text:
St. Louis, Iron Mountain & Southern Railway Co. v. Berry (113 U.S. 465)/Opinion of the Court

MR. JUSTICE MATTHEWS delivered the opinion of the court.

The legislature of Arkansas passed an act, January 12, 1853, to incorporate the Cairo and Fulton Railroad Company, with power to construct, maintain, and operate a railroad from a point on the Mississippi river opposite the mouth of the Ohio, [p466] in the state of Missouri, by way of Little Rock, to the Texas boundary line, near Fulton, in Arkansas, with one or more branches to the western boundary line of that state, with the view of entering the northeastern and northwestern portions of Texas, and there connecting with projected railroads in that state, from the bay of Galveston, running up the valleys of the Brazos and Trinity rivers; and with power to construct branches to any other point or points within the state of Arkansas. The capital stock of the company was fixed at $1,500,000, to be increased from time to time to any sum not exceeding the entire amount expended on account of said road.

The act contained the following sections:

"SEC. 10. Said corporation shall have power to unite their road with the southern end of the Missouri road at some suitable point on the line which divides these two states, and its southern end with any road coming in from Texas, at such point on the boundary line which divides that state and Arkansas that may be deemed most eligible; and to make any contract or agreement with any other railroad company in reference to their business that may best insure the early construction of said road and its successful management; and also to make joint stock with any other railroad company in this or any other state, and to form one board of directors for the management of their affairs. If it should be found necessary to facilitate the early construction of of the respective boards shall form affairs. If it should be found necessary a part of their respective charters whenever the same may be entered into and recorded with their charters.

"SEC. 11. That the capital stock and dividends of said company shall be forever exempt from taxation; the road, fixtures, and appurtenances shall be exempt from taxation until after it pays an interest of not less than ten per cent. per annum.

"SEC. 13. This act shall be deemed a public act, and shall be favorably construed for all the purposes therein expressed and declared, in all courts and places whatsoever, and shall be in force from and after its passage: Provided, that all the rights, privileges, immunities, and franchises contained in the [p467] charter granted at this session of the legislature of this state to 'The Mississippi Valley Railroad Company,' and not restricting or inconsistent with this act, are hereby extended to and shall form a part of this incorporation as fully as if the same was inserted herein."

The reference to the charter of the Mississippi Valley Railroad Company need not be further considered, as it does not seem to be material in the present controversy. Railway Co. v. Loftin, 98 U.S. 559.

At the time of the passing of the act incorporating the Cairo and Fulton Railroad Company, the constitution of Arkansas contained no restriction upon the power of the legislature to grant such an exemption from taxation as the charter contains. But the constitution of the state, which took effect April 1, 1868, and was in force until October, 1874, contained the following provisions:

"The general assembly shall pass no special act conferring corporate powers. Corporations may be formed under general laws, but all such laws may from time to time be altered or repealed." Article 5, section 48.

"The general assembly shall not grant to any citizen or class of citizens privileges or immunities which upon the same terms shall not equally belong to all citizens." Article 1, section 18.

"The property of corporations now existing or hereafter created shall forever be subject to taxation the same as property of individuals." Article 5, section 48.

On July 23, 1868, an act was passed by the general assembly of the state of Arkansas "to provide for a general system of railroad incorporation," in which is the following:

"SEC. 43. Any railroad company now chartered under existing laws, or which may hereafter become incorporated under this law, shall have power and authority to purchase and hold any connecting railroad and operate the same, or to consolidate their companies and make one company, under the name of one or both or any other name; but when such purchase is made or consolidation is effected, the said company shall have and be entitled to all the benefits, rights, franchises, lands and [p468] tenements, and property of every description, belonging to said road or roads so sold or consolidated, and shall be liable to all the pains and penalties imposed by their respective charters."

On January 1, 1874, the main line of the Cairo and Fulton Railroad Company was completed and was in actual operation; but the branches authorized by the charter were not completed until after the consolidation between that company and the St. Louis and Iron Mountain Railroad Company, a corporation of Missouri which took effect on May 4, 1874, and resulted in the formation of the St. Louis, Iron Mountain and Southern Railway Company, the complainant and plaintiff in error in this suit. This consolidation was effected by means of certain proceedings and an agreement between the parties, the parts of which, pertinent to the present controversy, are as follows:

The board of directors of the Cairo and Fulton Railroad Company, on May 4, 1874, adopted these resolutions, viz.:

"Resolved, That this company will enter into an agreement with the St. Louis and Iron Mountain Railroad Company for uniting and consolidating this company with the said St. Louis and Iron Mountain Railroad Company, and for making joint stock of the two companies and forming one board or directors for the management of the affairs of said companies on the basis jointly recommended by the committees on consolidation, and embraced in the agreement executed by the said St. Louis and Iron Mountain Railroad Company, and now here submitted for execution on the part of this company.

"Resolved further, That the president of this company be, and he is hereby, authorized and directed to execute the agreement submitted, to be, however, subject to the approval and confirmation of the stockholders of this company, called to be holden on Monday, the fourth day of May inst., or any other day thereafter, and, when approved that the president cause the same to be carried into effect, and call in the certificates of stock in this company outstanding, and exchange them for stock in the new company according to the terms of the agreement."

