Morgan v. United States
113 U.S. 476 (1885)

Annotate this Case

U.S. Supreme Court

Morgan v. United States, 113 U.S. 476 (1885)

Morgan v. United States

Argued January 12, 1885

Decided March 2, 1885

113 U.S. 476

Syllabus

The ruling in Texas v. White, 7 Wall. 700, that the Legislature of Texas, while the state was owner of the bonds there in suit, could limit their negotiability by an act of legislation, with notice of which all subsequent purchasers

Page 113 U. S. 477

were charged, although the bonds on their face were payable to bearer, overruled.

The ruling in that case, that negotiable government securities, redeemable at the pleasure of the government after a specified day, but in which no date is fixed for final payment, cease to be negotiable as overdue after the day when they first become redeemable, limited to cases where the purchaser acquires title with notice of the defect or under circumstances discrediting the instrument, such as would affect the title of negotiable demand paper purchased after an unreasonable length of time from the date of the issue.

The distinction between redeemability and payability commented on in that case embraces and defines the five-twenty bonds in suit in this case.

Holders of government bonds must be presumed to have knowledge of the laws by authority of which they were created and put in circulation, and of all lawful acts done by government officers under those laws.

The obligations of the United States under the five-twenty bonds, consols of 1655, are governed by the law merchant regulating negotiable securities, modified only, if at all, by the laws authorizing their issue.

The five-twenty consols of 1865 en their face were "Redeemable at the pleasure of the United States after the 1st day of July, 1810, and payable on the first day of July, 1885." In conformity with provisions of law, notice was duly given, as to the bonds of this class in suit in these actions, that in three months after the date of such notice, the interest on the bonds would cease. Held that the exercise of the right of redemption made the bonds payable on demand, without interest, after the maturity of the call, until the date for absolute payment.

Ordinary negotiable paper payable on demand is not due without demand until after the lapse of a reasonable time in which to make demand.

What is reasonable time in which to demand payment of negotiable paper payable on demand depends upon the circumstances of the case and the situation of the parties.

A holder of a called five-twenty consol could without prejudice, except loss of interest, wait without demand for the whole period at the expiration of which the bond was unconditionally payable.

In stamping upon these bonds the faculty of passing from hand to hand as money, and in conferring upon the Secretary of the Treasury the power to receive them in payment, in the great exchange of bonds by which the annual interest on the public debt was reduced, it was intended to leave with the called bonds the character of unquestioned negotiability and to protect bona fide purchasers for value in the due course of trade without actual notice of a defect in the obligation or title.

These four cases involve claims against the United States for the payment of certain bonds of the United States, known as "five-twenty bonds," consols of 1865, issued in pursuance of the authority conferred upon the Secretary of the Treasury by the Act of Congress approved March 3, 1865, entitled "An act

Page 113 U. S. 478

to provide ways and means for the support of the government." Twenty bonds of the denomination of $1,000 each and sixteen of $500 each were embraced in the suits. The controversy relates to the title only, all of them being claimed by the Manhattan Savings Institution, and ten of each denomination by J. S. Morgan & Co., and the others, being ten of $1,000 each and six of $500 each, by L. Von Hoffman & Co. The bonds having been called in for redemption, were presented at the Treasury for that purpose by the holders, respectively, J. S. Morgan & Co. and L. Von Hoffman & Co., but payment was refused by the United States on account of the adverse claim of the Manhattan Savings Institution, and the claims of the several parties to the proceeds were Treasury, March 12, 1880, pursuant to § 1063, Revised Statutes. Judgments were rendered by that court in favor of the Manhattan Savings Institution, and against the other claimants respectively. 18 Ct.Cl. 386. The several appeals bring up all the cases as they stood in the Court of Claims; the United States appealing from the judgment in favor of the Manhattan Savings Institution, the other parties from the judgments dismissing their respective petitions. The controversy is wholly between the claimants, the United States being merely in the position of a stakeholder, not denying its liability to pay to the true owners of the bonds.

