100 Tenn. 346 | Tenn. | 1898
On July 1, 1873, Marshall County issued a series of $115,000 of twenty years, negotiable, interest-bearing, coupon bonds, to the Duck River Valley Railroad Company, in payment of the county’s subscription to • the capital stock of the company. Three of these bonds, two for $500 each, and one for $1,000, with the twentieth annual coupon attached to each of them, went into the hands of James D. Richardson, executor, as parts of the assets of the estate of Mrs. N. P. McCord, deceased.
In April, 1895, almost two years after maturity, this bill was filed by the executor to collect these bonds and coupons. The county defended upon two grounds: (1) That the whole series of bonds was issued without legislative authority, and was therefore void; (2) that the particular bonds sued on had .been
The Chancellor, without passing on the first of these defenses, was of the opinion that the second one was true in fact and sound in law, and so adjudged, dismissing the bill.
The Court of Chancery Appeals held that the first 'defense was well made in fact and in law, and that the second one was sustained by the proof, but that it must be unavailing because presented in the form stated by an answer, and not by a formal plea of non est factum. The result was an affirmance of the decree of the Chancellor, but upon a different ground.
It is well settled that negotiable bonds issued by counties, cities, or towns, without legislative authority, are void ah initio, and nonenforceable in whose-soever hands. Claiborne Co. v. Brooks, 111 U. S., 400; Kelley v. Milan, 127 U. S., 139; Norton v. Dyersburg, Ib., 160; Pulaski v. Gilmore, 21 Fed. Rep., 870; Milan v. Railroad, 11 Lea, 329; Colburn v. Railroad, 94 Tenn., 43; Johnson City v. Three C.'s Railroad, ante, p. 138. But the • original validity of all this series of bonds must be held to have been conclusively and finally adjudged long before the present litigation arose.
On final hearing the Chancellor dismissed the bill, and, on appeal, this Court, in March, 1878, affirmed his action, and, by its decree, specifically adjudged, among other things, that the $115,000 of bonds were ‘ legal and valid. ’ ’
Although it was not distinctly alleged in the bill that the absence of ‘; legal warrant or authority ’ ’ to issue the bonds was due to a lack of legislative authorization, and although it was not distinctly recited in the decree that this Court found sufficient authorization in existing statutes, it can but be entirely manifest that the allegation was broad enough to raise, and the decree specific enough to adjudge, that exact question. Indeed, when the Court adjudged that the bonds were ‘£ legal and valid, ’ ’ it necessarily, ex vi termina, held that there was ample legislative authority for their issuance, since without such authority they must unavoidably have been illegal and
In the face of such a decree in such a litigation, and of such a recognition and the consequent encouragement to free circulation in the markets of the country, the county will not at this late day be heard to question the original validity of the bonds upon any ground whatsoever, and especially as against the complainant whose testatrix made her purchase in good faith and for value long after that adjudication, and when nearly all of the interest had been paid on each of the bonds - she bought. It may be conceded, as was decided by the Court of Chancery Appeals, that the statutes existing in 1873, when this bond issue was made, did not authorize it, -and yet, because the Court of last resort adjudged otherwise, the result would be the same.
Under the maxim that every man is presumed to know the law, all intending purchasers were bound, of course, at their peril, to see that the bonds were issued under competent legal authority. In this, how■ever, they were not required to make an infallible construction of the statutes for themselves, but were allowed to rely upon the adj udication of this Court.
It should be noted that the opinion filed by this Court (Williams v. Railroad Co., 9 Bax., 488) in advance of its decree, mentioned and considered only the impeachment of the railroad’s charter and of the county’s subscription, and did not refer to the alleged absence of “legal warrant or authority” for the issuance of the bonds. That omission in the opinion, however, could not operate now as a limitation upon the scope of the decree, which was subsequent in point of time, and might well have embraced matters not discussed in the opinion. The decree in such a case must be regarded as controlling.
The opinion only, and not the decree, was brought to the attention of the Court of Chancery Appeals; hence, that Court naturally concluded that the question of legislative authority was not involved in that case, and, in view of that fact, made an original
We canno't concur with the Court of Chancery Appeals in holding that the second defense of the county could be made available under a plea of non est factum only. It may be that the county could prove payment, cancellation, and fraudulent re-issuance under such a plea, but we think an answer the more appropriate pleading, in equity, for such a defense. The insistence of the county was, that it had paid each of the bonds now in suit and canceled them, and that after this had been done, some unknown person had purloined them, and by means of a skillful erasure of the indorsed cancellation, fraudulently put them on the market again.