[p469] The agreement of consolidation referred to was approved and adopted by the stockholders of the company on the same day. It purports to be an agreement entered into April 13, 1874, between the St. Louis and Iron Mountain Railroad Company, a corporation organized and existing under and by virtue of the laws of the state of Missouri, party of the first part, and the Cairo and Fulton Railroad Company, a corporation organized and existing under and by virtue of the laws of the state of Arkansas, party of the second part. It recites that—

"Whereas the party of the first part owns and operates a line of railroad extending from the city of St. Louis southward to the boundary line between the states of Missouri and Arkansas, where it intersects the railroad of the party of the second part; it also owns and operates a line of railroad running from Bismarck to Belmont, and also owns and operates a line of railroad running from Poplar Bluff eastward to the Mississippi river, at a point opposite the mouth of the Ohio river, and a branch railroad from Mineral Point to Potosi, all in the state of Missouri. And the party of the second part owns and operates a line of railroad extending from the boundary line between the states of Missouri and Arkansas, where it forms a junction with the line of railroad of the party of the first part, through the cities of Little Rock and Fulton, to the town of Texarkana, upon the boundary line between the states of Arkansas and Texas, and the said railroads form continuous and connecting lines of railroads with each other so connected as to admit the passage of burden and passenger cars over each continuously without change, break, or interruption.

"And whereas the said parties are authorized, by the laws of the several states aforesaid, to consolidate their capital stock, franchises, and property together, and become one corporation; and it is believed that such consolidation will be beneficial to the stockholders of each of said corporations, and to the public:

"Now, therefore, this agreement witnesseth that the said parties of the first and second parts hereto, by their respective boards of directors, duly convened, have agreed, and do hereby [p470] agree, to merge and consolidate the capital stock, franchises, and property of the said two corporations, so that the same shall become the capital stock, franchises, and property of one corporation; and for that purpose do hereby make and prescribe the following terms and conditions of such merger and consolidation, and the mode of carrying the same into effect."

It then provides that the name of the new corporation shall be "St. Louis, Iron Mountain and Southern Railway Company;" prescribes the number of directors and officers, and the names of those who "shall be the first directors of the new corporation;" fixes the amount of the capital stock of the corporation at $26,500,000, divided into shares of $100 each, and provides that—

"Every stockholder in each of the corporations, parties hereto of the first and second parts, shall receive, in place of stock held by him in said corporations, stock in the new corporation as follows, to-wit, for each share of stock held in the St. Louis and Iron Mountain Railroad Company, he shall receive one share of stock in the 'St. Louis, Iron Mountain and Southern Railway Company;' and for each share of stock held in the Cairo and Fulton Railroad Company, he shall receive sixty-hundredths of one share in the St. Louis, Iron Mountain and Southern Railway Company."

The sixth article of the agreement is as follows:

"SEC. 1. Upon the making and perfecting of this agreement and act of consolidation, and upon the adoption and ratification thereof by two-thirds of the votes of all the stockholders of the respective corporations parties hereto, and upon the filing of the same, or a copy thereof, in the manner prescribed by law, the parties hereto shall be deemed and taken to be one corporation by the name provided in this agreement, and shall possess within the several states into and through which its railroad, or any part thereof, or its branches or leased lines, may run, all the rights, privileges, and franchises of each of the said corporations so consolidated.

"SEC. 2. Upon the consummation of said act of consolidation, as provided by law, all and singular the rights, privileges, and franchises of each of said corporations parties hereto, and [p471] all other property, real, personal, and mixed, and all debts due on whatever account, as well stock subscriptions as all other things in action belonging to each and every of said corporations, parties hereto, shall be taken and deemed to be transferred to and vested in the 'St. Louis, Iron Mountain and Southern Railway Company,' as such new corporation, without further act or deed; and all property, all rights of way, and all and every other interest shall be as effectually the property of this new corporation, without further conveyance or assurance, as they were of the former corporations parties hereto; and all rights of creditors, and all liens upon the property erected by either of the said corporations, shall be preserved unimpaired, notwithstanding said merger and consolidation; and all debts, liabilities, obligations, and duties of either of said corporations parties hereto, shall thenceforth attach to the said new corporation, and be enforced against it to the same extent and in the same manner as if said debts, liabilities, obligations, and duties had been incurred or contracted by it.

"And the board of directors of said company shall have full power and authority to borrow such sums of money, and in such form, as they may deem proper, to pay off the present debts and liabilities so assumed by the corporation hereby created, and to meet other exigencies of the company, and to secure the payment thereof by a mortgage or mortgages on the property and franchises of said company, or any part thereof.

"The by-laws which may be adopted by concurrent resolution of stockholders' meetings of said companies, parties hereto, shall be the by-laws of said consolidated company, subject to repeal or amendment as therein or by law provided."

The consolidated company, organized under this agreement, claims that it is entitled, under the provisions of the charter of the Cairo and Fulton Railroad Company, to the exemption from taxation contained in the eleventh section of that act. It accordingly filed its bill in equity in the chancery court of Pulaski county to restrain the defendants, the defendants in error, who were the railroad commissioners of the state, from proceeding to assess for taxation, under the provisions of "An act to revise and amend the revenue laws of Arkansas," ap- [p472] proved March 31, 1883, the railroad of the company in the state of Arkansas, alleging that "its road was completed on the fifth day of December, 1873; that it does not now, and never had, paid an interest of ten per cent. per annum, nor has any dividend ever been realized or declared on its capital stock."

A decree dismissing the bill was rendered on final hearing in the chancery court, on two grounds—that the complainant company was not entitled to the benefit of the exemption contained in the eleventh section of the charter of the Cairo and Fulton Railroad Company, and that, if it were otherwise, the exemption would not apply, for the reason that the court found upon the testimony that the earnings of the road in Arkansas had been, and were for the year 1882, more than 10 per cent. on the cost of its construction and equipment. On appeal to the supreme court of Arkansas, this decree was affirmed on the single ground that the complainant company was not entitled to the benefit of the exemption from taxation claimed by it. In reference to the other question the court said: "What we have already said renders it unnecessary to go into this question. In the very nature of things it is impossible to do more than guess at it. It appears by the plaintiff's own proofs that the officers cannot tell, save by an approximation, what the actual earnings of this part of the road are." To reverse this decree the present writ of error is prosecuted.

