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decided: November 4, 1889.



Author: Harlan

[ 132 U.S. Page 111]

 MR. JUSTICE HARLAN delivered the opinion of the court. After stating the case as above reported, he continued:

The question of power in the county court to subscribe to the stock of the Missouri, Iowa and Nebraska Railway Company, without a previous vote of the people, and to issue bonds in payment of its subscription, was directly presented and determined, upon full consideration, in County of Scotland v. Thomas, 94 U.S. 682, decided in 1876. The coupons there in suit were of the same issue of bonds as those from which the coupons in the present suit were detached.It is true that that case was determined upon demurrer to the complaint. But that fact does not weaken the force of the decision, so far as it bears upon the question of legal authority in the county court to make the subscription. The record and opinion in that case show that it was stipulated between the parties that the question of subscribing to the stock of the Missouri, Iowa and Nebraska Railway Company had never been submitted to a vote of the qualified voters of Scotland County, and that, in determining the demurrer, the court should consider that fact, as if it had been averred in the complaint. It was also agreed that the court should consider as facts admitted the articles of consolidation betwen the Iowa Southern Railway Company and the Alexandria and Nebraska City Railroad Company, and the above orders of the county court of Scotland County. It was held that the privilege given to the Alexandria and Bloomfield Railroad Company, by its charter of 1857, of receiving county subscriptions, was not extinguished by the subsequent consolidation in 1870 of that company with other companies, but passed with its other rights and privileges into the new condition of existence arising from such consolidation; that, in making the subscription in that case, which is the identical subscription here in question, the county court acted "as the representative authority of the county itself, officially invested with all the discretion necessary to be exercised under

[ 132 U.S. Page 112]

     the change of circumstances brought about by the consolidation;" that the subscription was binding upon the county; and that the bonds issued in payment were valid obligations. It was also distinctly ruled, in accordance with County of Callaway v. Foster, 93 U.S. 567, and with previous decisions of the Supreme Court of Missouri, that the prohibition in the state constitution of 1865, of municipal subscriptions to the stock of, or loans of credit to, companies, associations or corporations, without the previous assent of two-thirds of the qualified voters at a regular or special election, had the effect to limit the future exercise of legislative power, but did not take away any authority granted before that constitution went into operation. The doctrines of that case were reaffirmed in County of Henry v. Nicolay, 95 U.S. 619, 624, (1877); County of Schuyler v. Thomas, 98 U.S. 169, 173, (1878); County of Cass v. Gillett, 100 U.S. 585, 592, (1879); and County of Ralls v. Douglass, 105 U.S. 728, 731, (1881) -- all cases arising in the State of Missouri, and relating to municipal bonds, issued under legislative authority granted before the adoption of the constitution of 1865. See also Menasha v. Hazard, 102 U.S. 81; Green County v. Conness, 109 U.S. 104; and Livingston County v. Portsmouth Bank, 128 U.S. 102. In County of Ralls v. Douglass attention was called to State ex rel. Wilson v. Garroutte, 67 Missouri, 445, and State ex rel. Barlow v. Dallas County, 72 Missouri, 329, holding, views different as well from those announced by this court in the cases above cited, as those previously announced by the state court in State v. Macon County Court, 41 Missouri, 453, Kansas City &c. Railroad Co. v. Alderman, 47 Missouri, 349, Smith v. Clark County, 54 Missouri, 58, 70, and State v. County Court of Sullivan, 51 Missouri, 522. But this court declined to reconsider its former decisions to the prejudice of bona fide holders of bonds issued prior to the change of decision in the state court. The bonds, the coupons of which are here in suit, were all issued in 1871, at which time the highest court of Missouri held that the above constitutional provision, as to municipal subscriptions or the loaning of municipal credit to corporations without a previous vote of the people, was intended,

[ 132 U.S. Page 113]

     (to use the language of County of Ralls v. Douglass,) "as a limitation on future legislation only, and did not operate to repeal enabling acts in existence when the constitution took effect."

We pass to the consideration of the controlling question in the case, namely, whether Hill's rights, as a holder of these coupons for himself and others, are affected by the final decree in the suit instituted in the state court by Wagner and others.

