
(7c) On the 20th of September, 1889, the said Treasurer sent to the Secretary of the New York Stock Exchange a communication, stating that “ the following consolidated bonds of the State of Louisiana were declared null and void after the first day of January, 1880, by Art. 233 of the Oonstitution of 1879, viz.: College and seminary funds, 196 bonds of $1000 each, Nos. 710 to 905.” But he failed to state that said bonds were on hand, and then concludes his letter thus, viz.:
“The foregoing bonds are null and -void, and as coupons of some of them have been presented for payment, it would appear that (some of the) bonds were on the market.”
(1) On the 7th of September, 1890, previously, the Audtior had given formal notice to the Treasurer, and to the fiscal agents of the State, of suspicions he entertained in reference to these bonds of the A. and M. College.
(to) Contemporaneously an investigation was put on foot by the Auditor and Treasurer, which disclosed that a number of interest coupons corresponding with these bonds had been paid by the banks.
(n) At page 16 of the joint report, made by said officers, I find the following, viz.:
“ Only since the adoption of the report of the joint committee, appointed under concurrent resolution No. 5, of 1888, have coupons, paid by the State’s agents in London, New York and New *238Orleans, been turned over to the Auditor for cancellation, and it was when entering these coupons, taken up between January 22 and July 30 last (1889), that numbers corresponding with the numbers of several of said bonds on the coupon books, which were marked canceled, were found. [Italics are mine.]
. “A further investigation disclosed the fact that these coupons are not counterfeit, but coupons clipped from bonds which were supposed to have been destroyed as required by Act 121 of 1880, and concurrent resolution 127 of 1882.”
(o) The Treasurer in answer to a further communication from the secretary of the New York Stock Exchange, making inquiry “as to the days and dates when the information contained in his previous letter was promulgated, designating the numbers of bonds which were declared null and void,” stated on the 29th of October, 1889, that “ the information had been previously published in the New Orleans daily papers, and had been obtained from the banks which represent the State in the payment of the current coupons. The official report of the Governor of the State, which was published on the 29th ultimo, and copied in the daily papers, was the first official publication of the numbers of the illegal issue of bonds." [Italics are mine.]
(p) The purchasing agent of the plaintiff, as witness, states that he collected the interest coupons on July 1, 1889, “previous to any suspicions about the invalidity of the bonds,” adding that his first intimation as to their invalidity was in August or September, 1889, and that it was obtained from the newspapers.
(q) One of the defendants’ firm states, as a witness, thatthe first intimation he had of any of the bonds his firm had been dealing in being fraudulent was in September, 1889, while he was in New York, and that “ up to that time they had passed unquestioned, from hand to hand, and that same had been dealt with by the Stock Exchange like bank notes. They looked at the signatures, and if they were all right the bond passed.”
Both Moore and Wheeler, circumstantially, state that the defendants purchased said bonds on the same day and date on which they sold same to the plaintiff.
This analysis of the evidence clearly and indisputably demonstrates that there is no proof of any particular fraud or act of embezzlement on the part of any one, in the emission of the four consolidated bonds in question, either alleged or proved.
*239A comparison of these four bonds made with bond 5611, which is mot alleged to be one of the series of Agricultural and Mechanical "College bonds, will show them all to be of identically the same tenor «and physical appearance, the four possessing no insignia of their being specially dedicated to said college fund. They are parts and parcels of the whole systematized series of the State’s consolidated -debt of $11,820,300. Aside from the report of the Treasurer in 1879, there is no evidence tending to show that the $196,000 of Agricultural and Mechanical bonds were at any time physically in the possession •of the State Treasurer since they were issued by the Board of Liquidation, in November, 1874; though the proof is abundant that they have been extant since 1880. The fact that they were not destroyed by the officers designated by legislative committees of 1880 and 1882 —the bonds being in the original before the court and in no manner •defaced — definitely suggests their absence from the treasury then. That same have been in circulation is evidenced by the payment of interest coupons by the State’s fiscal agents, even to the plaintiff herself.