The main point urged in argument in support of the claim of the plaintiff in error to the exemption from taxation, is that the consolidation of the Cairo and Fulton Railroad Company with the St. Louis and Iron Mountain Railroad Company was the exercise of a right, on the part of the former, plainly and expressly conferred by the tenth section of its charter, and not in anywise inconsistent with the continued force of the exemption contained in the eleventh section, which referred as well to the company when it had become a constituent of a consolidated company under the previous section, as to the same company in its original form and organization; so that the terms of the exemption, which, it is not denied, is a valid [p473] contract protected against subsequent legislation by the constitution of the United States, apply to the plaintiff in error as a party directly embraced within its words and meaning.

To this view several objections are suggested.

It is said, in the first place, that the authority "to make joint stock with any other railroad company in this or any other state, and to form one board of directors for the management of their affairs," notwithstanding the punctuation which separates the sentence from the following words,—"If it should be found necessary to facilitate the early construction of their said road"—yet, nevertheless, is necessarily connected with them in sense, and must be limited by them; that a consolidation, not effected until after the complete construction of the road, is not embraced within the authority conferred; and that, consequently, the consolidation, as made in 1874, must be referred to the forty-third section of the general act of 1868, and subject, therefore, to the restrictions of the state constitution then in force forbidding the exemption of corporate property from taxation.

But to this it is replied that the forty-third section of the act of 1868 does not authorize a consolidation of domestic with foreign corporations, and applies to the former alone; and that, consequently, the consolidation now the subject of discussion, if it cannot be referred to the tenth section of the charte of the Cairo and Fulton Railroad Company, must fail altogether.

It is next objected, however, that, admitting the consolidation to have been effected, as claimed by the plaintiff in error, under the provisions of that charter, the language of the exemption in the eleventh section cannot be applied to the consolidated company. The words of that section exempt forever from taxation the capital stock and dividends "of said company," which would seem to imply the continued separate existence of the company as originally organized, and not properly to refer to a capital stock representing a consolidated company, owning and operating a railroad in several states. But "the road, fixtures, and appurtenances" are declared to be exempt from taxation only "until after it," that is, the company, "pays an interest of not less than ten per cent. per [p474] annum." And it is argued that this exemption necessarily implies that the property and operations of the company shall be preserved separate from those of any other, so that, at all times, it may be ascertained, by an inspection of accounts, whether the earnings equal an interest of 10 per cent. per annum; a separation, it is insisted, which is inconsistent with a consolidation such as took place. And the case, it is said, is thus brought within the principle of the decision in Railroad Company v. Maine, 96 U.S. 499.

We do not find it necessary to pass upon either of these questions, however, as there is a distinct ground, which is conclusive of the controversy, upon which we prefer to rest our decision.

We assume that the consolidation as made was authorized by, and must be referred to, the tenth section of the charter of the Cairo and Fulton Railroad Company; but we do not admit, what is assumed as an inference from that, that the consolidation took effect, by relation, as of the date of that charter.

The consolidated company, the St. Louis, Iron Mountain and Southern Railroad Company, the plaintiff in error, is not the identical corporation which was the Cairo and Fulton Railroad Company. The terms of the act and agreement of consolidation, which, by the express language of the charter of the Cairo and Fulton Railroad Company, became, on adoption, the charter of the consolidated company, created a new corporation.

It is spoken of as "the new company" in the resolutions of the board of directors, submitting the agreement to the stockholders for their approval, and directing the president to cause the same to be carried into effect, when approved, by calling in "the certificates of stock in this company outstanding," and exchanging them "for stock in the new company, according to the terms of the agreement." The two corporations agree to become one corporation, and a new name is given to the "new corporation." It is spoken of as such throughout the agreement of consolidation. The whole organization is changed and made new. The capital stock is made different from that [p475] of either, or the aggregate of both; each share of stock held in the Cairo and Fulton Railroad Company being exchanged for sixty-hundredths of a share in the St. Louis, Iron Mountain and Southern Railway Company. The act of consolidation is declared to be a conveyance of all the rights, privileges, and franchises of each of the constituent corporations, and of all other property, real, personal, and mixed, and all debts due, on whatever account, belonging to each corporation, to the new corporation, without further act or deed.

This new corporation did not come into existence until May 4, 1874. It came into existence as a corporation of the state of Arkansas in pursuance of its constitution and laws, and subject in all respects to their restrictions and limitations. Among these was that one (Art. 5, sec. 48, of the Constitution of 1868) which declared that "the property of corporations, now existing or hereafter created, shall forever be subject to taxation, the same as property of individuals." This rendered it impossible in law for the consolidated corporation to receive by transfer from the Cairo and Fulton Railroad Company, or otherwise, the exemption sought to be enforced in this suit. The case is thus brought within the rule declared and applied in Louisville, &c., Railroad Co. v. Palmes, 109 U.S. 244.

It is not an answer to this conclusion to say that the act of consolidation, having been made in pursuance of the tenth section of the charter of the Cairo and Fulton Railroad Company, was the exercise by that company of a right secured to it by contract which no subsequent constitution or law of the state of Arkansas could impair or defeat. For what was the contract? Construed in the most liberal spirit in favor of the company, it cannot be extended beyond a stipulation on the part of the state that the Cairo and Fulton Railroad Company may at any time thereafter, by consolidation with any other railroad company, form and become a new corporation, with such powers and privileges as at the time when the offer is accepted and acted upon may be within the power of the state to confer, and lawful for the new corporation to accept. If acted upon before the law was changed, it might well be that all the powers and privileges originally conferred in the char- [p476] ter of the Cairo and Fulton Railroad Company, including the exemption in question, would have vested in the new company. But, as it was not accepted and acted upon until a change in the organic law of the state forbade the creation of corporations capable of holding property exempt from taxation, it must be presumed that when the original company entered into the consolidation, it did so in full view of the existing law, and with the intention of forming a new corporation, such as the constitution and laws of the state at that time permitted. That, at least, we must hold to be the legal effect of the transaction. In that view, the language used by this court at the present term in the case of Memphis and Little Rock Railroad Co. (as reorganized) v. Berry, 112 U.S. 609, is strictly applicable and is now re-affirmed.