The act of Congress in pursuance of which the bonds in question were issued, being "An act to provide ways and means for the support of the government," approved March 3, 1865, 13 Stat. 468, c. 77, provided:

"That the Secretary of the Treasury be, and he is hereby, authorized to borrow from time to time, on the credit of the United States, in addition to the amounts heretofore authorized, any sums not exceeding in the aggregate six hundred millions of dollars, and to issue therefor bonds or Treasury notes of the United States in such form as he may prescribe, and so much thereof as may be issued in bonds shall be of denominations not less than fifty dollars, and may be made payable at any period not more than forty years from date of issue, or may be

Page 113 U. S. 479

made redeemable at the pleasure of the government at or after any period not less than five years nor more than forty years from date, or may be made redeemable and payable as aforesaid, as may be expressed upon their face,"

&c.

The bonds issued under this act were called the consolidated debt or consols of 1865, because, in addition to the loan of six hundred millions of dollars authorized by it, the Secretary of the Treasury was empowered to permit the conversion, into any description of bonds authorized by it, of any Treasury notes or other obligations, bearing interest, issued under any act of Congress.

The bonds themselves, differing only in numbers and denomination, were in the following form:

~165,120] [165,120

"[Consolidated debt. Issued under act of Congress approved March 3, 1865. Redeemable after five and payable twenty years from date.]"

"1,000] [1,000"

"It is hereby certified that the United States of America are indebted unto the bearer in the sum of one thousand dollars, redeemable at the pleasure of the United States after the first day of July, 1870, and payable on the first day of July, 1885, with interest from the first day of July, 1865, inclusive at six percent per annum, payable on the first day of January and July in each year, on the presentation of the proper coupon hereunto annexed. This debt is authorized by act of Congress approved March 3, 1865."

"Washington, July 1, 1865."

"J. LOWERY"

"For Register of the Treasury"

"Six months' interest due July 1, 1885, payable with this bond."

"(Thirteen coupons attached from and including coupon for interest due January 1, 1879, to and including coupon for interest due January 1, 1885.)"

They were accordingly known as "five-twenty bonds," being redeemable after five years, but not payable until twenty years after July 1, 1865.

Page 113 U. S. 480

The Act of July 14, 1870, "to authorize the refunding of the national debt," 16 Stat. 272, authorized the issue of three classes of bonds, according as they bore interest at the rates of five percent, 4 1/2 percent, and 4 percent per annum, amounting in the aggregate to $1,500,000,000, which the Secretary of the Treasury was, by the second section of the act, authorized to sell and dispose of at not less than their par value in coin, and "to apply the proceeds thereof to the redemption of any of the bonds of the United States outstanding, and known as five-twenty bonds at their par value," or, the act continues, "he may exchange the same for such five-twenty bonds, par for par."

By the fourth section of this act, it was provided:

"That the Secretary of the Treasury is hereby authorized, with any coin of the Treasury of the United States which he may lawfully apply to such purpose, or which may be derived from the sale of any of the bonds, the issue of which is provided for in this act, to pay at par and cancel any six percent bonds of the United States of the kind known as five-twenty bonds which have become, or shall hereafter become, redeemable by the terms of their issue. But the particular bonds so to be paid and cancelled shall in all cases be indicated and specified by class, date, and number, in the order of their numbers and issue, beginning with the first numbered and issued, in public notice to be given by the Secretary of the Treasury, and in three months after the date of such public notice the interest on the bonds so selected and advertised to be paid shall cases."

By an Act passed January 20, 1871, 16 Stat. 399, the foregoing act was amended so as to authorize the issue of five hundred millions of five percent bonds instead of two hundred millions, as limited by the Act of July 14, 1870, but not so as to permit an increase of the aggregate of bonds of all classes thereby authorized.

During the period from July, 1874, to January, 1879, the Secretary of the Treasury made various contracts, in writing, for the negotiation of 5, 4 1/2, and 4 percent bonds issued under the refunding act of 1870, in Europe and

Page 113 U. S. 481

this country, with associations of bankers and banking institutions in London and New York, which became known as syndicates.