At the first trial of the present, action, the county offered to read in evidence the record of the Wagner suit in support of its plea averring, among other things, that Hill, and each previous holder of these coupons, had full, actual notice of the institution and object of that suit. It also offered to read in evidence the indemnifying bond of September 21, 1871, and, also, to prove by Mety, the trustee of the county, that he had actual notice of the pendency of the Wagner suit, at the time he delivered the bonds to the Missouri, Iowa and Nebraska Railway Company. There was also an offer to prove that the railway company "and each subsequent holder" received the bonds with actual notice of the pendency of that suit. The Circuit Court excluded all of this evidence. This court held that such exclusion was improper, and for that reason the judgment was reversed and the cause remanded for a new trial. Scotland County v. Hill, 112 U.S. 183.

Chief Justice Waite, delivering the opinion of the court, said; "The suit was about the bonds, and the liability of the county thereon. The decree was in accordance with the prayer of the bill, and certainly concluded both Mety*fn1 and the railroad company. After the rendition of this decree, the company could not sue and recover on the bonds, because, as between the company and the county, it had been directly adjudicated that the bonds were void and of no binding effect on the county. But it is equally well settled that the decree binds not only Mety and the company, but all who bought the bonds after the suit was begun, and who were chargeable

[ 132 U.S. Page 114]

     with notice of its pendency, or of the decree which was rendered. The case of County of Warren v. Marcy, 97 U.S. 96, decides that purchasers of negotiable securities are not chargeable with constructive notice of the pendency of a suit affecting the title or validity of the securities; but it has never been doubted that those who buy such securities from litigating parties, with actual notice of the suit, do so at their peril, and must abide the result the same as the parties from whom they got their title. Here the offer was to prove actual notice, not only to the plaintiff when he bought, but to every other buyer and holder of the bonds from the time they left the hands of Mety, pending the suit, until they came to him. Certainly, if these facts had been established, the defence of the county, under its fourth plea, would have been sustained; and this whether an injunction had been granted at the time the bonds were delivered by Mety or not. The defence does not rest on the preliminary injunction, but on the final decree by which the rights of the parties were fixed and determined."

The court also said: "It is a matter of no importance whether the decision in the Wagner suit was in conflict with that of this court in Scotland County v. Thomas, supra, or not. The question here is not one of authority but of adjudication. If there has been an adjudication which binds the plaintiff, that adjudication, whether it was right or wrong, concludes him until it has been reversed or otherwise set aside in some direct proceeding for that purpose. It cannot be disregarded any more in the courts of the United States than in those of the State."

It appears from the bill of exceptions taken at the last trial, resulting in the judgment now before us for review, that the county sought by evidence introduced in its behalf to support the charge of actual notice of the Wagner suit upon the part, as well of Hill, as of each previous holder of the bonds the coupons of which are here in suit. There was proof by the plaintiff tending to show that the bonds delivered by Mety to the railroad company were passed by that corporation to the company that built the road, in payment for construction, and that they were sold, for value, by the latter to various parties in different parts of the country, who had no notice whatever

[ 132 U.S. Page 115]

     of the institution or object of the Wagner suit. There was also evidence tending to show that the parties owning the coupons immediately before they were delivered to Hill for himself, and for others whom he represented, were all purchasers for value, without notice of the injunction suit, or of any infirmity in the bonds.

The county asked an instruction to the effect that "if at the time or times of making purchases of either of the coupons in this suit declared upon, William Hill, the plaintiff, had actual knowledge of the pendency of or judgment in the case of Levi J. Wagner at al. v. Charles Mety et al., and if the jury so find, they are instructed that as to any such coupon purchased by plaintiff, whether for himself or as agent for other persons, no recovery of judgment can be herein had." The court refused to so instruct the jury, but instructed them, in substance, that the ownership of the coupons by a prior holder under such circumstances as would protect that holder against any defence by the county, entitled Hill to recover, even if he, when afterwards purchasing for himself or others, had knowledge of the pendency of the Wagner suit. That this was the meaning of the court is quite clear from the following extracts from its charge to the jury: "This paper is valid in the hands of a party who received it for value without actual notice of the pendency of the suit of Wagner and others; but if he and each intermediate party from the first delivery of these bonds and coupons also had notice of such suit or other infirmity, then no recovery can be had. . . If the obligations sued on were duly executed, as above mentioned, and delivered by said Mety, and were thereafter purchased for value by the plaintiff from persons who had acquired the same for value without notice of said suit or of any fraud in the execution and delivery of the same, as above stated, then as to such obligations the plaintiff is entitled to recover. On the other hand, if the plaintiff and each of the persons through whom he derived title had actual notice of said Wagner suit, or of the delivery of said obligations by Mety to escape said suit, known to be about to be instituted, then as to such of said obligations there can be no recovery. . . . One link broken in the chain breaks the chain."