Since the passage of the act of 1888 all interest coupons have been destroyed by the legislative committees, apparently without examination or question.
Not until the 20bh of September, 1889 — subsequently to the plaintiff’s purchase — was official notification furnished by the Treasurer to the New York Stock Exchange that the $196,000 of Agricultural .and Mechanical College bonds of $1000 each, bearing the numbers 710 to 905, had been declared null by the terms of the Constitution of 1879. Not until the 7th of September, 1889, did the Treasurer himself and the fiscal agents receive any notification of their supposed illegality.
It was only by careful scrutimy of the coupon book, and a comparison of the numbers of the coupons thereon registered as canceled, with the numbers of the bonds in circulation, that the Auditor made the discovery at all, and the fraudulent bonds were identified by their numbers.
The Treasurer officially states to the New York Stock Exchange, •over his signature, under date October 29, 1889, that the “ first official publication of the numbers of the illegal issue of bonds ” was made to the Governor on the 29th of September, 1889.
*240The proof is clear that at the date of the defendants’ acquisition of these bonds and their sale to the plaintiffs — and antecedent to that time — that neither party to this suit entertained the slightest suspicion of them; that they passed from hand to hand in market without question; and had been theretofore dealt with by the Stock Exchange in New Orleans like bank bills.
The following is an extract from the 233d Article of the Constitution of 1879, which is relied upon as annulling the Agricultural and Mechanical College bonds, viz.:
“The debt due by the State to ¡the Agricultural and Mechanical College fund is hereby declared to be the sum of $182,313.03, being the proceeds of the sales of lands and land scrip heretofore granted by the United States to this State for the use of a college for the-benefit of agriculture and the mechanic arts; said amounts shall be placed to the ci’edit of said fund on the books of the Auditor and Treasurer of the State as a perpetual loan, and the State shall pay an annual interest of five per cent, on said amount from January 1, 1880, for the use of said Agricultural and Mechanical College; the consolidated bonds of the State now held by the State for the use of said fund shall be null and void after the first day of January, 1880, and the General Assembly shall never make any provision for-their payment, and they shall be destroyed in such manner as the General Assembly may direct.”
Let me for a moment consider this constitutional mandate in reference to the bonds in question and see what it is.
1. It fixes the amount of the debt of the State at $182,313.03, and directs that that sum shall be placed to the credit of A. and M. College fund on the books of the Auditor and Treasurer of the State as a perpetual loan at interest.
2. It declares that “the consolidated bonds of the State now held by the State for the use of said fund' shall be null and void after the 1st of January, 1SS0.”
3. It declax-es that “ the General Assembly shall never make any provision for their payment.”
4. It further declares that said bonds “shall be destroyed in such manner as the General Assembly may direct.”
The first thing that strikes my mind is, that there is a marked inconsistency between the 1879 report of the State Treasurer, that is so much relied upon, and the article of the Constitution, in that the *241Constitution fixes the debt of the State to the A. and M. College fund at a little over $182,000, whereas the Treasurer’s report fixes the amount of the Agricultural and Mechanical College bonds at $196,-000, the amount of the bonds exceeding the amount of the debt recognized by $14,000 (
What has become of this surplus of bonds which did not come within the reach of the constitutional fiat?
Who is to venture the assertion, ex gratia — for there is no evidence on that subject in the transcript — that the bonds in suit are not of that surplus?
Keeping in mind that in the Treasurer’s official announcement to the Secretary of the New York Stock Exchange on that 29th of October, 1889, several months subsequent to the defendants’ acquisition of their bonds in open market, that “ the first official publication of the numbers of the illegal issue of bonds’’ was made to the Governor of the State on the 29th of September, 1889, and how can it be possible for any one to have known, in anticipation of that event, that these bonds did not form a part of the surplus of $14,000, even conceding for the argument that the remaining $182,-000 were annulled?
In the second place, as the article in question treats them as “ the consolidated bonds of the State,” and only declares that they “shall be null and void after the 1st of January, 1880,” they were admittedly and necessarily valid antecedent to that date.
