1. A holder of coupons which have been cut off from the bond to
which they were originally attached may bring suit on them if they
represent interest already due, notwithstanding he be no longer
holder of the bond to which they belonged. He need not, if he
declares properly, produce the bond.
Page 76 U. S. 478
2. In suing on the coupons in such case, it is proper enough to
recite the bonds in such general way as explains and brings into
view the relation which the coupons originally held to the bonds,
and in some respects still hold.
3. The suit does not by such recital-that is to say, by one in
the nature of inducement and by way of preamble only -- become a
suit upon the bond. It is still a suit on the coupons.
4. A coupon, if of the ordinary sort, being but a repetition, as
respects each six months or other stated term, of the contract
which the bond itself makes on that subject and but a device for
the convenience of the holder, a suit upon it is not barred by the
statute of limitations unless the time prescribed in the statute be
sufficient to bar also suit upon the bond.
5. A debt for a specific sum contracted by a city, and invalid
because a statute which authorized the city to contract a debt did
not also limit the extent of it, is made valid by a subsequent
statute recognizing the validity of the debt as contracted.
6. Where bonds issued to
bona fide holders for value
are valid by the judicial decisions of a state when issued,
subsequent decisions in the same state cannot destroy their
validity in such hands.
Gelpcke v. City of
Dubuque, 1 Wall. 175, affirmed.
The 3d section of the 11th article of the Constitution of
Wisconsin ordains that
"It shall be the duty of the legislature to provide for the
organization of cities and incorporated villages
and to
restrict their power of borrowing money, contracting debts, and
loaning their credit so as to prevent abuses in contracting
debts by such municipal corporations."
With this provision in force as fundamental law, the legislature
of the state, on the 2d March, 1857, by an act [
Footnote 1] which amended and consolidated the
several acts relating to the city charter, authorized the common
council of the City of Kenosha to
"borrow on the corporate credit of the city
any sum of
money, for
any term of time, at
any rate of
interest, and payable at
any place deemed expedient,
issuing bonds or scrip therefor."
The city accordingly did borrow $100,000 to aid
Page 76 U. S. 479
in the construction of the Kenosha & Rockford Railroad, and
it issued bonds in sums of $500 and $1,000 each for payment. T hey
were headed,
"
Issued according to law to the Kenosha & Rockford
Railroad Company, to aid in the construction of their
railroad,"
and were made payable twenty years from date at the People's
Bank in the City of New York, with interest at the rate of ten
percent per annum, to be paid semiannually upon the presentation of
the proper coupons for said interest. For the payment of the bonds
and interest the faith of the city was declared to be pledged. The
bonds were certified by the mayor and city clerk to have been
issued under an act of the legislature, passed March 2, 1857,
giving authority to the city to lend its credit for the sum
specified, and also in pursuance of a vote of the freeholders of
the city taken for the purpose of the loan of the $100,000 to the
railroad company.
Attached to each bond were a series of coupons, like those now
usually attached to railroad bonds, for the semiannual interest as
it should become due in each year. The following was the form of
those on the bonds for $500:
"$25. The City of Kenosha, Wis., will pay to the bearer
twenty-five dollars on the 1st day of September, 1860, at the
People's Bank, in the City of New York, on presentation of this
coupon, being the interest due on the day on the bond of said city,
numbered 1, dated this 1st day of September, 1857."
"G. H. PAUL, Mayor"
"H. T. WEST, Clerk"
Subsequent to the issue of the bonds, the name of "The Kenosha
& Rockford Railroad Company" was changed to "The Kenosha,
Rockford & Rock Island Railroad Company," and a statute of 1859
provided that
"the common council of the City of Kenosha should have generally
the charge and control of all interest the City of Kenosha
now
has, or may hereafter have in that railroad."
The act then provided that the common council should appoint a
railroad
Page 76 U. S. 480
commissioner, that when duly appointed, he should be
ex
officio a member of the board of directors of the railroad,
and a statute of 1862 authorized the city
"to issue new bonds in exchange for the bonds and scrip
heretofore issued by said city on railroad account now
outstanding and unredeemed for the purpose of compromising
the
indebtedness of said city on such terms as may be agreed upon
between the city and its
creditors."
