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
Page 81 U. S. 283
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
Page 81 U. S. 284
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. "
Page 81 U. S. 285
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.
Page 81 U. S. 286
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?
Page 81 U. S. 289
MR. JUSTICE CLIFFORD delivered the opinion of the Court.
Subscription to the stock of the Lexington & Big Sandy
Railroad Company was made by the corporation defendants to the
amount of one hundred and fifty thousand dollars, and on the
fifteenth of October, 1853, they, as the municipal corporation of
Lexington, issued one hundred and fifty bonds, each for one
thousand dollars, sealed with the corporate seal and signed by the
mayor and clerk of the corporation. By the terms of the bonds, they
are payable to the railroad company or order at the Bank of America
in thirty years from date, with interest semiannually at the rate
of six percentum per annum, also payable at the same bank in the
City of New York. Interest warrants were annexed to each bond
whereby the municipal corporation undertook and promised to pay to
bearer the several installments of interest provided in the bonds,
as the same matured and became payable.
Pursuant to that arrangement, the railroad company became the
lawful owners and holders of the whole of those bonds, and they, as
such holders and owners, endorsed the bonds in blank and
transferred the same to divers persons or corporations as the means
of borrowing money to construct their railroad, and the plaintiff
in that way, as he alleges, became the purchaser and owner of four
of those bonds with the unpaid interest warrants annexed. Payment
of the interest being refused, the plaintiff instituted the present
suit in the state court to recover the amount of the interest
overdue, as more fully appears in the petition or declaration filed
in the state court where the suit was commenced. Service was made
and the defendants appeared, and on their motion the cause was
continued. Subsequently,
Page 81 U. S. 290
the plaintiff filed a petition and affidavit for the removal of
the cause into the circuit court of the United States for trial,
alleging as the ground of the application that he had reason to
believe and did believe that from prejudice and local influence he
would not be able to obtain justice in the state court, and, the
applicant having given bond as required by law, the cause was
removed into the circuit court of the United States for that
district. [
Footnote 1]
Two special pleas were filed by the defendants in bar of the
action:
I. That they were not liable to pay either the bonds or the
interest on the same because the conditions precedent to the right
of the corporation to subscribe for the stock of the railroad
company and to issue the bonds were never fulfilled; that the
conditions annexed to the right, as enacted by the legislature,
were that the proposition to subscribe should be submitted to the
qualified voters of the corporation, and that it should be approved
by a majority of the persons voting on the question; that three
conditions were embodied in the proposition as submitted to the
voters, as specifically set forth in the plea; that the proposition
as submitted did not authorize a subscription unless a million of
dollars were previously subscribed by other parties; that other
parties not having subscribed that amount the authorities of the
corporation refused to make the subscription, and that the state
court on the application of the railroad company issued a mandamus
and compelled the authorities of the corporation to make the
subscription and issue the bonds; that the defendants appealed to
the Court of Appeals, where the judgment of the subordinate court
was reversed, the Court of Appeals holding that the corporation had
no authority to subscribe for the stock or to issue the bonds until
one million of dollars had been subscribed by other parties; that
the action was thereupon redocketed and a rule laid upon the
railroad company to redeliver the bonds to the defendants to be
cancelled; that the railroad company in the meantime
Page 81 U. S. 291
deposited forty-eight of the bonds with an agent with directions
to sell the same for their benefit; that before the bonds were
negotiated or transferred, they, the defendants, obtained an
injunction and an order of court that the same should be deposited
with a receiver of the court to be sold, and that the proceeds
should be applied under the order of the court, and the defendants
allege that the action is still pending and that the order of the
court was never obeyed; that the bonds described in the declaration
are a portion of those bonds, and that the plaintiff, when the
bonds in suit were transferred to him, well knew of the pendency of
said actions and of the judgments and orders therein, and that the
bonds had been issued under and by virtue of said writ of
mandamus.
II. That the cause of action did not accrue to the plaintiff
within five years next before the action was commenced.
To the first special plea of the defendant the plaintiff filed a
replication, in which he denied that he had any knowledge, notice,
or information whatever, before or at the time the bonds were
transferred to him, of the pendency of said supposed actions or any
or either of them or of the supposed judgments or orders in those
actions, or that said bonds had been issued under or by virtue of
the said writ of mandamus, in manner and form as the defendants
have alleged and tendered an issue, and the defendants demurred to
the replication and the plaintiffs joined in demurrer.
On the other hand, the plaintiffs demurred to the second plea of
the defendants and the defendants joined in demurrer, so that both
pleas terminated in an issue of law for the decision of the court,
and the court overruled the demurrer of the defendants to the
replication of the plaintiff and sustained the demurrer of the
plaintiff to the second plea of the defendants, and gave judgment
for the plaintiff in the sum of three thousand six hundred and
thirty dollars and six cents, being the amount of the debt demanded
in the declaration. Dissatisfied with the judgment of the court,
the defendants sued out a writ of error and removed the cause into
this Court.