The conclusion is unavoidable that the exemption from taxation declared in the eleventh section of the charter of the Cairo and Fulton Railroad Company did not pass by the act of consolidation to the St. Louis, Iron Mountain and Southern Railway Company.

The judgment of the supreme court of Arkansas is therefore

Affirmed.


text: Talk:St. Louis, Iron Mountain & Southern Railway Co. v. Berry (113 U.S. 465)/Opinion of the Court

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text:
Morgan v. United States (113 U.S. 476)

[Syllabus from pages 476-477 intentionally omitted]

These four cases involve claims against the United States for the payment of certain bonds of the United States, known as 'five-twenty bonds,' consols of 1865, issued in pursuance of the authority conferred upon the secretary of the treasury by the act of congress approved March 3, 1865, entitled 'An act to provide ways and means for the support of the government.' Twenty bonds of the denomination of $1,000 each and 16 of $500 each were embraced in the suits. The controversy relates to the title only, all of them being claimed by the Manhattan Savings Institution, and 10 of each denomination by J. S. Morgan & Co., and the others, being 10 of $1,000 each and 6 of $500 each, by L. Von Hoffman & Co. The bonds having been called in for redemption, were presented at the treasury for that purpose by the holders, respectively, J. S. Morgan & Co. and L. Von Hoffman & Co., but payment was refused by the United States on account of the adverse claim of the Manhattan Savings Institution, and the claims of the several parties to the proceeds were treasury, March 12, 1880, pursuant to section 1063, Rev. St. Judgments were rendered by that court in favor of the Manhattan Savings Institution, and against the other claimants respectively. 18 Ct. Cl. 386. The several appeals bring up all the cases as they stood in the court of claims; the United States appealing from the judgment in favor of the Manhattan Savings Institution, the other parties from the judgments dismissing their respective petitions. The controversy is wholly between the claimants, the United States being merely in the position of a stakeholder, not denying its liability to pay to the true owners of the bonds.

The act of congress, in pursuance of which the bonds in question were issued. being 'An act to provide ways and means for the support of the government,' approved March 3, 1865, (13 St. 468, c. 77,) provided: 'That the secretary of the treasury be, and he is hereby, authorized to borrow from time to time, on the credit of the United States, in addition to the amounts heretofore authorized, any sums not exceeding in the aggregate six hundred millions of dollars, and to issue therefor bonds or treasury notes of the United States in such form as he may prescribe; and so much thereof as may be issued in bonds shall be of denominations not less than fifty dollars, and may be made payable at any period not more than 40 years from date of issue, or may be made redeemable, at the pleasure of the government, at or after any period not less than five years nor more than forty years from date, or may be made redeemable and payable as aforesaid, as may be expressed upon their face,' etc. The bonds issued under this act were called the consolidated debt or consols of 1865, because, in addition to the loan of six hundred millions of dollars authorized by it, the secretary of the treasury was empowered to permit the conversion, into any description of bonds authorized by it, of any treasury notes or other obligations, bearing interest, issued under any act of congress. The bonds themselves, differing only in numbers and denomination, were in the following form:

'165,120.

'[Consolidated debt. Issued under act of congress approved March 3, 1865. Redeemable after five and payable twenty years from date.]

'1,000.

'It is hereby certified that the United States of America are indebted unto the bearer in the sum of one thousand dollars, redeemable at the pleasure of the United States after the first day of July, 1870, and payable on the first day of July, 1885, with interest from the first day of July, 1865, inclusive, at six per cent. per annum, payable on the first day of January and July in each year, on the presentation of the proper coupon hereunto annexed. This debt is authorized by act of congress approved March 3, 1865.

'Washington, July 1, 1865.

J. LOWERY,

'For Register of the Treasury.

'Six months' interest due July 1, 1885, payable with this bond.

'(Thirteen oupons attached from and including coupon for interest due January 1, 1879, to and including coupon for interest due January 1, 1885.)'

They were accordingly known as 'five-twenty bonds,' being redeemable after five years, but not payable until twenty years after July 1, 1865.

The act of July 14, 1870, 'to authorize the refunding of the national debt,' (16 St. 272,) authorized the issue of three classes of bonds, according as they bore interest at the rates of 5 per cent., 4 1/2 per cent., and 4 per cent. per annum, amounting in the aggregate to $1,500,000,000, which the secretary of the treasury was, by the second section of the act, authorized to sell and dispose of, at not less than their par value in coin, and 'to apply the proceeds thereof to the redemption of any of the bonds of the United States outstanding, and known as five-twenty bonds, at their par value;' or, the act continuues, 'he may exchange the same for such five-twenty bonds, par for par.' By the fourth section of this act it was provided: 'That the secretary of the treasury is hereby authorized, with any coin of the treasury of the United States which he may lawfully apply to such purpose, or which may be derived from the sale of any of the bonds, the issue of which is provided for in this act, to pay at par and cancel any six per cent. bonds of the United States of the kind known as five-twenty bonds which have become, or shall hereafter become, redeemable by the terms of their issue. But the particular bonds so to be paid and canceled shall in all cases be indicated and specified by class, date, and number, in the order of their numbers and issue, beginning with the first numbered and issued, in public notice to be given by the secretary of the treasury, and in three months after the date of such public notice the interest on the bonds so selected and advertised to be paid shall cases.'

