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.
3.
Commissioners of Knox County
v. Aspinwall, 21 How. 539, and
Moods v.
Lawrence County, 1 Black 386, affirmed.
Diamond
v. Lawrence County, 37 Pa.St. 358, denied.
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
Page 68 U. S. 84
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. "
Page 68 U. S. 85
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,
Page 68 U. S. 86
and the suit having accordingly gone against the county, the
correctness of the ruling was the point now considered here.
Page 68 U. S. 92
MR. JUSTICE GRIER delivered the opinion of the Court:
The bonds declare on their face that the faith, credit, and
property of the county is solemnly pledged, under the authority of
certain acts of assembly, and that in pursuance of said act the
bonds were signed by the commissioners of the county. They are on
their face complete and perfect, exhibiting no defect in form or
substance, and the evidence offered is to show the recitals on the
bonds are not true -- not that no law exists to authorize their
issue, but that the bonds
Page 68 U. S. 93
were not made "in pursuance of the acts of Assembly" authorizing
them.
We have decided in the case of
Commissioners of Knox County
v. Aspinwall, [
Footnote 1]
that where the bonds on their face import a compliance with the law
under which they were issued, the purchaser is not bound to look
further. The decision of the board of commissioners may not be
conclusive in a direct proceeding to inquire into the facts before
the rights and interests of other parties had attached, but
after the authority has been executed, the stock
subscribed, and the bonds issued and in the hands of innocent
holders, it would be too late, even in a direct proceeding, to call
it in question.
The case of
Mercer County v. Railroad [
Footnote 2] has been cited as governing this
case. But on examination it will be found not to contradict the
doctrine we have just stated. That was a bill in equity praying an
injunction against the issuing of a portion of the bonds
not
yet delivered over to the company or negotiated by them. It
charged that the commissioners had not pursued the conditions,
limitations, and restrictions of the act that authorized their
issue; that by the act,
"all such subscriptions shall be made
after and not
before the amount of such subscriptions shall have been
designated, advised, and recommended by a grand jury,"
whereas the grand jury only
"recommended that the commissioners of Mercer County subscribe
to the capital stock of the Pittsburgh & Erie Railroad, to such
amount and under such restrictions as may be required by the act of
Assembly, by authorizing them to subscribe,
to an amount
not exceeding $150,000."
The bill charged also most gross frauds perpetrated by the
company, which fully justified the decree of the court, without
resorting to the very ingenious and rather astute criticism of the
phraseology of the grand jury. It is true they
recommend
only, and have not used the words "designate and advise" a
subscription not to exceed $150,000. It would require no great
latitude of construction to treat this, as the commissioners might
justly do, as a
Page 68 U. S. 94
substantial compliance with the act. But it would be contrary to
good faith and common justice to permit them to allege a newly
discovered construction of an equivocal power, after they have sold
the bonds, and they have passed (as is admitted in this case) into
the hands of
bona fide purchasers for value. It is proper
to state that the construction given has the assent of only two of
the judges of that learned court, so that it has not the force of
precedent even if it applied to this case. But it is due also to
them to say that they intimate no opinion as to how far the reasons
given for enjoining the further issue of the bonds ought to affect
their validity in the hands of "innocent holders."
The proviso to the act authorizing the subscription declares
"That the acceptance of this act shall be deemed also an
acceptance of the provisions of the act passed the eleventh day of
May, 1851, entitled 'An act fixing the gauges of railroads in the
County of Erie.'"
Now it is very plain that the acceptance of the bonds authorized
by this act, operated
per se as an acceptance of the gauge
law. It needed no resolution of the railroad corporation on their
minutes. They were estopped by law after receipt of the bonds,
until they were afterwards released by statute from the condition.
But if that were not sufficient, it may be stated as a matter of
history that on the 24th of December, 1851, the stockholders passed
a resolution "accepting and agreeing to be bound by the provisions
of the act aforesaid, being an act fixing the gauge of railroads in
Erie County." This fact, though overlooked in the case last
mentioned, was afterwards brought to the notice of the same court
on the trial of a subsequent cause between the same parties. As any
subsequent resolution of the railroad company refusing compliance
with this condition annexed by statute to their acceptance of the
county subscriptions would be fraudulent and void, the court did
not err in refusing to admit the evidence offered or to permit the
defendants to prove that the recitals of their bonds were
untrue.