Page 81 U. S. 292
Three errors are assigned by the original defendants:
(1) That the court erred in rendering judgment for the
plaintiff, as the court had no jurisdiction of the case.
(2) That the court erred in overruling the demurrer of the
defendants to the replication of the plaintiff filed to their first
special plea.
(3) That the court erred in sustaining the demurrer of the
plaintiff to the second plea of the defendants.
Jurisdiction of the case is denied by the defendants because, as
they insist, the suit is founded on a cause of action which could
not properly be removed from the state court into the circuit
court, where the judgment was rendered, but the objection is not
well founded, as will be seen by reference to the twelfth section
of the Judiciary Act and the amendatory act under which the removal
in this case was made. Where a suit is commenced in any state court
in which there is a controversy between a citizen of the state in
which the suit is brought and a citizen of another state, and the
matter in dispute exceeds the sum of five hundred dollars,
exclusive of costs, such citizen of another state, whether he be
plaintiff or defendant, if he will 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, may at any time before the
final hearing or trial of the suit, file a petition in such state
court for the removal of the suit into the next circuit court of
the United States to be held in the district where the suit is
pending. Authority to remove such a suit is given by that act to
the plaintiff as well as to the defendant, but the further
provision is that the party desiring to exercise the privilege,
must offer good and sufficient surety that he will enter in such
court, on the first day of its session, copies of all process,
pleadings, depositions, testimony, and other proceedings in said
suit, and that he will do such other appropriate acts as are
required by law to be done for the removal of a suit from a state
court into a federal court. [
Footnote 2]
Page 81 U. S. 293
Evidence that the plaintiff complied with those conditions, it
is conceded, is exhibited in the record, but the precise objection
is that the cause of action is not one cognizable in the circuit
court under any circumstances, and reference is made to the
eleventh section of the Judiciary Act to support that proposition.
By that section it is provided that no District or 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 might 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.
All of the bonds were made payable to the order of the railroad
company, and each was assigned by a writing on the back of the
instrument to bearer by the company, and the payment of principal
and interest was guaranteed by the obligees in the bond. Neither
bonds of the kind nor the coupons annexed, where they are made
payable to bearer or are endorsed to bearer by the original
obligees or payees, are regarded as falling within the prohibition
of the eleventh section of the Judiciary Act, as they pass from one
holder to another by delivery without any formal assignment, as has
been held by this Court in several cases, to which reference is
made for the reasons upon which the rule is founded. [
Footnote 3]
Suppose, however, the rule is otherwise, still the objection
must be overruled, as the suit was not originally commenced in the
circuit court. Suits may properly be removed from a state court
into the circuit court in cases where the jurisdiction of the
circuit court, if the suit had been originally commenced there,
could not have been sustained, as the twelfth section of the
Judiciary Act does not contain any such restriction as that
contained in the eleventh section of the act defining the original
jurisdiction of the circuit courts. Since the decision in the case
of
Bushnell v. Kennedy, [
Footnote 4] all
Page 81 U. S. 294
doubt upon the subject is removed, as it is there expressly
determined that the restriction incorporated in the eleventh
section of the Judiciary Act, has no application to cases removed
into the circuit court from a state court, and it is quite clear
that the same rule must be applied in the construction of the
subsequent acts of Congress extending that privilege to other
suitors not embraced in the twelfth section of the Judiciary Act.
[
Footnote 5] Such a privilege
was extended by the twelfth section of the Judiciary Act only to an
alien defendant, and to a defendant, citizen of another state, when
sued by a citizen of the state in which the suit is brought, but
the privilege was much enlarged by subsequent acts, and the act in
question extends it to a plaintiff as well as to a defendant, where
the controversy is between a citizen of the state where the suit is
brought and a citizen of another state, if the matter in dispute
exceeds the sum of five hundred dollars, exclusive of costs, which
shows that the jurisdiction of the circuit court in this case was
beyond controversy.
III. Express authority to subscribe for the stock of the
railroad company, and to issue the bonds in payment for the same
was conferred upon the corporation defendants by the twenty-eighth
section of the act incorporating the railroad company, subject to
the conditions therein prescribed, that the proposition to
subscribe for the stock should be submitted to the qualified voters
of the corporation, and the same section points out the steps to be
pursued by the proper authorities to take the sense of the voters
upon the subject. Authority was conferred by the legislative act
upon the corporation defendants to issue bonds to the amount of one
hundred and fifty thousand dollars, and the plea alleges that, by
virtue thereof, they issued one hundred and fifty bonds, each of
one thousand dollars, payable in thirty years from date, with
coupons or interest warrants annexed providing for the payment of
the interest semiannually at the rate of six percentum per annum.