By an act passed January 20, 1871, (16 St. 399,) the foregoing act was amended so as to authorize the issue of 500,000,000 of 5 per cent. bonds instead of 200,000,000, as limited by the act of July 14, 1870, but not so as to permit an increase of the aggregate of bonds of all classes thereby authorized. During the period from July, 1874, to January, 1879, the secretary of the treasury made various contracts, in writing, for the negotiation of 5, 4 1/2, and 4 per cent. bonds issued under the refunding act of 1870, in Europe and this country, with associations of bankers and banking institutions in London and New York, which became known as syndicates. The claimants, J. S. Morgan & Co., were members of such a syndicate, between which and the secretary of the treasury a contract was entered into on the twenty-first of January, 1879. The members of that syndicate were Messrs. August Belmont & Co., of New York, on behalf of Messrs. N. M. Rothschild & Sons, of London, England, and associates, and themselves; Messrs. Drexel, Morgan & Co., of New York, on behalf of Messrs. J. S. Morgan & Co., of London, and themselves; Messrs. J. & W. Seligman & Co., of New York, on behalf of Messrs. Seligman Brothers, of London, and themselves; and Messrs. Morton, Bliss & Co., of New York, on behalf of Messrs. Morton, Rose & Co., of London, and themselves. The subscription was for ten millions of dollars of 4 per cent. bonds of that date, and five millions additional each month until June 30, 1879, when the contract terminated, the proceeds to be applied to the refunding of the public debt, the secretary of the treasury agreeing, on receiving each subscription under the contract for not less than five millions of dollars, to issue a call for the redemption of United States 6 per centum five-twenty bonds equal to or exceeding said sum. The syndicate agreed to pay to the treasury at Washington, within the running of such call, the amount of 4 per cent. bonds subscribed for, at par and accrued interest to the date of subscription, in United States gold coin, United States matured coin coupons, coin certificates of de osit issued under the act of March 3, 1863, or United States 6 per centum five-twenty bonds called for redemption not later than the date of the subscription to which the payment was to apply. It was also agreed that the United States should maintain an agency at London for the purpose of making deliveries of the bonds subscribed for to the parties as they should desire; and the agent appointed for that purpose was authorized by the secretary of the treasury to receive the stipulated payment therefor, including the five-twenty bonds offered in exchange.

On October 27, 1878, the Manhattan Savings Institution, a savings bank in New York, was the owner in possession of the 36 United States five-twenty coupon bonds which are the subject of these suits,-16 for $500 each, and 20 for $1,000 each; and on that day, the building in which was its banking-house was entered by burglars, and these bonds, among others, amounting in all to about two and a half million dollars, were stolen from the safe, without any negligence or want of proper care in their safe-keeping on the part of the officers and servants of the institution. On July 30, 1878, the secretary of the treasury issued a call for the redemption of $5,000,000 of five-twenty bonds, designated by numbers, in which it was stated as follows: 'By virtue of the authority given by the act of congress approved July 14, 1870, entitled 'An act to authorize the refuding of the national debt,' I hereby give notice that the principal and accrued interest of the bonds herein below designated, known as 'five-twenty bonds,' of the act of March 3, 1865, will be paid at the treasury of the United States, in the city of Washington, on and after the thirtieth day of October, 1878, and that the interest on said bonds will cease on that day.' Successive notices of other like calls were issued thereafter from time to time, according to which the dates on which the interest would cease on the bonds designated were from October 30, 1878, to and including March 18, 1879, which calls embraced all the bonds involved in these suits.

The 20 bonds claimed by J. S. Morgan & Co., and the 16 claimed by L. Von Hoffman & Co., were bought by them, respectively, at different times, during the year 1879, in London, from well-known and responsible parties, the latter purchasing from R. Raphael & Sons, bankers of high respectability in London, dealing largely in United States government securities; but all the bonds when bought, as well by R. Raphael & Sons as by the claimants, had been called for redemption by the secretary of the treasury, and designated in one of the notices to that effect, and the call in each case had matured, and the bonds were bought by them, respectively, with knowledge in each case of that fact; but they bought them, in the due course of their business as bankers, and paid the full market price for them, to-wit, par and accrued interest, in good faith, without suspecting, or having any reason whatever to suspect, that the bonds, or any of them, had been stolen by or from any person, or that there was any defect in the titles of the persons from whom the purchases were made, or that the numbers of any of the bonds had been changed, or that the numbers of any of the bonds were not the original and genuine numbers as issued by the treasury department of the United States. In point of fact great publicity was given through the newspapers to the fact of the robbery, and some kind of a circular was issued by the Manhattan Savings Institution in regard to it, but it did not appear what its terms were, nor where nor to whom it was sent. It was also shown that the serial numbers of four of the bonds purchased by J. S. Morgan & Co., and five of those purchased by L. Von Hoffman & Co., had been, in fact, subsequently to the robbery, wrongfully altered, but when, where, or by whom could not be ascertained, and there was nothing in the appearance of the altered bonds or the numbers, when purchased, calculated to excite the suspicion or notice of a prudent and careful man; the alterations having been so skillfully effected that they were only discoverable with the aid of a magnifying glass.

The 20 bonds claimed by J. S. Morgan & Co. were purchased by them for the purpose of making payment to the United States for 4 per cent. bonds subscribed for under the contract entered into with them and their associates by the secretary of the treasury on January 21, 1879, for the negotiation of 4 per cent. bonds, and to avoid the transmission of gold to settle their accounts with the treasury department. They were delivered by the claimants at different times soon after their purchase to the officer in charge of the agency of the United States for the refunding of the national debt in London, who received them in payment for 4 per cent. bonds of the United States then delivered by him to the claimants, and were by him transmitted to the treasury department at Washington for redemption. The secretary of the treasury, in consequence of notice of the adverse claim of the Manhattan Savings Institution, having withheld payment of these bonds, the claimants, J. S. Morgan & Co., in a letter to the secretary of September 1, 1879, stated the grounds of their claim as follows:

title: Morgan v. United States (113 U.S. 476)


text: Talk:Morgan v. United States (113 U.S. 476)