One Lamson, having one hundred and seventy-two coupons for the
interest due on the bonds in 1860 and 1861 and unpaid, brought suit
against the city to recover it. The declaration recited in very
general terms the several bonds to which the coupons that the
plaintiff held had been originally annexed, setting forth that
these bonds themselves had been sold and disposed of to
bona
fide purchasers, and had since passed from hand to hand in the
stock market like other negotiable securities, so that the
plaintiff could not produce them to the court; that the interest
had accrued on the same; that the city had neglected and refused to
pay it at the time and place designated; and that the interest and
coupons were owned by the plaintiff, and that he brought the
coupons into court to be cancelled.
The defendant pleaded 1st,
nil debet; 2d, that the
several supposed causes of action had not accrued to the plaintiff
within six years from the commencement of the suit; the statute of
limitations. The plaintiff took issue on the first plea and
demurred to the second, which demurrer was sustained.
From the bill of exceptions it appeared that the plaintiff gave
in evidence the one hundred and seventy-two coupons, his doing
which was objected to, but that the objection was overruled. It was
admitted that all the coupons with the exception of four, which
were annexed to a bond produced, were coupons of different bonds of
the same issue, but the bonds were not given in evidence. It was
admitted also that more than six years had elapsed since the
interest accrued on them.
After the plaintiff rested, the counsel for the defendant
Page 76 U. S. 481
prayed the court to charge the jury 1st that the bonds declared
on, as well as the coupons, should have been produced in order to
sustain the declaration under the issue, and 2d that the City of
Kenosha had no authority to issue the bonds. Both prayers were
refused.
The jury found a verdict for the plaintiff on the first issue to
the amount of the several coupons, and judgment having been given
accordingly, the city brought the case here.
Page 76 U. S. 482
MR. JUSTICE NELSON delivered the opinion of the Court.
We agree that if this were an action upon the bonds to recover
installments of interest that had accrued thereon, although such
installments had been duly assigned to the plaintiff, there would
be great difficulty in maintaining it in his name, as well as
without producing the bonds as the proper evidence that interest
was due. The plaintiff, under such circumstances, doubtless would
have a remedy for withholding the interest, but it is not necessary
or material to stop and point it out in the present case, for we do
not regard the action as founded upon the bonds, but upon the
coupons. The bonds are recited in very general terms, it is true,
in the declaration, but it is by way of explaining and bringing
into view the relation which the coupons originally held to the
bonds, and which in an important sense they still hold, though
distinct as it respects ownership, as they represent the interest
that had become due upon them. The relation we refer to is that
these coupons are not received or intended to have the effect of
extinguishing the interest due on the bonds, as this collateral
security -- or rather this evidence of the interest -- upon well
settled principles cannot have that effect without an express
agreement between the parties. Besides, the coupons are given
simply as a convenient mode of obtaining payment of the interest as
it becomes due upon the bonds. There is no extinguishment till
payment.
The recital is by way of inducement, as is familiar to special
pleaders at common law, which Mr. Chitty says is in the nature of a
preamble, stating the circumstances under which the contract was
made, or to which the consideration has reference. [
Footnote 2] The office of an inducement is
explanatory, and does not in general require exact certainty. Thus,
says Mr. Chitty, when an agreement with a third person is stated
only as an inducement to the defendant's promise, which is the
principal cause of action, it is considered in general sufficient
to state such agreement without certainty of name,
Page 76 U. S. 483
place, or person, [
Footnote
3] and where the matter is unnecessarily stated by way of
inducement and might be struck out as surplusage, and, as we shall
show hereafter may be said of that in the present case, the failure
to make proof of the statement is not material.
The action, then, being founded upon the coupons, the material
question arising on this branch of the case is whether or not the
plea of the statute of limitations constitutes a good defense. It
is admitted that more than six years have elapsed since the
interest accrued on the coupons, and if barred by this lapse of
time, the defense is complete and the court below erred in
sustaining the demurrer.
As we have seen, the coupons were made contemporaneously by the
city with the bonds for the accruing interest thereon. This appears
on their face. The City of Kenosha, on the first September &c.,
will pay twenty-five dollars at the People's Bank &c., on
presentation of this coupon, being the interest due that day on the
bond of said city, numbered one, dated 1st September, 1857, which
bond itself contains a covenant for the same interest. The coupon
is not an independent instrument, like a promissory note for a sum
of money, but is given for interest thereafter to become due upon
the bond, which interest is parcel of the bond and partakes of its
nature, and the bond, being of a higher security than a simple
contract debt, is not barred by lapse of time short of twenty
years, and, as we have seen, this contemporaneous coupon does not
operate as an extinguishment of the interest unless there has been
an express agreement to that effect. These coupons are
substantially but copies from the body of the bond in respect to
the interest, and, as is well known, are given to the holder of the
bond for the purpose first of enabling him to collect the interest
at the time and place mentioned without the trouble of presenting
the bond every time it becomes due, and second to enable the holder
to realize the interest due, or to become due, by negotiating the
coupons to the bearer in business transactions,
Page 76 U. S. 484
on whom the duty of collecting them devolves. This device
affords great convenience to all persons dealing in these
securities, especially to the holders in foreign countries who
otherwise would be obliged to forward the bond to the place of
payment of the interest each time it became due or trust them to
the hands of their correspondents in the country where the payment
is made.