And if they went into circulation while esteemed to be valid by the terms of the Constitution — and nothing is shown to the contrary - — any attempt to annul them, in the hands of innocent third persons, would justly be considered an attempted impairment of a protected contract.” Louisiana vs. Jumel, 107 U. S. 711.
In the next place, it is perfectly plain that the General Assembly has failed to carry out the constitutional mandate to destroy said bonds, and left it in the power of others to put- them into circulation and thus practice a fraud upon the State. For one of two propositions is clear. (1) The bonds were not in the State Treasury in 1880 or subsequently, and, therefore, unaffected by the article of the Constitution; or (2) if they were, the General Assembly was at fault in not having caused them to be destroyed, and thus put out of the reach of the thief and embezzler.
In the last place, it is also plain that the failure of the General *242Assembly to cause these bonds to be destroyed has resulted in the payment of their interest coupons, during the years since 1880, and thus accomplishing, by indirect means, a violation of the constitutional prohibition, that “ the General Assembly shall never make any provision for their payment,” as well as to induce the commercial world to put its trust in them as valid State securities, relying on the knowledge and good faith of the State’s fiscal agents in paying the coupons.
And just here a question arises as to the effect the public records and other official data hereinbefore mentioned has, as matter of law, upon dealers in such public securities, and I will en passant express my views upon it. My belief and deliberate conviction are that they do not affect them with any notice at all.
Mr. Daniels states the rule thus:
“ Parties negotiating for negotiable instruments are not bound to take notice of public records and litigation whioh would affect them with notice, were they dealing with the subject matter. And, therefore, when there is nothing on the face of the bill or note, giving notice of any defects, the fact that the deed of trust securing its payment contains recitals which show the equities on offsets existing between the original parties does not weaken the position of a bona fide holder without notice.” Daniels on Negotiable Instruments, Sec. 880.
This doctrine has been accepted and approved by this court in Morris vs. Cain, 89th of Annuals, at pages 731 and 782. In a previous case this court also took occasion to announce the same principle in a different form of expression, thus:
“ Had the note been paraphed to identify it with the act of pledge, the defendant might, perhaps, have charged that the pledgee was thereby put on his guard — notified of the declaration contained in the act of sale, and bound thereby, etc. * k * What he was bound to know was what he could have known, and, in point of fact, did know.” Schepp vs. Smith, 35 An. 3.
These are matters a purchaser of negotiable instruments is not bound to know as they appertain to matters dehors the instruments themselves, arising subsequent to their execution and issuance by competent authority.
(cc) I will now retrace my steps and take up the consideration of bond No. 5611. The Treasurer and Auditor state, as witnesses, that *243there are no reports or other evidences in either of their offices of the surrender of any consolidated bonds in exchange for constitutional bonds under and in pursuance of Act 121 of 1880, and consequently there is none in reference to this particular bond 5611, against which the plaintiff brings the charge of nullity because of its surrender, under the provisions of the debt ordinance. There is, however, some parol testimony'tending to show that this bond. was surrendered for exchange on the 6th of July, 1883. In the communications of the Treasurer to the New York Stock Exchange, in 1889, it is stated that there were twenty-one consolidated bonds, of the denomination of $1000 each, surrendered for exchange in constitutionals, under Act 121 of 1880, and among the numbers furnished is that of 5611; and then it is announced that they are null and void.
But there is no proof that any legislative or other proceeding was undertaken subsequent to the date specified, looking to the destruction of such surrendered bends as the statute required.
Then it is perfectly clear that this bond must be treated, in this. discussion, just as it was evidently dealt with in market, as a valid consolidated bond, appearing, as it does here, in the original, without a mark or blemish of any kind upon it, and possessing all apparent indicia of a negotiable State security not yet due.
This bond does not come under the nullifying ban of the Constitution.
Therefore, all five of the bonds in suit (or under consideration in this suit, to speak more accurately) may he put on the same basis and disposed of similarly.