They bear the corporate seal
Page 81 U. S. 295
of the city and are signed by the mayor and are countersigned by
the clerk, each bond containing on its face a certificate that it
was issued in part payment of the subscription of one hundred and
fifty thousand dollars by the City of Lexington to the capital
stock of the railroad company, by order of the mayor and council of
said city, as authorized by a vote of the people taken in pursuance
of the beforementioned act of the General Assembly of the state.
[
Footnote 6] Issued by
authority of law, as the bonds purport to have been, and being, by
the regular endorsement thereof, made payable to bearer, they
lawfully circulated from holder to holder by delivery, and the
plaintiff having purchased four of the number in market overt,
became the lawful endorsee and holder of the same, together with
the coupons annexed, and the interest secured by the coupons being
unpaid, he instituted the present suit to recover the amount.
Evidently the
prima facie presumption in such a case is
that the holder acquired the bonds before they were due, that he
paid a valuable consideration for the same, and that he took them
without notice of any defect which would render the instruments
invalid. Impliedly the plea admits that the bonds were purchased
before they were due, and that the plaintiff paid a valuable
consideration for the same, but the defendants allege that he took
the same with notice of the irregularities in issuing the same, as
set forth in the plea, and they rely on those allegations as a
complete defense to the action, but the replication traversed the
averment of the notice and tendered an issue to the country, and
the defendants, by demurring to the replication, confessed that the
allegations of the plea in that behalf were untrue and that the
plaintiff was the
bona fide holder of the bonds without
notice of the alleged defects in the inception of the
instruments.
Coupons attached as interest warrants to bonds for the payment
of money, lawfully issued by municipal corporations, as well as the
bonds to which they are attached, when they are payable to order
and are endorsed in blank or are
Page 81 U. S. 296
made payable to bearer, are transferable by delivery and are
subject to the same rules and regulations, so far as respects the
title and rights of the holder, as negotiable bills of exchange and
promissory notes. Holders of such instruments, if the same are
endorsed in blank or are payable to bearer, are as effectually
shielded from the defense of prior equities between the original
parties, if unknown to them at the time of the transfer, as the
holders of any other class of negotiable instruments. [
Footnote 7]
Admitted as it is that the corporation defendants possessed the
power to subscribe for the stock and to issue the bonds, it is
clear that the plaintiff is entitled to recover upon the merits, as
the repeated decisions of this Court have established the rule that
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 that they are no more liable to be
impeached for any infirmity in the hands of such a holder than any
other commercial paper. [
Footnote
8]
IV. Actions on simple contracts are barred by the limitation law
of that state unless commenced within five years next after the
cause of action accrued, and the second plea was filed as a bar to
the action under that section of the statute of limitations, but
the bonds described in the declaration are specialties not falling
within that section of the statute. On the contrary, suits upon
bonds may be maintained if commenced at any time within fifteen
years next after the cause of action accrued, and it is well
settled law that a suit upon a coupon is not barred by the statute
of limitations unless the lapse of time is sufficient to bar also a
suit upon the bond, as the coupon, if in the usual form, is but a
repetition of the contract in respect to the interest, for
Page 81 U. S. 297
the period of time therein mentioned, which the bond makes upon
the same subject, being given for interest thereafter to become due
upon the bond, which interest is parcel of the bond and partakes of
its nature and is not barred by lapse of time except for the same
period as would bar a suit on the bond to which it was attached.
[
Footnote 9] Coupons are
substantially but copies of the stipulation in the body of the bond
in respect to the interest, and are so attached to the bond that
they may be cut off by the holder as matter of convenience in
collecting the interest, or to enable him to realize the interest
due or to become due by negotiating the same to bearer in business
transactions without the trouble of presenting the bond every time
an installment of interest falls due.
For these reasons, we are of the opinion that the ruling of the
circuit court was correct.
Judgment affirmed.
[
Footnote 1]
14 Stat. at Large 559.
[
Footnote 2]
14 Stat. at Large 559.
[
Footnote 3]
White v.
Railroad, 21 How. 576;
Thomson v. Lee
County, 3 Wall. 331.
[
Footnote 4]
76 U. S. 9 Wall.
387.
[
Footnote 5]
1 Stat. at Large 79.
[
Footnote 6]
Session Acts of Kentucky, 1852, p. 786.
[
Footnote 7]
Moran v. Miami
County, 2 Black 722;
Mercer
County v. Hacket, 1 Wall. 83.
[
Footnote 8]
Gelpcke v.
Dubuque, 1 Wall. 203;
Knox Co.
v. Aspinwall, 21 How. 539;
Supervisors v.
Schenck, 5 Wall. 784;
Bissell v.
Jeffersonville, 24 How. 299.
[
Footnote 9]
2 Revised Statutes of Kentucky, 126 and 127;
The
City v. Lamson, 9 Wall. 483.
