Mercer County v. Hacket - 68 U.S. 83 (1863)
U.S. Supreme Court
Mercer County v. Hacket, 68 U.S. 1 Wall. 83 83 (1863)
Mercer County v. Hacket
68 U.S. (1 Wall.) 83
1. Where a county issues its bonds payable to bearer, and solemnly pledges the faith, credit and property of the county, under the authority of an act of assembly, referred to on the face of the bonds by date, for their payment, and those bonds pass bona fide into the hands of holders for value, the county is bound to pay them. It is no defense to the claim of such a holder that the act of assembly referred to on the face of the bonds authorized the county to issue the bonds only and subject to certain "restrictions, limitations, and conditions" which have not been formally complied with, nor that the bonds were sold at less than par, when the act authorizing their issue and referred to by date on the face of the instrument declared that they should "in no case" nor "under any pretense" be so sold.
2. Corporation bonds payable to bearer, have, in this day, the qualities of negotiable instruments. The corporate seal upon them does not change the case.
By act of Assembly passed in 1852, the Legislature of Pennsylvania authorized the Commissioners of Mercer County in that state to subscribe to the stock of the Pittsburgh & Erie Railroad, which road, if built, would pass through their county and benefit it. The act, however, contained this proviso:
"Provided that the subscription shall be made subject to the following restrictions, limitations, and conditions, and in no other manner
or way whatever, viz., all such subscriptions shall be made by the county commissioners, and shall be made by them after, and not before, the amount of such subscription shall have been designated, advised, and recommended by a grand jury of said county, and such bonds shall in no case or under any pretense be sold, assigned, or transferred by the said Railroad Company at less than the par value thereof, and provided further that the acceptance of this act by the said company shall be deemed also an acceptance of the provisions of the act passed the 11th day of March, 1851, entitled An act fixing the gauges of railroads in the County of Erie."
Rightly or wrongly -- with authority or without it -- the bonds to the extent of several thousands of dollars were issued. The instruments were elegantly engraved, with such external indications as were calculated to arrest the eye and through it to inspire confidence. They were signed by the Commissioners of Mercer County, attested by their clerk, and authenticated by the county seal conspicuously put. At the head of the bonds it was announced that they were issued for stock in the Pittsburg & Erie Company and were payable in twenty years from their date in the City of New York. The words in the obligatory part of the instrument were as follows:
"Know all men by these presents that the County of Mercer, in the Commonwealth of Pennsylvania, is indebted to the Pittsburgh & Erie Railroad Company in the full and just sum of one thousand dollars, which sum of money said county agrees and promises to pay, twenty years after the date hereof, to the said Pittsburgh & Erie Railroad Company or bearer, with interest at the rate of six percentum per annum, payable semiannually on the first Monday of January and July at the office of the Ohio Life Insurance and Trust Company in the City of New York upon the delivery of the coupons severally hereto annexed, for which payments of principal and interest, well and truly to be made, the faith, credit and property of the said County of Mercer are hereby solemnly pledged under the authority of an act of assembly of this Commonwealth, entitled 'A supplement to the act incorporating the Pittsburgh & Erie Railroad Company,' which said act was approved the 21st day of April, A.D. 1846, and which said supplement became a law on the 4th day of May, 1852. "
A number of the bonds having got, bona fide and for value paid, into the possession of one Hacket, a citizen of New Hampshire, and the coupons -- themselves also payable to bearer -- being due and unpaid, he sued the County of Mercer upon them, in the Circuit Court for the Western District of Pennsylvania. Having put the bonds and coupons in evidence, the county now offered to prove that no such recommendation as was required by the act was made by the grand jury, but that the jury signed a paper, in which they state that they
"would recommend the commissioners of Mercer County to subscribe to the capital stock of the company to such an amount, and under such restrictions as may be required by the act of Assembly authorizing them to subscribe stock to said road, to an amount not exceeding $150,000."
The county proposed further to prove, that while by the provisions of the act the railroad company was required to accept "an act fixing the gauges of railroads in Erie County," before it should be entitled to the benefit of said act authorizing counties to subscribe to the capital stock of said company, the company, by a resolution of the stockholders, had refused to accept those provisions, and had declared it to be inexpedient to accept subscriptions made by counties. All this being offered for the purpose of showing that the commissioners of Mercer County acted illegally in making the subscription, and in issuing bonds in payment thereof; and that they issued the same without authority of law, so that the bonds are not binding upon the county. The county proposed to prove further,
"that the bonds issued were paid out by the railroad company to contractors at about sixty-six and two-thirds cents on the dollar; all this for the purpose of showing that the bonds were procured from the County of Mercer by misrepresentation and fraud, and were not binding upon her, and after being thus obtained were disposed of at less than their par value, in violation of the provisions of the act authorizing the county to subscribe and issue bonds; and also for the purpose of showing want and failure of consideration."
The court below refused to let such evidence be given,
and the suit having accordingly gone against the county, the correctness of the ruling was the point now considered here.