(dd) What are the defences that' can be successfully urged against negotiable State securities, in the hands of an innocent holder for value before maturity? That is the precise question we have confronting us here.
The general rule as formulated by Mr. Daniels, in reference to individuals, is as follows, to-wit:
‘ ‘ By purchaser or holder of a negotiable instrument is intended any one who has acquired it in good faith, for a valuable consideration, from one capable of transferring it * * * in the ordinary course of business * * without notice of facts which impeach its validity as between antecedent parties.”
Such a holder possesses a title “unaffected by those facts, and *244may recover on the instrument, although it may be without any legal validity as between antecedent parties; as, for example, even though it was originally obtained by fraud, theft or robbery.” 1 Daniels on Negotiable Instruments, p. 556, Sec. 769.
He extends that doctrine still further and says:
“ It is to be observed, as a general rule, the purchaser can never be placed on a worse footing than his transferror, although he himself could not, in the first instance, have acquired the vantage ground occupied by such transferror. And, therefore, even if he have notice that there was fraud in the inception of the paper, or that it was lost or stolen, or that the consideration had failed, between some antecedent parties, or the paper be overdue and dishonored, he is, nevertheless, entitled to recover, provided his immediate vendor was a bona fide holder for value, unaffected by any of these defences.” Id. 803.
That principle was announced upon the authority of numerous adjudicated cases by the highest courts in many States, our own amongst the number, apd of the Supreme Court in Commissioners vs. Clark, 94 U. S. 285.
That section was quoted from Daniels, with approval, in Levy vs. Ford, 41 An. 870, and upon the correctness of that principle I feel that I may rest with confidence.
Thus it is that the possessor of a negotiable intetrument by such a holder carries with it a title that is fully protected against charge of fraud, or theft, or failure of consideration, between antecedent parties, and that rule of property in such paper is so strong that such holder can convey to another a valid and indefeasible title, ilthough the latter knew of its inherent defects.
Not only so, but any one charging mala fides in such holder has the burden of proving it put upon him. Id., Sec. 769.
Having announced the general rule as above the author then proceeds to deal with other grounds of defence, and says:
“That suspicion of defect of title, or knowledge of circumstances which would excite suspicion in the mind of a prudent man, or gross negligence on the part of the taker at the time of the transfer, will not defeat his title * * . subject to the following modifications or qualifications, viz.:
“ 1. That when it is shown by the defendant that the instrument originated in fraud or illegality, the burden of proof will be shifted *245to the holder, and he must then prove that he is a bona fide holder for value.
“2. Where it is shown that the instrument was given for a consideration which, by statute, is declared void, the original taint follows it, and it is void in the hands of every holder, however innocent. And that no party can enforce a negotiable instrument, if it be not genuine, or if it be executed by a party incapable of entering into the contract in which it was given.” [Italics are mine.] Id., p. 557; Secs. 769, 806.
Then he generalizes the principle, aná Sáys:
“But the rule of the text is, we think, in conformity with the current and weight of authority, and the law merchant. The fraud which shifts the burden of proof mtlSÍi be in the consideration, or representations used in obtaining the execution of the instrument, and not in the after breach of trust in diverting it from the uses for which it was intended.” Id., p. 596, Sec. 792.
This precise distinction has been taken, substantially, in many cases decided by our predecessors. Oliver vs. Andry, 7 La. 498; Dick vs. Leverich, 11 La. 576; Jackson vs. Commercial Bank, 2 R. 138; Bank vs. Bank, 16 La. 457; Labadie vs. Association, 4 R. 190; Babbit vs. Hewitt, 11 An. 327.
It finds complete sanction in the recent jurisprudence of the Supreme Court, as attested by the following cases: Murray vs. Lardner, 2 Wall. 110; Orleans vs. Platt, 99 U. S. 676; Shaw vs. Railroad Co., 101 U. S. 557; Collins vs. Gilbert, 94 U. S. 753; Cromwell vs. County of Sac, 96 U. S. 59, and numerous other decisions.
