City of Lexington v. Butler - 81 U.S. 282 (1871)
U.S. Supreme Court
City of Lexington v. Butler, 81 U.S. 14 Wall. 282 282 (1871)
City of Lexington v. Butler
81 U.S. (14 Wall.) 282
1. The restriction of the 11th section of the Judiciary Act giving original jurisdiction to the circuit courts, but providing that they shall not
"have cognizance of any suit to recover the contents of any promissory note or other chose in action in favor of an assignee unless a suit might
have been prosecuted in such court to recover the said contents if no assignment had been made"
does not apply to cases transferred from state courts under the Act of March 2, 1867, giving to either party in certain cases a right to transfer a suit brought in a state court where either makes affidavit &c., "that he has reason to believe, and does believe, that from prejudice or local influence he will not be able to obtain justice in such court."
2. Independently of this, negotiable paper (within which class coupons to municipal bonds, if having proper words of negotiability, fall) is not regarded as falling within the exception.
3. When a corporation has power under any circumstances to issue negotiable securities, the bona fide holder has a right to presume that they were issued under the circumstances which give the requisite authority, and they are no more liable to be impeached for any infirmity in the hands of such a bolder than any other commercial paper.
4. A municipal corporation, on a suit against it for bonds issued to a railroad, set up that the plaintiff had notice of certain proceedings which (as the plea alleged) destroyed the plaintiff's right to sue. The plaintiff replied, denying the notice. The city demurred to the replication. Held that the city thus admitted that be had no notice.
5. A suit upon a coupon or interest warrant to a bond is not barred by the statute of limitations unless the lapse of time is sufficient to bar also a suit upon the bond.
The 11th section of the Judiciary Act enacts:
"The circuit court shall have original cognizance of all suits . . . between a citizen of the state where the suit is brought and a citizen of another state."
It is enacted by the same section:
"That no circuit court shall have cognizance of any suit to recover the contents of any promissory note or other chose in action in favor of an assignee unless such suit may have been prosecuted in such court to recover the said contents, if no assignment had been made, except in cases of foreign bills of exchange."
The 12th section, however, of the same act enacts:
"That if a suit be commenced in any state court against an alien or by a citizen of the state in which the suit is brought against a citizen of another state, . . . and the defendant shall at the time of entering his appearance in such state court file a petition for the removal of the cause for trial into the next circuit court, . . . and offer good and sufficient surety for his
entering in such court on the first day of its session copies of said process against him, and also for his there appearing . . . it shall then be the duty of the state court to accept the surety and proceed no further in the cause; . . . and the said copies being entered as aforesaid in such court of the United States, the cause shall there proceed in the same manner as if it had been brought there by original process."
By a statute of March 2, 1867, this right of removal was extended to controversies in any state court, between a citizen of the state where the suit is brought and a citizen of another state, in cases where either party -- plaintiff or defendant -- shall, any time before final hearing,
"Make and file in such state court an affidavit stating that he has reason to and does believe that from prejudice or local influence, he will not be able to obtain justice in such state court."
With these statutes in force, the City of Lexington, Kentucky, acting under the authority of an act of the Legislature of Kentucky issued in 1853 to the Lexington & Big Sandy Railroad Company, one hundred and fifty bonds, each for $1,000, having thirty years to run and bearing an interest of 6 percent per annum, payable semiannually, for which coupons were annexed to the bonds. The coupons were payable "to bearer."
The bonds bore the corporate seal of the city and were signed by the mayor and countersigned by the city clerk. They were payable to the Lexington & Big Sandy Railroad Company or order at the Bank of America, New York, and were endorsed and assigned by the railroad company to bearer. They recited upon their face that:
"This certificate is used in part payment of a subscription of $150,000 by the City of Lexington to the capital stock of said Lexington & Big Sandy Railroad Company, by order of the mayor and council of said city, as authorized by a vote of the people taken in pursuance of an act of the General Assembly of the Commonwealth of Kentucky incorporating said railroad company, approved the 9th of January, 1852. "
They were sold in market overt by the railroad company, and being by the endorsement made payable to bearer, circulated by delivery from hand to hand. J. C. Butler, a citizen of Ohio, became the owner of four of them. The coupons for a number of years being unpaid, he brought suit in a court of the State of Kentucky for the recovery of the amount of them. Before the trial came on, he removed the cause into the Circuit Court of the United States for the District of Kentucky, for trial, under the already-quoted act of Congress of March 2, 1867, and on bringing the transcript of the cause into the circuit court, he filed a declaration in debt in that court, in conformity with the rules of proceeding in causes removed from the state court. To this declaration the City of Lexington filed two pleas in bar.
First plea. That the city was authorized to make the subscription of the $150,000, on condition that a majority of the qualified voters of the city should cast their votes in favor of the subscription, and that without such a vote the city had no authority to make the subscription; that the vote was cast in favor of the subscription, but only on the condition that it should not be obligatory until $1,000,000 should be first subscribed by others; that the $1,000,000 not having been subscribed, the city refused to make the subscription or to issue the bonds; that the company thereupon obtained a judgment of mandamus to compel the city to make the subscription and execute the bonds; and that the city was compelled by that judgment, and did so make the subscription and issue the bonds; that the Court of Appeals of Kentucky, however, reversed this judgment; that a rule was then made upon the company to redeliver the bonds in order to be cancelled; but that the company refused to redeliver them; that before the company had negotiated the bonds sued upon, the city obtained an injunction against the issue, and an order that the bonds be deposited with a receiver; that these orders, although process was duly served on the company, were not obeyed; and that both actions were still pending.
The plea then alleged that it was after all these proceedings and with these actions pending, that the company transferred and delivered the bonds to Butler, and that Butler had notice of the proceedings aforesaid before said bonds were transferred to him.
Second plea. As to the coupons, the city pleaded a statute of limitations, applicable to debts not under seal -- a statute of five years -- fifteen years being the statutory bar in regard to sealed instruments.
To the first plea, the plaintiff replied, traversing the notice and denying all knowledge of any facts set out in the plea when he took the bonds.
To the second plea he demurred.
To the plaintiff's replication to the first plea (the replication denying notice of the proceedings about the bonds), the city demurred.
The court below on the whole case gave judgment for the plaintiff, and the city now brought the case here.
The questions, of course, were:
1st. Whether under the restriction of the 11th section of the Judiciary Act and under the Act of March 2, 1867, the court below had jurisdiction.
2d. Whether the fact that Butler had no notice of the proceedings about the bonds, set up to rebut his bona fides and destroy his right to sue (which fact of want of notice was of course admitted by the city's demurrer to his replication), made him, presumably, a bona fide holder for value, and entitled to sue.
3d. Whether the statutory bar of five years was applicable to coupons to bonds under seal, and where to the bonds themselves nothing less than fifteen would by statute be a bar, or whether the coupons partook of the qualities of the bond in such a way as to be subject to the law which governed them?