1. The endorsee of negotiable paper which has a fraudulent or
illegal inception must, in order to recover thereon, prove that he
is a bona fide
holder thereof for value.
2. Coupon bonds of a town in New York were by commissioners
executed to a railroad company pursuant to an order of a county
judge which was annulled and reversed by the judgment of the
supreme court in a proceeding whereof, before they were issued, the
commissioners and the company had due notice. Held,
that, as between the company and the town, the bonds are invalid;
2. that in an action on coupons detached therefrom, the plaintiff
must, to make out his right to recover against the town, establish
his bona fide
ownership of them; 3. that upon the question
of such ownership, a judgment in his favor upon other coupons
detached from the same bonds does not estop the town.
3. Upon the evidence in this case, it was not error to charge
the jury to find for the town.
The facts are stated in the opinion of the Court.
MR. CHIEF JUSTICE WAITE delivered the opinion of the Court.
This was a suit by John J. Stewart to recover the interest due
on coupons which matured July 1, 1872, Jan. 1, 1873, Jan. 1, 1874,
July 1, 1874, Jan. 1, 1875, July 1, 1875, Jan. 1, 1876, and July 1,
1876. They were attached to seventy-five bonds of $1,000 each,
purporting to have been issued by the Town of Lansing under the
authority of a statute of New York, passed May 18, 1869, to permit
municipal corporations to aid in the construction of railroads. The
defense, stated generally, was that the bonds had been issued
without authority of law. At the trial, after the testimony on both
sides was in, the court instructed the jury to find a verdict for
the town, which was done, and judgment entered accordingly. This
ruling furnishes the principal ground of error assigned here.
The testimony is all set out in the bill of exceptions. The
undisputed facts are that the County Judge of Tompkins
Page 104 U. S. 506
County, within which the town is situated, assuming to act under
the authority of that statute, rendered, March 21, 1871, a judgment
appointing commissioners to execute bonds of the town to the amount
of $75,000, and invest them in the capital stock of the Cayuga Lake
Railroad Company. On the 27th of the same month, at the instance of
the opposing taxpayers of the town, a writ of certiorari, directed
to the county judge was issued from the supreme court of the state
for a review of this judgment. This writ was, at or about its date,
served on the judge, who, on the 1st of September, made his return
thereto, sending up, as required by law, a transcript of the record
of the proceedings before him which were brought under review. Of
this writ, and what was done thereunder, both the commissioners
appointed by the judge and the railroad company had full notice,
but the commissioners, on or about the 14th of October, 1871,
executed the bonds which had been authorized, payable to bearer on
the first day of January, 1902, with coupons for semiannual
installments of interest attached, and delivered them to the
company in exchange for seven hundred and fifty shares of its
capital stock. At the same time, the commissioners took from the
company a bond of indemnity to save them harmless from all costs,
liabilities, or expenses on account of what had been done.
The bonds, as soon as delivered, were taken by the company to
New York, and there pledged as collateral security for money
borrowed. On the 27th of May, 1872, the supreme court in general
term reversed and in all things held for naught the judgment of the
county judge appointing commissioners and authorizing the issue of
the bonds. This judgment of the supreme court still remains in
On the 26th of November, 1872, the company arranged with
Elliott, Collins, & Co., a banking firm in Philadelphia, for
the money to take up the bonds in New York, and they again pledged
the bonds to that firm as security for the advances made. On the
8th of February, 1873, this debt to Elliott, Collins, & Co. was
paid, and they parted with the bonds. The entire testimony as to
what took place at this time is as follows:
William Elliott, the senior member of the firm, examined as
Page 104 U. S. 507
a witness, said:
"We did not sell the bonds at all. The bonds, on the 8th of
February, 1873, we parted with. The cash we received on parting
with them was $54,337.50. I have never seen any of the bonds since.
The loan negotiated by us was paid in this way. Up to this time,
the loan had not been paid. It was paid by this money."
On cross-examination, he said:
"I cannot tell through whom personally we received the bonds.
Think we received them by express. They were negotiated by Mr.
Delafield, either personally or by letter. All our transactions
with that company have been done through Mr. Delafield. . . . I am
not acquainted with John J. Stewart, the plaintiff in this action.
I do not know where he lives, or in what state he lives. Neither
myself or my banking firm ever had any transactions with him to my
This testimony was taken on behalf of the plaintiff, by
deposition, on the 18th of July, 1876.
Afterwards, on the 18th of August in the same year, another
deposition of the same witness was taken in behalf of the
plaintiff. In this deposition, looking at Exhibit D, which was as
PHILADELPHIA, Feb'y 8, 1873
Cayuga Lake R.R.Co.