Mr. Randolph, in his treatise on Commercial Instruments, says:
“ In order to constitute a valid security, any bond or negotiable obligation of the State must be issued on authority of the Constitution and statute law.” 1 Randolph, Com. Ins., p. 494, Sec. 348.
And he lays down the general proposition that the powers and ■duties of officers and agents “of the government, whether Federal or State, are defined by statute, which is notice to the world of the limitations to their authority. Id., Sec. 440.
The same author states the rule with regard to the negotiable instruments of a municipal corporation thus:
“ It may be laid down as a general principle that debts unlawfully contracted by a municipal corporation are not binding upon it.
*246“ So, a municipal bond issued without authority is invalid, although it be negotiable in form.
“ And the defence of original want of authority to issue the bond is-available against all holders.” 1 Randolph Com. Ins., p. 488, Sec. 343.
Mr. Dillon, in treating of the same question, says:
“ And it is a general and fundamental principal that all persons ■contracting with a municipal corporation must, at their peril, en-quire into the power of the corporation and its officers to make the contract, and a contract beyond the scope of the corporate power is void, although it be under the seal of the corporation.” 1 Dillon Mun. Corp., Secs. 372, 381.
Against such a contract the plea of ultra vires may be successfully interposed. Id., Sec. 381.
“ In favor of bona fide holders of negotiable instruments, the corporation maybe estopped to avail itself of irregularities in the execution of the power conferred; but it may always show that, under no circumstances, could the corporation lawfully make a contract of the character m question.” Id., Secs. 381, 416.
After announcing the foregoing rule, the author proceeds to state what I conceive to be the proper line of demarcation that is to be drawn between the authenticity of State and municipal bonds, in respect to the protection of the holder against latent equities — that is, as to where the power does exist — there being embarrassments and difficulties, in respect to the evidence of compliance on the part of the officers of a municipal corporation, that do not exist in respect to the acts of the officers of State.
He says:
“ Such a power is frequently conferred to be exercised in a special manner, or subject to certain restrictions, conditions and modifications; but if it appears that the bonds show by their recitals that the power was exercised in the manner required by the Legislature, and that the bonds were issued in conformity with those regulations, and pursuant to those conditions and qualifications, proof of non-compliance with same will be unavailing to the corporation.”
Oiting as the leading authority on the question, Commissioners of Knox County vs. Aspinwall, 21 Howard, 539, the author then proceeds as follows, viz.:
“ Obviously, then, the most important inquiries to be considered *247are those which relate to the question when the power exists or arises; who is to decide whether it existed or had arisen when the bonds were issued; and what will estop the corporation which issued them to set up in defence a non-compliance with antecedent or preliminary conditions.” Id., Sec. 410.
This was, in my opinion, necessary to be observed, because of what I deem to be the inapplicability of very many decisions that are cited in reference to defences urged against municipal bonds in the hands of third holders.
In respect to State bonds no such embarrassment exists, inasmuch as the law authorizing the issuance of bonds is an exercise of sovereignty only restricted by constitutional limitation; and to ascertain the authenticity of their issuance, a simple inspection of the act will ordinarily suffice.
Having examined the enabling statute and the constitutional authority for its enactment, a mere casual inspection of the State bond will readily disclose compliance therewith on the part of the officers entrusted with the duty of its confection — and nothing further is necessary to make it available as a negotiable security.
And just here I deem it important to note what I conceive to be the inapplicability of Otis vs. Cullom, 92 U. S. 447; Orleans vs. Platt, 99 U. S. 676, and Ætna Life Insurance Company vs. Middleport, 124 U. S. 545, to the case at bar, and it is this: Those cases proceed on the theory that, admitting the illegality of the bonds in their inception, the last taker has no recourse against his predecessor under the principles of subrogation in equity founded on the civil law, while this ease proceeds on the theory that bonds having a valid original existence, having been fraudulently dealt with since, the State is relieved.