The claimants, J. S. Morgan & Co., were members of such a syndicate, between which and the Secretary of the Treasury a contract was entered into on the 21st of January, 1879. The members of that syndicate were Messrs. August Belmont & Co., of New York, on behalf of Messrs. N.M. Rothschild & Sons, of London, England, and associates, and themselves; Messrs. Drexel, Morgan & Co., of New York, on behalf of Messrs. J. S. Morgan & Co., of London, and themselves; Messrs. J. & W. Seligman & Co., of New York, on behalf of Messrs. Seligman Brothers, of London, and themselves, and Messrs. Morton, Bliss & Co., of New York, on behalf of Messrs. Morton, Rose & Co., of London, and themselves. The subscription was for ten millions of dollars of 4 percent bonds of that date, and five millions additional each month until June 30, 1879, when the contract terminated, the proceeds to be applied to the refunding of the public debt, the Secretary of the Treasury agreeing, on receiving each subscription under the contract for not less than five millions of dollars, to issue a call for the redemption of United States six percent five-twenty bonds equal to or exceeding said sum. The syndicate agreed to pay to the Treasury at Washington, within the running of such call, the amount of four percent bonds subscribed for at par and accrued interest to the date of subscription, in United States gold coin, United States matured coin coupons, coin certificates of deposit issued under the Act of March 3, 1863, or United States six percent five-twenty bonds called for redemption not later than the date of the subscription to which the payment was to apply. It was also agreed that the United States should maintain an agency at London for the purpose of making deliveries of the bonds subscribed for to the parties as they should desire, and the agent appointed for that purpose was authorized by the Secretary of the Treasury to receive the stipulated payment therefor, including the five-twenty bonds offered in exchange.

On October 27, 1878, the Manhattan Savings Institution, a

Page 113 U. S. 482

savings bank in New York, was the owner in possession of the thirty-six United States five-twenty coupon bonds which are the subject of these suits, sixteen for $500 each and twenty for $1,000 each, and on that day, the building in which was its banking house was entered by burglars, and these bonds, among others, amounting in all to about two and a half million dollars, were stolen from the safe, without any negligence or want of proper care in their safekeeping on the part of the officers and servants of the institution.

On July 30, 1878, the Secretary of the Treasury issued a call for the redemption of $5,000,000 of five-twenty bonds, designated by numbers, in which it was stated as follows:

"By virtue of the authority given by the act of Congress approved July 14, 1870, entitled 'An act to authorize the refunding of the national debt,' I hereby give notice that the principal and accrued interest of the bonds herein below designated, known as 'five-twenty bonds,' of the Act of March 3, 1865, will be paid at the Treasury of the United States, in the City of Washington, on and after the thirtieth day of October, 1878, and that the interest on said bonds will cease on that day."

Successive notices of other like calls were issued thereafter from time to time, according to which the dates on which the interest would cease on the bonds designated were from October 30, 1878, to and including March 18, 1879, which calls embraced all the bonds involved in these suits.

The twenty bonds claimed by J. S. Morgan & Co., and the sixteen claimed by L. Von Hoffman & Co., were bought by them, respectively at different times, during the year 1879, in London, from well known and responsible parties, the latter purchasing from R. Raphael & Sons, bankers of high respectability in London, dealing largely in United States government securities; but all the bonds when bought, as well by R. Raphael & Sons as by the claimants, had been called for redemption by the Secretary of the Treasury, and designated in one of the notices to that effect, and the call in each case had matured, and the bonds were bought by them, respectively, with knowledge in each case of that fact; but they bought them, in

Page 113 U. S. 483

the due course of their business as bankers, and paid the full market price for them, to-wit, par and accrued interest, in good faith, without suspecting, or having any reason whatever to suspect, that the bonds, or any of them, had been stolen by or from any person, or that there was any defect in the titles of the persons from whom the purchases were made, or that the numbers of any of the bonds had been changed, or that the numbers of any of the bonds were not the original and genuine numbers as issued by the Treasury Department of the United States. In point of fact great publicity was given through the newspapers to the fact of the robbery, and some kind of a circular was issued by the Manhattan Savings Institution in regard to it, but it did not appear what its terms were, nor where nor to whom it was sent. It was also shown that the serial numbers of four of the bonds purchased by J. S. Morgan & Co., and five of those purchased by L. Von Hoffman & Co., had been, in fact subsequently to the robbery, wrongfully altered, but when, where, or by whom could not be ascertained, and there was nothing in the appearance of the altered bonds or the numbers, when purchased, calculated to excite the suspicion or notice of a prudent and careful man; the alterations having been so skillfully effected that they were only discoverable with the aid of a magnifying glass.

