Meyer v. Richards
163 U.S. 385 (1896)

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U.S. Supreme Court

Meyer v. Richards, 163 U.S. 385 (1896)

Meyer v. Richards

No. 39

Submitted October 25, 1894

Decided May 25, 1896

163 U.S. 385

Syllabus

A. an alien, sold to B. in New Orleans thirteen bonds of the State of Louisiana, delivered them to him, and received from him payment for them in full. Both parties contemplated the purchase and delivery of valid and

Page 163 U. S. 386

lawful obligations of the state, and both regarded the bonds so delivered as such valid and lawful obligations. It turned out that the bonds were absolutely void, having never been lawfully put into circulation. B. thereupon sued A. in the Circuit Court of the United States for the Eastern District of Louisiana to recover the purchase money paid for

them.

Held:

(1) That as the sale was a Louisiana contract, the rights and obligations of the parties must be determined by the laws of that state.

(2) That by the civil law, which prevails in Louisiana, warranty, whilst not of the essence, is yet of the nature of the contract of sale, and is implied in every such contract unless there be a stipulation to the contrary.

(3) That by the rule of the common law both in England and in the United States, the doctrine is universally recognized that where commercial paper is sold without endorsement or without express assumption of liability on the paper itself, the contract of sale and the obligations which arise from it, as between vendor and vendee are governed by the common law relating to the sale of goods and chattels, and that the undoubted rule is that in such a sale, the obligation of the vendor is not restricted to the mere question of forgery vel non, but depends upon whether he has delivered that which he contracted to sell, this rule being designated, in England, as a condition of the principal contract as to the essence and substance of the thing agreed to be sold, and in this country being generally termed an implied warranty of identity of the thing sold.

(4) That whilst the civil law enforces in the contract of sale generally the broadest obligation of warranty, it has so narrowed it, when dealing with credits and incorporeal rights, as to confine it to the title of the seller and to the existence of the credit sold, and, e converso, the common law, which restricts warranty within a narrow compass, virtually imposes the same duty by broadening the warranty as regards personal property so as to impose the obligation on the vendor to deliver the thing sold as a condition of the principal contract or by implication of warranty as to the identity of the thing sold, and thus, by these processes of reason, the two great systems, whilst apparently divergent in principle, practically work substantially to the same salutary conclusions.

(5) That B. is entitled to recover the sum so paid by him, with interest from the time of judicial demand.

Plaintiffs below (plaintiffs in error here) commenced their action to recover the sum of $8,383.75, with interest from judicial demand, the facts averred in the petition being substantially as follows: in February, 1889, the defendant sold to plaintiffs thirteen bonds of the State of Louisiana, which

Page 163 U. S. 387

were described in and annexed to the petition; that the price paid for these bonds was the amount sought to be recovered, and the bonds were (we quote from the petition)

"sold and delivered to your petitioners as good, valid, and legal bonds of the State of Louisiana. . . . Petitioners aver that the said Richards delivered to them the above-described bonds . . . as good and legal bonds of the State of Louisiana, and represented them to be such; that petitioners received them as such, and paid for them the market price for valid bonds, and held them for several months without any knowledge or suspicion that the bonds were not such as they were represented to be."

The petition then avers that after the sale and delivery of the bonds, in September, 1889, it was discovered that they were not valid, that they had never been lawfully issued by the state, and were at time of the sale declared by the Constitution of the State of Louisiana to be null and void, and that the state, through its officials, treated them as wholly invalid. The prayer was, as already stated, for a judgment for the amount which had been paid as the purchase price of the bonds.

The answer of the defendant denied all the material allegations contained in the petition except insofar as the same were admitted or confessed. It averred that on the day of the sale, the 27th of February, 1889, the defendant was the owner of the bonds described in the petition; that they were payable to bearer, and were, on the face thereof, bonds and obligations of the State of Louisiana, and purporting to be issued under valid acts of the legislature, sanctioned by the Constitution of the State of Louisiana; that when sold to the plaintiff, the bonds were not mature according to their terms, and were so drawn that the title thereof passed by delivery. The answer, moreover, averred that the defendant acquired the bonds long prior to the date of the sale to the plaintiffs,

"by purchase in open market, for a full and valuable consideration in money, before the maturity thereof, in full and exact good faith, and with no knowledge, suspicion, or belief of any defect in the title or obligation of said bonds, or any outstanding equity relating thereto, to change, modify, or

Page 163 U. S. 388

destroy the obligation as written and contained in said bonds severally."

After admitting the sale, as alleged in the petition, for the price therein stated, the answer declared

"that it is true that at the time of the delivering of said bonds to the plaintiffs as aforesaid, this defendant did represent the same to be good and legal obligations and bonds of the State of Louisiana, and believed then, and still believes, that the same are in all things valid and legal obligations of the state in the hands of all good faith holders thereof, and that it is true, as stated in said petition, that the plaintiffs received said bonds, believing the same valid, and paid therefor the full market value thereof, in open market of that day."