So, in the instant case, as there was manifestly no want of authority to issue the bonds in question, and no question of the authority of the Board of Liquidation to issue them, the defences set up against them are clearly unavailing. No after breach of trust in diverting the bonds, once regularly issued and put in circulation, from the uses for which they were intended can affect their validity in the hands of innocent holders.
In Cooke vs. United States, 91U. S. 889, the question was the right of the United States to recover of Jay Cooke & Co. the money paid to them by the Assistant Treasurer in redemption or purchase, before *248maturity, “of,” as stated by the court, “what purported to be eighteen 7-30 treasury notes, issued under the authority of the act of August 12, 1863, but which, it is alleged, were counterfeit.”
The defence was that Cooke & Co. honestly believed them to genuine, “and so believing, in good faith received and paid for them, and there can be no recovery, even though they may have been counterfeit;” and the court held as the notes were ascertained to be genuine, though unlawfully and surreptitiously put in circulation, the government was bound for their payment to a bona fide holder, and consequently there could be no recovery in that case. [Italics are mine.]
That decision proceeded upon the theory that the notes were perfect and, complete, and in no manner canceled or defaced, just such as the instruments we have here.
But in District of Columbia vs. Cornell, 130 U. S. 655, the court, while recognizing the doctrine of the Cooke case, stated that they were not “ prepared to extend the scove of that decision.”
The facts of that case were very different from those of the Cooke case, as it appears from the opinion of the court that “ the certificates in suit, after they had been redeemed according to law, were canceled by the proper officers by distinctly stamping in ink across the face words stating that fact,” etc.
Had the State of Louisiana caused the same, or any similar acts, to have been done as directed by the article of her Constitution, I should certainly not find occasion to express this dissent.
Strong reliance is placed by counsel of plaintiff, as well as in the opinion of the court in Moffatt vs. United States, 112 U. S. 24, as stating a doctrine altogether at variance with that of the Cooke case.
In this I entertain a different opinion also from that of the majority. In the execution and issuance of treasury notes, as commercial instruments, the United States made herself a party thereto as an individual, and not as a sovereign. But in the Moffatt case her relations with the register and receiver of the United States land office were strictly governmental.
The case cited was one instituted by the United States for the cancellation and revocation of two patents for land, granted under the pre-emption laws of Congress, and it proceeded upon the theory that the persons named as patentees were fictitious, and that no *249settlement or improvement had been made on the land, which wap, under the law, a condition precedent.
The only question in that ease was that of the binding fof'ce and efficacy of the acts of those public officials upon the government, while in the discharge of the general duties of their offices, and not with regard to third persons, who had acquired, under exceptional circumstances, rights protected by apparent bonafides of such public officers under the law merchant.
In my opinion, the government does not undertake to become responsible for the consequences of the non-feasances, and misfeasance of her agents and officers toward third persons who may deal with them. On that question the court said in reference tó the fraudulent and illegal acts of the register and receiver in issuing the patent certificates in question, viz.:
“The government does not guarantee the integrity of its officers, nor the validity of their acts. * * They are but the servants of the law, and if they depart from its requirements the government is not bound. There would be a wild license to crime if their acts in disregard of the law be upheld to protect third parties, as though performed in compliance with it.”
But to show conclusively that that decision was lot intended to affect the question here, it is only necessary for me to cite the concluding portion of the opinion in that case, viz.:
“ There is, in such cases, no room for the application of the doctrine that a subsequent bona fide purchaser is protected, etc. * * To the application of this doctrine of a bona fide purchaser, there must be a genuine instrument having a legal existence as well as one appearing on its face to pass the title. It can not arise on a forged instrument or one executed to fictitious parties, that is to no parties at all, however much deceived thereby the purchaser may be. Even in the case of negotiable instruments where the doctrine is carried furthest, for the protection of subsequent parties acquiring title to the paper, it cannot be invoked, if the instrument is not genuine, or if it is executed without authority from the supposed maker.” Floyd’s Acceptances and other cases.