75,000 Town of Lansing bonds . . . . . . . . . . . . .
Notes March 29, $50,000; 49 days' interest, $408.33. .
Credit Cayuga Lake . . . . . . . . . . . . . . . . $ 4,745
"This is a statement of the sale of said Town of Lansing bonds
by the firm of Elliott, Collins, & Co. The sale was made at the
time it bears date, Feb. 8, 1873; it was made out and sent to the
Cayuga Lake R.R. Co. at that date. I said in my previous
examination that we did not sell the bonds in question. I intended
by that to say that we did not make the negotiation for the sale of
them, but they passed through our hands, on terms which were agreed
on by others. The price at which they were sold we were consulted
about, and our advice asked. We received the money and delivered
the bonds on that day."
On cross-examination, he said:
"I do not wish to change, but merely explain my testimony given
at the previous examination. Exhibit D is in the handwriting of my
son, who generally
Page 104 U. S. 508
makes out the accounts, Adolphus William Elliott. He is still
living in this city. To my present recollection, the first time I
saw Exhibit D is today. I have no recollection of ever having seen
it before. The statement first credits the Cayuga Lake R.R. Co.
with $54,337.50, under date of Feb. 8, 1873, that being the avails
of the bonds. . . . It was sent to the Cayuga Lake R.R. Co. at the
time, as I have stated before. I have no personal knowledge of Mr.
Stewart -- I mean the Mr. Stewart who is plaintiff in this action.
I have no personal knowledge of any business transaction whatever
between myself or my house and Mr. Stewart. I have no personal
knowledge whether these bonds ever passed into the hands of Mr.
Stewart, the plaintiff in this action, nor whether he ever paid
anything for them. Somebody paid for them and we got the
Talmadge Delafield, the treasurer of the company, a witness
called on the part of the plaintiff, testified that Elliott,
Collins, & Co. held the bonds after the transfer to them until
Feb. 8, 1873, when they rendered an account of the sale. On
cross-examination he said,
"I have no personal knowledge of the sale of the bonds. Never
saw Mr. Stewart; don't know that there is such a man. I have never
corresponded with him, nor he with me. Whatever occurred between
them and him was entirely without my knowledge."
On the 30th of May, 1874, a suit was brought in the name of
Stewart, the present plaintiff in error, in the Circuit Court of
the United States for the Northern District of New York to recover
the coupons due July 1, 1873, averring his ownership thereof.
On the 20th of July, 1872, Manassah Bailey brought suit in the
same court to recover the coupons of July 1, 1872. In each of the
suits, the defenses were that the bonds and coupons were issued
without the authority of law and that the plaintiffs respectively
were not bona fide
holders. The suits were tried together,
and upon the same evidence, so far as applicable. In both cases, it
was decided that the bonds were invalid, and in that of Bailey
judgment was given for the defendant, because it had not been
satisfactorily shown that he was a bona fide
the Stewart case, however, the court used this language in its
"The suit of Stewart differs from the
Page 104 U. S. 509
one by Bailey, in that it appears that the bonds were pledged as
collateral in February, 1873, to Elliott, Collins, & Co., of
Philadelphia, and sold by them after consultation with the officers
of the railroad company. Elliott, Collins, & Co. were holders
for value before maturity, and their sale to satisfy the pledge
conveyed their title to the purchaser. Whether the plaintiff was
the purchaser from them directly or not is not clear, but however
this may be, he succeeds to all the rights of Elliott, Collins,
& Co., and occupies the position of a bona fide
purchaser. As against a bona fide
holder of the coupons,
none of the defenses interposed are tenable."
Acting on this principle, the court gave judgment in favor of
Stewart for the coupons he held.
Upon the trial of the present action, the record of the first
Stewart judgment was given in evidence and the counsel for the
plaintiff, who had also been counsel for Stewart and Bailey in the
former suits, was examined as a witness. He testified that after
the judgment against Bailey, he gave the coupons sued for in that
action to a Mr. Tryon, in New York. He was unable to say from whom
he got them back, nor when. Neither did he tell from whom he got
the bonds and coupons which were used in evidence at the present
As between the railroad company and the town, the judgment of
the supreme court reversing and annulling the order of the county
judge invalidated the bonds. If the bonds had not been delivered
before, they could not have been afterwards. The judgment of
reversal was equivalent between these parties to a refusal by the
county judge to make the original order.
The next inquiry is whether, on the evidence, Stewart occupied
in this suit a better position than the town. That depends on
whether the testimony was such as to make it the duty of the court
to submit to the jury, under proper instructions, the determination
of the question whether he was in a commercial sense the bona
holder of the coupons sued for.