text:
Morgan v. United States (113 U.S. 476)/Opinion of the Court

'We would submit that this course is in entire contradiction to the practice of the department hitherto, and in violation of the agreement upon the face of the bonds to pay them to bearer. The government has hitherto always paid its bearer obligations, as every other state, company, or individual does, to any innocent holders who had paid full value for them. This we have done for all these bonds, having purchased them in the regular way of business in the market, and even paying a small premium for them to avoid the transmission of gold to settle our accounts with the treasury in America. They had no fixed maturity; they were arbitrarily drawn by the government for payment at the present time; they carried no notice on their face that they were not payable in accordance with their tenor, and the only penalty for not presenting them was the cessation of interest. The analogy drawn from the equities attaching to an overdue note, as carrying notice on the face of non-payment, has consequently no bearing on the case. These bonds are scattered all over Europe, and the notice that they are due, frequently does not reach the holder for months, and sometimes years. We buy them in the regular course of our business, nor could we do otherwise. If the government were to decide not to pay bonds to bearer of which the ownership is disputed, except after decision of courts, they would do what neither they nor any other government has ever done before. It would prevent dealing in their securities, be a distinct injury to their negotiability, and a loss to the public credit.'

The 16 bonds claimed by L. Von Hoffman & Co. were transmitted by them directly to the treasury department at Washington for redemption. It was from letters from the department, written in answer to their letters of transmittal, that they received first the information that the bonds had been stolen and some of them altered, and learned of the claim of the Manhattan Savings Institution, as owners, to await the decision of which the bonds were retained by the secretary in the custody of the treasury department.

In addition to the foregoing facts, found by the court of claims, it also found that 'during the period of the refunding transactions under the act of July 14, 1870, many five-twenty bonds of every call were not sent in promptly for redemption, but were held, in this country and Europe, through want of information, or otherwise, until long after the maturity of the call,' and that 'during the period of the refunding transactions of the government under the act of July 14, 1870, large numbers of the European holders of the five-twenty bonds, of the act of March 3, 1865, called for redemption, from want of facility for sending their bonds to the United States, or to avoid the risk and expense of transmission, or various other reasons, were obliged to and did sell and dispose of their bonds, in the market, in London, to money-changers, bankers, and merchants, as the only means of obtaining the money for them. Many millions of the said called bonds were thus sold and disposed of in the London market, and dealt in by money-dealers during that period, long after the maturity of the various calls;' and also that, 'according to the custom and practice in London, the said called bonds of the United States were commonly dealt in by buying and selling after the time fixed for their redemption, in the same way and just as freely as the bonds not called for redemption.'

J. Hubley Ashton, for Morgan & Co. and Von Hoffman & Co. H. C. Cady, for Manhattan Savings Institution.

No brief filed for United States.

[Argument of Counsel from pages 485-490 intentionally omitted]

Mr. Justice Matthews deliverd the opinion of the court. He recited the facts, as above stated, continued:

The conclusions of law reached by the court of claims, on which its judgments are founded, and which are stated and supported in its opinion by the late learned chief justice of that court, are comprised in these propositions: That if the claimants, J. S. Morgan & Co. and L. Von Hoffman & Co., or any other party from whom they are shown to have bought, had purchased the bonds in good faith for value before maturity, their title would prevail against that of the Manhattan Savings Institution, from whom they had been stolen; that, on the face of these bonds, the United States, while fixing a day of ultimate payment, after which they would certainly be overdue, had also reserved the right of redemption at an earlier time, at its pleasure after five years from date; that, as this option could be exercised only by the United States, and not by any officer or department of the government of its mere motion, it could be declared only by law, as was done in the act of congress of July 14, 1870; that this right of redemption being expressly reserved on the face of the bonds, was part of the contract, of which every holder had notice by its terms, and, as it could be exercised only by a public law, every holder subsequent to the passage of such a law must be held to know that it might be and when it had been exercised; that, consequently, the contract is to be read, after the passage of the act of July 14, 1870, as though the time of redemption fixed and declared in pursuance of it by the call of the secretary of the treasury had been originally written in it as the final day of payment; and, that by way of conclusion, it must therefore be adjudged that the claimants, against whom the judgment was passed, were purchasers of overdue paper, and not entitled to the protection of the rule which otherwise would shield their title against impeachment. And it is insisted in argument that this conclusion is anticipated and required by the decisions of this court in the cases of Texas v. White, 7 Wall. 700, and Vermilye v. Adams Exp. Co. 21 Wall. 142. It becomes necessary, therefore, at the outset, to examine those cases with particularity.

The bonds in controversy in the first of them were United States coupon bonds, dated January 1, 1851, payable, by their terms, to the state of Texas or bearer, with interest at 5 per cent., payable semi-annually, and 'redeemable after the thirty-first day of December, 1864.' Each bond contained a statement on its face that the debt was authorized by act of congress, and was 'transferable on delivery,' and to each were attached six-month coupons, extending to December 31, 1864. White and Chiles acquired their title on March 15, 1865.

The rules established in Murray v. Lardner, 2 Wall. 118-'that the purchaser of coupon bonds, before due, without notice and in good faith, is unaffected by want of title in the seller, and that the burden of proof in respect to notice and want of good faith is on the claimant of the bonds as against the purchaser'-were repeated and reaffirmed; but it was added: 'These rules have never been applied to atured obligations. Purchasers of notes or bonds past due take nothing but the actual right and title of the vendors. The bonds in question were dated January 1, 1851, and were redeemable after the thirty-first of December, 1864. In strictness, it is true, they were not payable on the day when they became redeemable, but the known usage of the United States to pay all bonds as soon as the right of payment accrues, except when a distinction between redeemability and payability is made by law and shown on the face of the bonds, requires the application of the rule respecting overdue obligations to bonds of the United States, which have become redeemable, and in respect to which no such distinction has been made.'