This convenience in the collection by the use of coupons, as is
apparent, very much facilitates the negotiation of these securities
abroad, and enhances their value in the foreign market. And any
decision that would have the effect to lessen or impair the higher
security for the interest as found in the bond, by the use of these
coupons, would necessarily, to that extent, defeat the purpose for
which they were designed. As we have seen, there is nothing in the
contract between the parties that would lead to the conclusion the
nature or character of the security by the bond for the interest
was to be changed or lessened by the issue of the coupons, but the
contrary, for if any such change had been intended, it should have
been in some way indicated in the body of them. There was but one
contract, and that evidenced by the bond, which covenanted to pay
the bearer five hundred dollars in twenty years, with semiannual
interest at the rate of ten percent per annum. The bearer has the
same security for the interest that he has for the principal. The
coupon is simply a mode agreed on between the parties for the
convenience of the holder in collecting the interest as it becomes
due. Their great convenience and use in the interests of business
and commerce should commend them to the most favorable view of the
court; but even without this consideration, looking at their terms,
and in connection with the bond, of which they are a part and which
is referred to on their face, in our judgment it would be a
departure from the purpose for which they were issued and from the
intent of the parties to hold, when they are cut off from the bond
for collection, that the nature and character of the security
changes and becomes a simple contract debt, instead of partaking of
the nature of the higher security of
Page 76 U. S. 485
the bond, which exists for the same indebtedness. Our conclusion
is that the cause of action is not barred by lapse of time short of
twenty years. Recurring again to the declaration, we have said that
the preamble, or inducement, was unnecessary and might well be
rejected as surplusage. As we have seen, it recites in very general
terms the bonds to which the several coupons in suit were annexed.
Now each coupon itself contains substantially, on its face, all
this information. It is issued for interest due at a certain day
and place on a bond, giving its number and date. Another form adds
the amount, but this is unimportant, as the bond is sufficiently
identified without it. The production of the coupon, therefore, at
the trial, will show the relation it bears to the bond, and if our
opinion is sound that in this connection it cannot be legally
severed from it till the interest is paid, a count upon the coupon
is all that can be material.
The only remaining question in the case is as to the authority
of the City of Kenosha to issue bonds to which the coupons were
annexed.
The act of 1857 of the legislature which amends and consolidates
the several acts relating to the charter of the city confers full
authority upon the common council to borrow on the corporate credit
of the city any sum of money for any term of time, at any rate of
interest, and payable at any place deemed expedient, issuing bonds
or scrip therefor. It is admitted this authority would be
sufficient, but it is insisted that the statute exceeds the
authority of the legislature under the third section of the
eleventh article of the state constitution, which, it is asserted,
requires the legislature to limit or restrict the amount of money
to be raised by the city. Without inquiry into this question, it is
sufficient to say that after the city had passed the ordinance
lending its credit to the railroad company to the amount of
$100,000, the legislature ratified it. This was equivalent to an
original limit of this amount.
It is urged also that the Supreme Court of Wisconsin has held
that the act of the legislature conferring authority upon
Page 76 U. S. 486
the city to lend its credit and issue the bonds in question was
in violation of the provision of the constitution above referred
to. But at the time this loan was made and these bonds were issued,
the decisions of the court of the state favored the validity of the
law. [
Footnote 4] The last
decision, cannot, therefore, be followed. [
Footnote 5]
Judgment affirmed.
Dissenting, MR. JUSTICE MILLER.
[
Footnote 1]
Chap. 133, Private Laws.
[
Footnote 2]
1 Chitty on Pleading 290.
[
Footnote 3]
1 Chitty on Pleading 291.
[
Footnote 4]
See Dean v. Madison, 7 Wis. 688;
Clark v.
Janesville, 10
id. 136 -- REP.
[
Footnote 5]
Gelpcke v.
Dubuque, 1 Wall. 175.