The real defense was best pleaded, th'e true issue best presented, when the facts relied on were plainly and directly stated in the form of an answer. No denial, disclosure or other averment made, was of such a nature as to demand a plea of non est factmn. ’There was, and could have been, no denial that the bonds, in their present form and tenor, were executed by the county; on the contrary, it was distinctly admitted that they had been so executed, and that they were,- originally, genuine obligations. The gist of the defense was payment, and it was none the less so because the money was
The Court of Chancery Appeals, having found as a fact that the contention of the county in respect of payment, cancellation, theft, and fraudulent recirculation, was sustained by the proof, should have applied that finding to the answer as an appropriate pleading, and then held as a matter of law that the bonds had _ been once extinguished and could not be collected a second time.
. Payment and cancellation worked an absolute ex-tinguishment of the bonds, and rendered them null and void to all intents and purposes. When paid and canceled they were utterly dead and incapable of revitalization by theft and fraudulent recirculation. No sort of manipulation by the thief could revive extinct obligations or create new ones. Hence, the bonds in suit are without vitality and not collectible.
In Pugh v. Moore it was decided that negotiable Louisiana bonds, fraudulently reissued by the Treasurer of the State, were nonenforcible nullities, though in the hands of an innocent holder (44 La. Ann., 209): and a like decision was made in the case of Branch v. Commissioners of Sinking Fund, wherein bona fide holders sought, without success, to compel the funding of certain negotiable Virginia bonds that had been stolen and put on the market after redemption by the State. 80 Va., 427 (S. C., 56 Am. Rep., 596). See, also, Chemung Bank v. Chemung Co., 5 Denio, 517.
The Court was undoubtedly right in its statement
Differently stated, that Court’s proposition was that the bank incurred no enforceable liability by the breach of its implied warranty of title and genuineness, because the bonds, if they had been such as they were warranted to be, would, nevertheless, have been invalid on account of having been issued without legislative authority, as to the existence of which there was no implied warranty, and that, being so invalid, they would have been lost to the complainant for that reason without more, and, consequently, the bank’s breach could have caused no injury that would not otherwise have resulted. This conclusion is likewise unsound. The bank sold the bonds to the complainant’s testatrix, and received her money for them upon the implied warranty already stated, and, having done so, it would not be allowed
But this discussion need not be pursued further, for, as seen in a.n early part of this opinion, the $115,-000 ,of bonds must now be held to have been, years ago, finally and conclusively adjudged to have been issued upon competent legislative authority, and, thereby, the reason upon which the Court of Chancery Appeals placed the bank’s nonliability is entirely dissipated.
What, then, is the true legal status of the bank in relation to its transaction with the complainant’s testatrix ? In every unqualified sale of negotiable bonds, as this one was, the seller, by implication of law, warrants that he has a good title, and that
The last two cases cited are precisely like this one in principle, and practically the same upon their facts. In the former one (Michel v. Valentine), the buyer sued the seller of a United States treasury note that had been canceled and by a thief put in circulation again, and in the latter (Pugh v. Moore), the buyer sued the seller of ’ certain State bonds that had, by its Treasurer, been fraudulently reissued, and in each instance the purchaser was allowed a recovery for the amount paid, upon the ground that there had been a breach of the implied warranty of title and genuineness. The bank in this case sold to the complainant’s testatrix bonds that had been paid and canceled by the county, and thereafter purloined and fraudulently put upon the market again by some unknown person, and, in making the sale without qualification, it impliedly warranted that it had a good title and that the bonds were genuine. The warranty was broken the moment it was made, and the bank became liable at once for the price paid. The bank’s good faith in the sale cannot affect the question of its legal responsibility. Its fair intention does not render its breach any less certain
In the present case,- the bank impliedly said that it had a good, title to outstanding bonds, when it had not, and that • the bonds were genuine, when they were not. It follows, therefore, that the complainant is entitled to recover from the bank the amount it received from his testatrix for the bonds, with interest thereon from the time she paid it, less any interest that may have been collected on the bonds in the meantime.
The decree of the Court of Chancery Appeals will be affirmed as to the county and reversed as to the bank, for the reasons stated in this opinion.