The twenty bonds claimed by J. S. Morgan & Co. were purchased by them for the purpose of making payment to the United States for four percent bonds subscribed for under the contract entered into with them and their associates by the Secretary of the Treasury on January 21, 1879, for the negotiation of four percent bonds, and to avoid the transmission of gold to settle their accounts with the Treasury Department. They were delivered by the claimants at different times soon after their purchase to the officer in charge of the agency of the United States for the refunding of the national debt in London, who received them in payment for four percent bonds of the United States then delivered by him to the claimants, and were by him transmitted to the Treasury Department at Washington for redemption. The Secretary of the Treasury, in consequence of notice of the adverse claim of the

Page 113 U. S. 484

Manhattan Savings Institution, having withheld payment of these bonds, the claimants, J. S. Morgan & Co., in a letter to the secretary of September 1, 1879, stated the grounds of their claim as follows:

"We would submit that this course is in entire contradiction to the practice of the department hitherto, and in violation of the agreement upon the face of the bonds to pay them to bearer."

"The government has hitherto always paid its bearer obligations, as every other state, company, or individual does, to any innocent holders who had paid full value for them. This we have done for all these bonds, having purchased them in the regular way of business in the market, and even paying a small premium for them to avoid the transmission of gold to settle our accounts with the Treasury in America."

"They had no fixed maturity; they were arbitrarily drawn by the government for payment at the present time; they carried no notice on their face that they were not payable in accordance with their tenor, and the only penalty for not presenting them was the cessation of interest. The analogy drawn from the equities attaching to an overdue note, as carrying notice on the face of nonpayment, has consequently no bearing on the case. These bonds are scattered all over Europe, and the notice that they are due, frequently does not reach the holder for months, and sometimes years. We buy them in the regular course of our business, nor could we do otherwise."

"If the government were to decide not to pay bonds to bearer of which the ownership is disputed, except after decision of courts, they would do what neither they nor any other government has ever done before. It would prevent dealing in their securities, be a distinct injury to their negotiability, and a loss to the public credit."

The sixteen bonds claimed by L. Von Hoffman & Co. were transmitted by them directly to the Treasury Department at Washington for redemption. It was from letters from the department, written in answer to their letters of transmittal, that they received first the information that the bonds had been stolen and some of them altered, and learned of the claim

Page 113 U. S. 485

of the Manhattan Savings Institution, as owners, to await the decision of which the bonds were retained by the secretary in the custody of the Treasury Department.

In addition to the foregoing facts, found by the Court of Claims, it also found that

"during the period of the refunding transactions under the Act of July 14, 1870, many five-twenty bonds of every call were not sent in promptly for redemption, but were held, in this country and Europe, through want of information, or otherwise, until long after the maturity of the call,"

and that

"during the period of the refunding transactions of the government under the Act of July 14, 1870, large numbers of the European holders of the five-twenty bonds, of the Act of March 3, 1865, called for redemption, from want of facility for sending their bonds to the United States, or to avoid the risk and expense of transmission, or various other reasons, were obliged to and did sell and dispose of their bonds, in the market, in London, to money-changers, bankers, and merchants, as the only means of obtaining the money for them. Many millions of the said called bonds were thus sold and disposed of in the London market, and dealt in by money dealers during that period, long after the maturity of the various calls,"

and also that,

"according to the custom and practice in London, the said called bonds of the United States were commonly dealt in by buying and selling after the time fixed for their redemption, in the same way and just as freely as the bonds not called for redemption. "

Page 113 U. S. 490

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