It is an elementary rule that if fraud or illegality in the
inception of negotiable paper is shown, an endorsee, before he can
recover, must prove that he is a holder for value. The
Page 104 U. S. 510
mere possession of the paper under such circumstances is not
enough. Smith v. Sac
11 Wall. 139.
Here the actual illegality of the paper was established. It was
incumbent, therefore, on the plaintiff to show that he occupied the
position of a bona fide
holder before he could recover.
This, it is contended, was conclusively established by the judgment
in the suit on the coupons of July, 1873. The issue in that case
was as to the ownership of those coupons, and did not necessarily
involve an ownership of the bonds. We have often held that coupons
detached from bonds are negotiable instruments, and capable of
separate ownership and transfer. Clark v.
20 Wall. 583. While the court in its
opinion, when rendering the former judgment, used language broad
enough to cover the bonds, this language must be confined in its
effect to the issues on trial -- that is to say, the ownership of
the coupons alone. In Cromwell v. County of Sac,
94 U. S. 351
was distinctly held that a determination in one action, that a
plaintiff was not an owner for value of certain coupons sued on,
did not estop him from proving in another action that he was such
an owner of other coupons detached from the same bonds. The
proposition in this case is but the converse of that.
This makes it necessary to inquire whether upon the testimony
the burden of establishing a bona fide
ownership was so
far overcome at the trial as to make it improper for the court to
take that question from the jury. The testimony is noticeable
rather for what is omitted than for what was introduced. It would
seem to have been easy to prove the exact facts as to the "parting
with" the bonds by Elliott, Collins, & Co. Although the bonds
had been pledged in New York before, Elliott, Collins, & Co.
took them from the company, not from the New York holders. The
company negotiated the loan from them, and on taking up the bonds
in New York, made a new pledge. This was all done after the
judgment of the supreme court upon the certiorari. In the former
suit, a judgment had been secured only by proving a bona
ownership in the plaintiff. Notice of the necessity of
establishing the same fact in this case was therefore given the
plaintiff and his counsel. Acting on this notice, the same counsel
Page 104 U. S. 511
appeared in the former case went to Philadelphia to get the
necessary testimony. He called on the senior member of the firm of
Elliott, Collins, & Co. and took his deposition. In this
deposition it was clearly shown that although that firm had "parted
with" the bonds, and got some money when they did so, which was put
to the credit of the company, they did not sell the bonds. That was
done, if done at all, by someone else. Not satisfied with this
testimony, the same counsel went again to Philadelphia to make
another effort. He took with him a paper he had found in the
handwriting of the junior member of the firm, now known as Exhibit
D. Instead of examining the junior partner, he went again to the
senior partner, who evidently knew but little personally about the
transaction, and stopped with him, although it appears that the
witness who made out the exhibit was then in the city, and it was
again stated that the sale was not negotiated by the firm, but that
the bonds only passed through their hands under terms which had
been agreed on by others. Who those others were is not stated.
Neither the actual purchaser nor his representative in the
negotiation was named. Stewart, the plaintiff, was not known to any
of the witnesses examined. No one had ever seen him. His counsel,
though examined as a witness, gave no information in respect to
him, and was also unable to tell from whom the Bailey coupons were
received. It is by no means certain from the testimony whether such
a man as the plaintiff is actually in existence. Even the witness
Elliott was not asked whether he knew of the decision of the
supreme court when his firm took the bonds. The sale, if actually
made, was at an enormous discount. Although the Bailey coupons are
included in this suit, another action for their recovery was
pending at the time Elliott, Collins, & Co. parted with the
bonds, in which the same defenses now relied on were set up. The
counsel now appearing for the present plaintiff was also the
counsel for Bailey in that action, and for the railroad company
when the bonds were got from the commissioners. It would have been
apparently so easy to make the necessary proof, if it could have
safely been done, that we are unable to account for its absence
except on the theory that a disclosure of the whole truth would be
fatal to a
Page 104 U. S. 512
recovery. While it would not, perhaps, have been improper for
the court, in the exercise of its rightful discretion, to leave the
case to the jury on the evidence, we cannot say it was error not to
do so. In Pleasants v.
22 Wall. 116, it was held that
"if the court is satisfied that, conceding all the inferences
which the jury could justifiably draw from the testimony, the
evidence was not sufficient to warrant"
a particular verdict, the jury might be so instructed.
Railroad Company v. Fraloff, 100 U. S.
; Oscanyon v. Arms Company, 103 U.
. This case, in our opinion, comes under that
The record in the Bailey suit was certainly admissible in
evidence upon the issue at to the bona fide
the coupons of July, 1872.
Without, therefore, considering any of the other questions
presented for our consideration, on the argument, the judgment