After making the admission "that, if the plaintiffs are entitled to recover anything from this defendant, the amount of such is correctly stated in the prayer of petition herein," the answer concluded by the following:

"But, as to all other matters and obligations set forth and contained in said petition, this defendant specially denies and traverses the same, and avers that the said several bonds so by him sold and delivered to the said plaintiffs are, each and all of them, in the hands of said plaintiffs, good, valid, complete, and existing obligations of the State of Louisiana to pay to the said plaintiffs the sums of money named in said bonds at the time and on the terms and conditions written in the bonds, and that there is and has been no breach of warranty of the title thereof by this defendant."

The cause was submitted to the court without the intervention of a jury, the parties having previously entered into a stipulation in writing, commencing with the following recital: "That the following shall be taken as the statement of facts in this cause, and shall stand and be taken as a special verdict in the cause." The facts embraced in the stipulation relate, on the one hand, to the sale and the title held by the defendant (the vendor) to the bonds at the time of the sale, and the representations made when the sale took place, and, on the other hand, to the nature and validity of the bonds sold. As to the first of these questions, the stipulation declares:

"1. The defendant, prior to the sale of the bonds to the plaintiffs, as averred in the petition, was the bona fide holder

Page 163 U. S. 389

of each and all of the bonds described in said petition, having acquired each and all of said bonds in open public market for full market value, with no notice whatsoever of any alleged vice or alleged illegality of the bonds, and the statements in that respect, as set forth in defendant's answer herein, are true."

"2. The defendant so acquired said bonds long before he or the public knew that it was charged by any person that said bonds were illegally issued, and the impress of the seal of the state and the signatures of the several officers of the state, whose names appeared on said bonds, are each and all of them genuine and true, and in no manner forgeries."

The facts stated in the stipulation, with reference to the authority under which the bonds were issued, and their validity, we summarize as follows:

Under two acts of Congress, the one passed in 1827, c. 97, 4 Stat. 244, the other in 1862, c. 130, 12 Stat. 503, the State of Louisiana received from the United States public lands, to be applied, as directed in the act first mentioned, to the use of such seminary of learning as the legislature of the state might direct, and in the other to the establishment and support of an agricultural and mechanical college. From the sale of the lands thus received by the state, sums of money came under its control. These sums to the credit of the two educational purposes -- that is, the seminary and the agricultural and mechanical college -- were invested in bonds of the State of Louisiana, which bonds were held in trust by the state as the property of the two funds in question.

In 1874, the State of Louisiana, by act No. 3 of the session of 1874, adopted a general funding plan for all its outstanding bonds and for certain designated warrants. The law in question provided for the issue of new bonds for the said bonds and debts at the rate of sixty cents on the dollar of new bonds for every dollar of fundable debt. The bonds thus provided to be issued were commonly called "Consolidated Bonds," were negotiable in form, and were all, without reference to the debt for which they were exchanged, of like tenor except as to the serial numbers and amount of the bond, and contained on

Page 163 U. S. 390

their face no indication whatever of the particular debt to retire which they were issued. The statement of facts recites

"that the holder or purchaser of such consolidated bonds who purchased the same in the market had no means of ascertaining for what prior obligation of the state said bonds had been given in exchange."

The execution of the act of 1874 was confided to a board called the "Funding Board" or "Board of Liquidation." The funding law was ratified by a constitutional amendment, which hence made that law a part of the Constitution of the State of Louisiana.

The board of liquidation, at the request of the proper state officers, issued consolidated bonds in exchange for the state bonds held by the state as above stated, in trust for the seminary and the agricultural and mechanical college funds. By this exchange, the sum of money received by the state from the proceeds of the land granted by Congress for the two purposes aforesaid was curtailed forty percent, as the bonds issued to replace those previously held were in amount equal to only sixty percent of the retired bonds. The consolidated bonds which were thus issued to retire those theretofore held for account of the two trust funds went into the hands of the state treasurer for the benefit of the respective funds, and these bonds bore on their face no indication of the debt for which they were issued. Indeed, they were in form like any other of the bonds issued under the act of 1874.

By the terms of an ordinance adopted by a constitutional convention held in the State of Louisiana in 1879 (which ordinance was approved by the same popular vote which ratified the constitution), it was provided

"that the interest on the consolidated bonds of the state be reduced from seven percentum to two percentum per annum for five years, from the first of January, 1880, three percentum for fifteen years, and four percentum per annum thereafter, the ordinance moreover requiring that the bonds should be presented to the state treasurer or an authorized agent of the state in order to have stamped thereon interest reduced in accordance with the ordinance."

The holders of the consolidated bonds were, however, given the right, instead of accepting this reduction,

Page 163 U. S. 391

of applying to the state treasurer to obtain new bonds at the rate of seventy-five cents on the dollar.

An act of the legislature of the State of Louisiana, passed to execute this provision of the constitution, provided for the printing of the new bonds, and for their issue, upon request, in exchange for outstanding consolidated bonds at the reduced rate, and further provided for the cancellation of the consolidated bonds, when surrendered for exchange, by the following provision found in section 8 of the act in question:

"That the governor shall furnish to the state treasurer a large stamp having on it the words: 'Cancelled by the issue of new bonds under the ordinance of the Constitution relative to state debt.' And the treasurer shall stamp the same upon each consolidated bond as soon as it is surrendered to him."