It appeared in the case that the bonds were the property of the state of Texas on January 11, 1862, having come into her possession and ownership-so the court declares-'through public acts of the general government and of the state, which gave notice to all the world of the transaction consummated by them;' and the state, while thus their owner, in 1851, passed a legislative act declaring that the bonds should be disposed of 'as may be provided by law,' but that no bond should be 'available in the hands of any holder until the same shall have been indorsed, in the city of Austin, by the governor of the state of Texas.' It was in reference to this legislation that the court said: 'And we think it clear that if a state, by a public act of her legislature, imposes restrictions upon the alienation of her property, that every person who takes a transfer of such property must be held affected by notice of them. Alienation in disregard of such restrictions can convey no title to the alienee.' In 1862 the legislature of Texas repealed this act of 1851, but the repealing act was held to be void, as an act of the state government established in hostility to the constitution of the United States, and 'intended to aid rebellion by facilitating the transfer of these bonds.'

It further appeared that all the bonds which had been put in circulation with the indorsement of the governor had been paid in coin on presentation at the treasury department; 'while, on the contrary, applications for the payment of bonds without the required indorsement, and of coupons detached from such bonds, made to that department, had been denied. As a necessary consequence, the negotiation of these bonds became difficult. They sold much below the rates they would have commanded had the title to them been unquestioned. They were bought in fact, and, under the circumstances, could only have been bought, upon speculation. The purchasers took the risk of a bad title, hoping, doubtless, that through the action of the national government, or of the government of Texas, it might be converted into a good one.' 'On the whole case,' the conclusion was that the state of Texas was entitled under the bill, filed for that purpose, to reclaim the bonds from persons who had acquired title under the circumstances stated.

The case came before the court again in another aspect, and is reported as Texas v. Hardenberg, 10 Wall. 68, in which the grounds of the former decision were reconsidered and declared to be satisfactory. The same question, as to part of the same issue of bonds, came again before the court in Huntington v. Texas, 16 Wall. 402, in which the two prior decisions were relied on, on behalf of the state of Texas, as conclusive. The court rehearsed the propositions decided in those cases, and referring to the question in regard to the invalidity of the act of 1862, repealing the act of 1851 restricting the negotiability of the bonds, said: 'But it must be observed that we have not held that such a repealing act was absolutely void, and that the title of the state could in no case be divested. On the contrary, it may be fairly inferred from what was said in Texas v. White that if the bonds were issued and used for a lawful purpose the title passed to the hol er unaffected by any claim of the state. Title to the bonds issued to White and Chiles was held not to be divested out of the state, because of the unlawful purpose with which they were issued, and because the holders were, in our opinion, chargeable with notice of the invalidity of their issue and of their unlawful use.'

Some of the same issue of bonds were in litigation before this court in National Bank of Washington v. Texas, 20 Wall. 72. In that case the title of the appellant was acquired after the thirty-first day of December, 1864, when they became redeemable, and they were not indorsed by the governor. It was alleged that they were issued and used in aid of the rebellion, but the fact, and all knowledge of it on the part of the appellant, was denied, and the court found the allegations were not sustained by the proof. The question, 'whether the bonds were overdue, in the sense which puts a purchaser of dishonored negotiable paper on the inquiry as to defenses which may be set up against it,' was expressly waived, in the opinion of the court, because, it being 'quite clear that they were transferable by delivery after due, the same as before,' it followed that, 'to invalidate the title so acquired by a purchaser, it is necessary to make out some defect in that title,' which the court decided had not been done. In answer to the point that the title of the appellant failed for want of an indorsement by the governor, in support of which Texas v. White and Texas v. Hardenberg were cited, the court said: 'On an examination of the report of that case it will be seen that the court was of opinion that it was established, both in evidence and by the answers of some of the parties, that the bonds then in controversy were all of them issued to White and Chiles, and the illegal contract on which they were issued was in evidence, and the court was further of opinion that the parties had notice of these facts.'

As to what was said in Texas v. White, that the indorsement of the governor was essential to the title of a purchaser, on the ground that the state could, by statute, while the bonds were in its possession, limit their negotiability by requiring as one of its conditions the indorsement of the governor, and that the repeal of that statute, in view of its supposed treasonable purpose, was void, it is remarked by the court: 'All of this, however, was unnecessary to the decision of that case, and the soundness of the proposition may be doubted.'

In the case of Vermilye v. Adams Exp. Co., 21 Wall. 138, the controversy involved the title to treasury notes issued under the act of March 3, 1865, (13 St. 468,) payable to the holder three years after date, and dated July 15, 1865, bearing interest payable semi-annually, for which coupons were attached, except for the interest of the last six months; that was to be paid with the principal when the notes were presented. On the back of each note was this statement: 'At maturity, convertible at the option of the holder into bonds, redeemable at the pleasure of the government at any time after five years, and payable twenty years from June 15, 1868, with interest at six per cent. per annum, payable semi-annually in coin.' The notes in question were stolen from the express company and subsequently sought by Vermilye & Co., bankers in New York; but, at the time of the purchase, more than three years had elapsed from the date of their issue, and the secretary of the treasury had given notice that they would be paid or converted into bonds at the option of the holder on presentation to the department, and that they had ceased to bear interest. The judgment of the court sustaining the title of the express company was founded on the fact that the purchase was made after the maturity of the obligations. Mr. Justice MILLER, delivering the opinion of the court, said: 'They had the ordinary form of negotiable instruments, payable at a definite time, and that time had passed an they were unpaid. This was obvious on the face of the paper.'