2. Can evidence of the fraud practiced by the railroad
Page 68 U. S. 95
company to whom these bonds were delivered, and by whom they
were paid to
bona fide holders for value, or the fact that
they were negotiated at less than their par value, be received to
defeat the recovery of the plaintiff below?
This species of bonds is a modern invention, intended to pass by
manual delivery and to have the qualities of negotiable paper. and
their value depends mainly upon this character. Being issued by
states and corporations, they are necessarily under seal. But there
is nothing immoral or contrary to good policy in making them
negotiable if the necessities of commerce require that they should
be so. A mere technical dogma of the courts or the common law
cannot prohibit the commercial world from inventing or using any
species of security not known in the last century. Usage of trade
and commerce are acknowledged by courts as part of the common law,
although they may have been unknown to Bracton or Blackstone. And
this malleability to suit the necessities and usages of the
mercantile and commercial world is one of the most valuable
characteristics of the common law. When a corporation covenants to
pay to bearer and gives a bond with negotiable qualities, and by
this means obtains funds for the accomplishment of the useful
enterprises of the day, it cannot be allowed to evade the payment
by parading some obsolete judicial decision that a bond, for some
technical reason, cannot be made payable to bearer.
That these securities are treated as negotiable by the
commercial usages of the whole civilized world, and have received
the sanctions of judicial recognition not only in this Court
[
Footnote 3] but of nearly
every state in the Union is well known and admitted.
But we have been referred to the case of
Diamond v. Lawrence
County, [
Footnote 4] for a
single decision to the contrary. The learned judge who delivered
the opinion of the court in that case says,
"We will not treat these bonds as negotiable securities.
On
this ground we stand alone. All the courts, American
Page 68 U. S. 96
and English, are against us. We know the history of
these municipal and county bonds, how the legislature, yielding to
popular excitement about railroads, authorized their issue; how
grand jurors and county commissioners and city officers were molded
to the purposes of speculators; how recklessly railroad officers
abused the overwrought confidence of the public, and what burdens
of debt and taxation have resulted to the people -- a moneyed
security was thrown upon the market by the paroxysm of the public
mind,"
&c.
If this decision of that learned court was founded on the
construction of the constitution or statute law of the state or the
peculiar law of Pennsylvania as to titles to land, we would have
felt bound to follow it. But we have often decided that on
questions of mercantile or commercial law, or usages which are not
peculiar to any place, we do not feel bound to yield our own
judgment, especially if it be fortified by the decision of "all
other English and American courts." These securities are not
peculiar to Pennsylvania or governed by its statutes or peculiar
law.
Although we doubt not the facts stated as to the atrocious
frauds which have been practiced, in some counties, in issuing and
obtaining these bonds, we cannot agree to overrule our own
decisions and change the law to suit hard cases. The epidemic
insanity of the people, the folly of county officers, the knavery
of railroad "speculators," are pleas which might have just weight
in an application to restrain the issue or negotiation of these
bonds, but cannot prevail to authorize their repudiation after they
have been negotiated and have come into the possession of
bona
fide holders.
In the case of
Woods v. Lawrence County, [
Footnote 5] as a corollary from the
principles stated, we have decided, that in a suit brought on the
coupons of these bonds by a
bona fide holder, his right to
recover is not affected by the fact that the railroad company sold
the bonds at a discount, contrary to the provisions of their
charter, which forbids the sale of them at less than their par
value.
Page 68 U. S. 97
As the evidence offered and overruled by the court could not
have established a defense to the case made by the plaintiff below,
the court did not err in refusing to receive it.
Judgment affirmed with costs.
[
Footnote 1]
62 U. S. 21
How. 545.
[
Footnote 2]
27 Pa.St. 389.
[
Footnote 3]
White v. Vermont Railroad
Co., 21 How. 575.
[
Footnote 4]
37 Pa.St. 353.
[
Footnote 5]
66 U. S. 1 Black
386.