[ 132 U.S. Page 116]

     As there was no evidence tending to show that Hill was a party to the scheme devised by the county officers and the railway company for the delivery of the bonds to the latter before the injunction suit should be ripe for a decree, we are of opinion that the court did not err in its instructions to the jury.

The bonds were delivered to the railway company at the office of the bank in Warsaw, Illinois, of which Hill was president. And it is, perhaps, true, that Hill had then heard of the Wagner suit, and knew or suspected that Mety's purpose in bringing the bonds to Warsaw was to deliver them to the company before the injunction could be served upon him. But he had no connection with the conspirators, nor did he or any of the parties represented by him have, at that time, any interest in the coupons. It is said that the construction company received the bonds with actual notice, upon the part of one of its chief officers, of the injunction suit. But there can be no claim that any of the holders of the coupons, intermediate between the construction company and Hill, had any such notice. Be that as it may, the question as to such notice was properly submitted to the jury.

The principles to law by which this question must be determined are well settled. In Commissioners of Douglas County v. Bolles, 94 U.S. 104, which involved the rights of parties claiming to be bona fide holders of certain municipal bonds, issued to a railroad corporation, and by it passed to the contractor who built its track, the court, after observing that the plaintiffs could call to their aid the fact that their predecessors in ownership were bona fide purchasers, said: "And still more, the contractor for building the railroad received the bonds from the county in payment for his work, either in whole or in part, after his work had been completed. There is no pretence that he had notice of anything that should have made him doubt their validity. Why was he not a bona fide purchaser for value? The law is undoubted that every person succeeding him in the ownership of the bonds is entitled to stand upon his rights." In Cromwell v. County of Sac, 96 U.S. 51, 59, it was said that, with some exceptions that have no relevancy here, "the rule has been too long settled to be

[ 132 U.S. Page 117]

     questioned now, that whenever negotiable paper has passed into the hands of a party unaffected by previous infirmities, its character as an available security is established, and its holder can transfer it to others with the like immunity. His own title and right would be impaired, if any restrictions were placed upon his power of disposition." So, in Roberts v. Lane, 64 Maine, 108, 111, it was said that "if any intermediate holder between the plaintiff and defendant took the note under such circumstances as would entitle him to recover against the defendant, the plaintiff will have the same right, even the though he may have purchased when the note was overdue, or with a knowledge of its infirmity, as between the original parties." See, also, Montclair v. Ramsdell, 107 U.S. 147, 159; Porter v. Pittsburg Steel Co., 122 U.S. 267, 283; Mornyer v. Cooper, 35 Iowa, 257, 260; Kost v. Bender, 25 Michigan, 515; Byles on Bills, 119, 124.

It is objected that there was error in allowing interest at the rate of seven per cent upon the coupons after their maturity. Such allowance was proper for the reason that the coupons (which, as well as the bonds, were silent, as to the rate of interest after maturity) were made payable in New York, where the rate as then estblished by law was seven per cent. Rev. States N.Y., 771, Part 2, c. 4, Title 3, § 1; Act of June 20, 1879, Laws of 1879, c. 538, p. 598. In Bank of Louisville v. Young, 37 Missouri, 398, 407, the rule was recognized that "interest is to be paid on contracts according to the law of the place where they are to be performed; where interest is expressly or impliedly to be paid." Andrews v. Pond, 13 Pet. 65, 73, 77, 78; Story's Conflict of Laws, § 291. In respect to interest on the amount for which judgment was rendered, we are of opinion that the law of Missouri governs, and the judgment must bear only six per cent interest. 1 Rev. Stats. Missouri, 1879, §§ 2723, 2725.

The judgment of the court below is affirmed, to bear interest from the date of its rendition at the rate of six per cent per annum. The objection that some of the coupons included in the present judgment were, in fact, included in former judgments against the county, is without foundation.

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