65 F. 455 | U.S. Circuit Court for the District of Indiana | 1895
On or about the 1st day of November, 1864, pursuant to a resolution of its board of directors, the Columbus & Indianapolis Central Railway Company made and authorized to he issued its certain series of bonds, numbered consecutively from 1 to 1,000, inclusive, for $1,000 each, payable on the 1st day of November, 1904, with 7 per cent, interest thereon, payable semiannually, evidenced by coupons annexed thereto. All of these bonds were duly signed by its president, and attested by its secretary, and sealed with its corporate seal. In the body of each bond was contained a provision in these words:
“This bond shall not become obligatory until it shall hare been authenticated by a certificate annexed to it, duly signed by the trustee.”
Each bond contains on its face, immediately below the signatures of the president, and secretary, the following certificate:
“I hereby certify that this bond is one of the series of bonds described in and secured by the deed of trust or mortgage above mentioned.
“LSlgnedJ A. Parlchurst, Trustee.”
At the same time the railway company executed a trust deed or mortgage to secure the bonds to Archibald Parkhurst, trustee, which was duly recorded in each county in the states of Ohio and Indiana into or through which the railway ran. On the 11th day of September, 1867, the Columbus & Indianapolis Central Railway Company was consolidated with other railroads, and became the Columbus & Indiana Central Railway Company. On the 1st of February,
Counsel for the respondents state the question for decision thus:
“When a party executes a negotiable instrument, complete in form, and retains it with the intention of future use and delivery, but before such use or delivery, and without any present intention to deliver, it for any purpose, it is gotten from his possession by force, crime, or fraud, and passes into the hands of an innocent purchaser before due, is the maker estopped as against the innocent purchaser from denying its validity?”
The question thus stated is elaborately argued, with the citation of many authorities, to show that the bona fide holder of such negotiable paper would not be entitled to protection. It is unnecessary to consider the question thus stated, because it does not state the
A purchaser of negotiable railroad bonds in good faith and for their full market value may he a bona fide holder, although some of the interest coupons attached thereto are past due and unpaid' at the time of purchase. Morgan v. U. S., 113 U. S. 476, 5 Sup. Ct. 588; Thompson v. Perrine, 106 U. S. 589, 1 Sup. Ct. 564, 568; Railroad Co. v. Sprague, 103 U. S. 756; Cromwell v. County of Sac, 96 U. S. 51; Bank v. Kirby, 108 Mass. 497; McLane v. Railroad Co., 66 Cal. 606, 6 Pac. 748; State v. Cobb, 64 Ala. 127; Boss v. Hewitt, 15 Wis. 260.
In Bank v. Kirby, 108 Mass. 497, 501, the court say:
“We are referred to no case in which it has been held that failure to pay interest, standing alone, is to he regarded sufficient in law to throw such discredit upon the principal security upon which it is duo as to subject the holder to the full extent of the security to antecedent equities.”
“To hold otherwise,” the supreme court said in Cromwell v. County of Sac, 96 U. S. 51, 58, “would throw discredit upon a large class of securities issued hv municipal and private corporations, having years to run, with interest payable annually or semiannually.”
The doctrine was reaffirmed in Railroad Co. v. Sprague, 103 U. S. 756, and in Morgan v. U. S., 113 U. S. 476, 5 Sup. Ct. 588.
But, where it appears that the interest on the bond is overdue and unpaid, this is held in some cases, and I think erroneously, to he a circumstance of suspicion sufficient to put. a purchaser on his guard, and to impair his title. First Nat. Bank of St. Paul v. Commissioners of Scott Co., 14 Minn. 77 (Gil. 59); Parsons v. Jackson, 99 U. S. 434; Morton v. Railroad Co., 79 Ala. 590. The better doctrine, however, seems to be that suspicion of defect of title, or the knowledge of circumstances which would excite suspicion in the mind of a prudent man, or gross negligence on the part of the buyer, will not affect his title. Nothing short of had faith on the part of the purchaser of negotiable bonds passing by delivery, and which are fair upon their face, will destroy their validity; and the burden of proof lies upon the person who assails the title of the party in possession. Murray v. Lardner, 2 Wall. 110; Railroad Co. v. Lewis, 33 Pa. St. 33; Railroad Co. v. Cowdrey, 11 Wall. 459; Spence v. Railroad Co., 79 Ala. 576; Goodman v. Simonds, 20 How. 343.
The fact that two interest coupons attached to each of the bonds
It is generally agreed that the delivery of negotiable paper left in escrow, contrary to the terms upon which it was to have been delivered, will pass a good title to the .bona fide transferee for value and before maturity. Fearing v. Clark, 16 Gray, 74; Graff v. Logue, 61 Iowa, 704, 17 N. W. 171. In a note to Willard v. Nelson (Neb.) 53 N. W. 572, the editor, after reviewing many authorities, says:
“We think the better rule is that he who signs a writing knowing that it is intended to be used, or may be used, for some business purpose, must at his peril ascertain that it is not a negotiable instrument, and, failing to do this, is liable absolutely, though he was procured to sign it by some fraudulent device or misrepresentation, or, having signed it advisedly, it was taken from his possession by fraud or theft, and without any intention on his part to deliver it to any one, or to let it be negotiated for his benefit or otherwise."
Each bond bears on its face the statement: “This bond shall •not become obligatory until it shall have beam authenticated by a certificate annexed to it, duly signed by the trustee.” And each bond contains the certificate of the trustee that the bond is one of (he series of bonds described in and secured by the trust deed or mortgage. The bonds could in no event become obligatory until the certificate of the trustee was annexed to them. This act of the trustee, when performed, was to authenticate the bonds; that is, “to determine as real and true" each bond so authenticated. When thus authenticated, its (Meet was to rendíal (hem obligatory, and to pronounce them the genuine and valid bonds of the obligor. A bona fide purchaser, in the usual course of business, could safely rely on the declaration in the bond that, when authenticated by the certificate of the trastee, it should then become obligatory. The bonds in suit were properly authenticated by the trustee on or about November 1, 1864. From that time they became the binding and valid obligations of the maker in the hands of any bona fide purchaser for value and before maturity. The maker of the bonds and those acquiring the property conveyed by the trust deed to secure their payment: are estopped to deny their validity in the hands of such innocent holder for value. The respondents are chargeable with negligence in failing to require the surrender of all unissued bonds before consenting to take the property with an incumbrance