In order to make good the loss to the seminary fund which had been produced by issuing consolidated bonds to that fund, the second paragraph of article 233 of the Constitution of the State of Louisiana provided as follows:

"The debt due by the state to the seminary fund is hereby declared to be one hundred and thirty-six thousand dollars, being the proceeds of sale of lands heretofore granted by the United States to the state for the use of a seminary of learning, and said amount shall be placed to the credit 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 four percent on said amount from January 1, 1880, for the use of said seminary of learning, and the consolidated bonds of the state now held for use of said fund shall be null and void after the 1st 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."

A like provision as to the agricultural and mechanical college fund was made by the third paragraph of the same article of the Constitution. After fixing the amount of the fund and directing the credit of the same on the books of the state and the payment of an annual interest for the use of the agricultural and mechanical college, the paragraph provides:

"The consolidated bonds of the state now held by the state

Page 163 U. S. 392

for the use of said fund shall be null and void after the 1st day of January, 1880, and that 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."

At the time of the adoption of the Constitution of 1879, the consolidated bonds, which belonged to the seminary and to the agricultural and mechanical college, were held by the state treasurer for account of the funds in question, and they continued to be so held by him certainly up to the end of June, 1882. In a report made to the governor for the year 1878, Antoine Dubuclet, State Treasurer of the State of Louisiana, stated that he had in his possession, representing the investment of the agricultural and mechanical college fund, consolidated bonds of the state, numbered from 710 to 905, inclusive. On January 1, 1880, E. A. Burke, the State Treasurer of Louisiana, in his official report to the governor, made the following statement of the two funds:

Mechanical and Agricultural College

196 bonds, of $1,000 each, issued by

the State of Louisiana under Act No.

3 of 1879, Nos. 710 to 905, inclusive . . . . . . $196,000

2 bonds, of $500 each, issued by the

State of Louisiana under Act No. 3

of 1879, Nos. 42 and 43 . . . . . . . . . . . . . 200

--------

$196,200

The same report also stated the following as regards the seminary fund:

Louisiana state University or Seminary Fund

164 bonds, of $500 each, issued by the

State of Louisiana under Act No. 3

of 1879, Nos. 1,902 to 2,065, inclusive . . . . . $ 82,000

2 bonds, of $500 each, issued by the

State of Louisiana under Act No. 3 of

1879, Nos. 4, 184 and 4, 185. . . . . . . . . . . 200

1 bond, of $1,000, consolidated debt city

of New Orleans, dated July 1, 1852,

No. 492 . . . . . . . . . . . . . . . . . . . . . 1,000

--------

$ 83,200

Page 163 U. S. 393

To the extent that these official publications afforded means of ascertaining the particular consolidated bonds which had been issued to and were held by the state treasurer for account of the two trust funds in question, they necessarily qualify the previous statement that there was nothing from which the public could ascertain the particular consolidated bonds which had been issued to and were held by these trust funds. The thirteen bonds covered by the sale from which the controversy results were as follows: six, bearing serial numbers between 710 to 905, were consolidated bonds issued to the mechanical and agricultural college fund. Six, bearing numbers between 1,902 and 2,065, were consolidated bonds issued to the seminary fund. One of the bonds was a consolidated bond issued under the funding act of 1874, which had been surrendered to the state treasurer, E. A. Burke, for exchange for a new bond at the rate of seventy-five cents on a dollar and reduced interest. At the time of this surrender, the new bond at the reduced rate was issued, and the bond in question was returned into the treasury for cancellation under the provisions of the constitution of the state. The whole of the thirteen bonds were fraudulently issued by the state treasurer, who put them on the market surreptitiously and without authority. The precise date at which the bonds were acquired by the defendant below (plaintiff in error here) is not mentioned in the statement of facts. They must have been so acquired, however, after the end of June, 1882, and before the 27th of February, 1889, since the statement of fact discloses that the bonds were held by the state treasurer up to the first-named date, and that they were sold to the plaintiffs on the second-named date. E. A. Burke, the state treasurer, by whom these acts were done, was treasurer from 1878 to 1888. The statement of facts discloses that, during his term of office, legislative committees examined his books, and made a favorable report, and that at the end of his term of office, a committee also examined them, with like result. The statement establishes that the public were unaware that the treasurer had unlawfully issued the bonds in question, and after their issue, until the discovery of that fact, the coupons therefrom were regularly

Page 163 U. S. 394

paid by the state, including the coupons falling due on the 1st day of July, 1889, and after that date, in consequence of the discovery of the wrong, the state officers declined further to pay the coupons of said bonds, and the auditor and treasurer of the state, in September, 1889, gave notice to the world that the bonds above described, and issued as above stated, were null and void, and not legal debts of the state. It was further admitted that E. A. Burke, who was treasurer of the state as above mentioned, and who was charged with the custody of the bonds, had been indicted for their conversion to his own use, and that he is now, and has been since 1889, a fugitive from justice, and that the governor has been authorized by the legislature to issue a reward for his apprehension.

There was judgment for defendant, 46 F. 727, and the present writ of error was prosecuted.

Page 163 U. S. 395

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