(ee) The final question on which I deem it necessary to present my views is in regard to the applicability of the eases of the Sun. Mutual Insurance Company vs. Board of Liquidation, 31 An. 175, and State ex rel. Durant vs. Board, 29 An. 77. While I concede the *250similarity of the questions discussed in those cases to the one under consideration here, and also concede the correctness of the principles therein announced, yet, in my view, they are inapplicable to this case. Those were suits against the State, and creditors of the State, therein appearing as plaintiffs, and submitting themselves to the operation of the funding statutes, demanding the right to surrender obligations of the State in exchange for consolidated bonds, are conclusively presumed, and must be held bound to have accepted the grace of those statutes as it was extended to them, coupled with the right of the State to question the validity of the tendered obligations under the terms of those laws. Hope & Co. vs. Board of Liquidation, 43 An. 763; State ex rel. Hope & Co. vs Board, 42 An. 851; State ex rel. Newman vs. Board, 39 An. 395; State ex rel. New York Guaranty Co. vs. Board of Liquidation, 38 An. 337.
In another recent case we said:
“ The State has given permission for a certain class of obligations to be presented by the holders of them to Louisiana courts for determination as to their validity; and, in authorizing suit against herself, she has pointed out the channel through which it must reach the courts, and it must be followed.” Hope & Co. vs. Board of Liquidation, 41 An. 535.
In Lord Cecil vs. Board of Liquidation, 30 An. 435, a suit similar in all respects to those cited, certain bonds of the State were denied the right of exchange under the amended funding statute of 1875, on the grounds that same had been in terms declared by that statute of doubtful validity; hence, under the terms thereof, the board was without power to fund them into consolidated bonds until they had been first declared “to be legal and valid obligations of the State” by this court. Acts of 1875, p. 110.
Of the issue thus presented this court very correctly expressed the following opinion, viz.:
“ Of what avail is an inquiry touching the validity of a bond, or its issuance in conformity to law, if the fact that it was not issued in conformity to law will not affect the right of the holder? Clearly, this rule of commercial law does not apply here. The State can be sued in her own courts only by her permission, and in the manner and for the purposes indicated by her. The supplemental funding act required parties, who resort to an action against the State through a board of liquidation, to establish the good consideration *251and valid issue, in conformity to law, of the bonds offered for funding, and restricted this court to an ascertainment of these requisites •by those bonds. It is that law, therefore, that must be our guide, and not the general commercial law in actions lilce the present.”
This is no such a case as that one was. The bonds which were •surrendered to the Board of Liquidation in exchange for the con.solidated bonds in controversy were of unquestioned validity, being .•State bonds which were held in trust for the public school funds. The exchange was made without suit against the Board of Liquidation, and in the month of November, 1874, prior to the enactment ■of the supplemental funding act of 1875, under which the Durant and the Sun Mutual Insurance Company cases were brought and ■decided.
Under no circumstances can those cases be accepted as authorities ■ controlling this ease. And it would be clearly aTnon sequiter to argue from that jurisprudence as a premise that after the Board of .Liquidation had acted on the claims of creditors and issued consolidated bonds, and they had gone into free and unrestrained circulation in the channels of commerce, that the State can, by an exercise •of sovereign power, destroy the negotiability of those obligations to which she had voluntarily, and for adequate consideration, made herself a party as an individual debtor.
It will not do for this court to say that the State is only bound for ■such bonds as were physically and actually put into circulation by some “ aiUhorized officer of the government in pursuance of law.” The Supreme Court say, in the Cooke case, “ this we think is too narrow a •construction of the act.” For they say, ‘‘in this (the treasury) department the Secretary represents the government. His acts and his omissions, within the line of his official duties, are the acts and •omissions of the government itself; and in all commercial transactions his negligence will be deemed to be the negligence of the govern-ment.” Pp. 401, 404.
It appears to me that from every point of view that case is in exact parallel to the instant one, and, taking, as I have before remarked, the utterances of the Supreme Court as the epitome of jurisprudence on the law merchant in this country, I must adhere to it, and so doing, I feel constrained to dissent from the views expressed in the opinions of the majority of the court.