It was further shown that the fact that the holder had an option to convert them into other bonds did not change their character in this respect; and 'that the simple fact that they were the obligations of the government' did not take them 'out of the rule which subjects the purchaser of overdue paper to an inquiry into the circumstances under which it was made, as regards, the rights of antecedent holders.' And referring to the case of Texas v. White, 7 Wall. 700, where the bonds were redeemable after the thirty-first day of December, 1864, it was stated that the court had there held 'that after that date they were to be considered as overdue paper, in regard to their negotiability; observing that in strictness it is true they were not payable on the day when they became redeemable, but the known usage of the United States to pay all bonds as soon as the right of payment accrues, except when a distinction between redeemability and payability is made by law and shown on the face of the bonds, requires the application of the rule respecting overdue obligations to bonds of the United States which have become redeemable and in respect to which no such distinction is made.' Mr. Justice MILLER then added: 'We have not quoted the language from the opinion in that case with any view of affirming it. It may admit of grave doubt whether such bonds, redeemable but not payable at a certain day, except at the option of the government, do become overdue in the sense of being dishonored if not paid or redeemed on that day. But the notes in the case before us have no such feature. They are absolutely payable at a certain time, and we think the case is authority for holding that such an obligation, overdue, ceases to be negotiable in the sense which frees the transaction from all inquiry into the rights of antecedent holders. This ground is sufficient of itself to justify the decree in favor of the express company.'

It is apparent that the original decision of the court in reference to the Texas indemnity bonds in Texas v. White, 7 Wall. 700, has been questioned and limited in important particulars in the subsequent cases involving the same questions. The position there taken, that the legislature of Texas, while the state was owner of the bonds, could limit their negotiability by an act of legislation, of which all subsequent purchasers were charged with notice, although though the bonds on their face were payable to bearer, must be regarded as overruled. And the further position, that negotiable government securities, redeemable at the pleasure of the government after a specified day, but in which no date is fixed for final payment, cease to be negotiable as overdue after the day named when they first become redeemable, must be regarded as limited to cases where the title of the purchaser is acquired with notice of the defect of title, or under circumstances which discredit the instrument, such as would affect the title to negotiable paper payable on demand, when purchased after an unreasonable length of time from the date of issue. In addition to this, the opinion of Chief Justice CHASE in the first case expressly excepts from the rule of the decision, out of the class of overdue obligations to which it is applied, those in which 'a distinction between redeemability and payability is made by law, and shown on the face of the bonds,'-an exception which embraces and defines the very bonds now in question; for, by law, as well as by the terms of the obligation, they were redeemable at the pleasure of the government after the first day of July, 1870, but were payable, finally and unconditionally, on the first day of July, 1885, and the interest coupons attached covered the whole period until the date of ultimate payment. So that, in no aspect, and the cases cited by considered as governing the present, unless, indeed, the implications from them may be treated as furnishing the rule whi h determines that, at the time when the title of the claimants in these cases, adjudged invalid, accrued, these bonds were not overdue.

The single question in the present cases is whether the bonds in controversy were overdue at the time of the purchase by those who claim title against the Manhattan Savings Institution. That question must be resolved by a proper construction of the contract contained in the bonds themselves, assuming it to be still open, so far as effected by previous judicial decisions; and, in construing the contract, it must be conceded that the obligations of the government in this form are governed by the rules of the law-merchant regulating negotiable securities, modified only, if at all, by the laws of the United States, under the authority of which they were created and put in circulation; and of those laws, and of whatever was lawfully done or declared by the government or its officers in pursuance of them, it is also to be admitted, every holder must be conclusively presumed to have had knowledge. On their face, these bonds are payable on the first day of July, 1885, and are redeemable at the pleasure of the United States after the first day of July, 1870. This was in conformity to the act of March 3, 1865, (13 St. 468,) under which they were issued, which expressly authorized that they might be made payable at any period not more than 40 years from date of issue, or that they might be made redeemable at the pleasure of the government at or after any period, not less than 5 nor more than 40 years from date, or might be made both redeemable and payable, as aforesaid, as should be expressed upon their face. They were, accordingly, made both redeemable and payable as was expressed upon their face. The pleasure of the government to redeem them, or any part of them, of course, could only be declared by law. Provision to this effect was made by the act of July 14, 1870, which provided the means for actual redemption by the sale or exchange of the bonds which it authorized the secretary of the treasury to issue, and required him to designate by public notice from time to time, by class, date, and number, in the order of their numbers and issue, the particular bonds to be redeemed by payment and cancellation. And the effect, as to all bonds called for redemption and not sooner presented, was declared to be that, 'in three months after the date of such public notice, the interest on the bonds so selected and advertised shall cease.'

It may be admitted, for the sake of the argument,-although the proposition cannot be considered indisputable,-that, after the maturity of a call for the redemption of designated bonds, the obligation of the government to pay them thereby became fixed and irrevocable, so that thereafter, on demand and refusal of payment, and action would accrue to the holder for the recovery of the principal and accrued interest, the court of claims having jurisdiction in such cases. In that view, preserving the distinction expressly made by the law between redeemability and payability, the bond becomes, after the maturity of a call for redemption, payable at the option of the holder on demand, but without future interest, at any time prior to the day fixed for ultimate payment, when it becomes unconditionally due. The construction which, after the maturity of such a call, reads the contract as if the day when interest is to cease had been originally inserted as the day of of ultimate payment, confounds and obliterates the express distinction made in the law itself between redeemability and payability, and rewrites the contract upon a different basis. The legal effect of the call undoubtedly is to entitle the holder to demand payment at its maturity, and, even though not demanded, to exonerate the government from liability for interest accruing after that date; but, consistently with the terms of the statutes, and the obvious purposes in view, in the original creation and issue of the securities in the form adopted, it cannot be that the legal effect of such a call for the purpose of redemption is the same as if the bond had been originally framed as an obligation to pay absolutely on a day previously fixed.

The acts of congress, under which these and similar bonds of the United States were authorized and issued, do not in terms attach to them the legal quality of negotiable securities; but they are such in form and fact, and obviously for the purpose of giving them the highest credit and the widest and most unfettered currency by passing, by delivery, with a title unimpeachable in the hands of bona fide purchasers for value. In the form in which those now in question were issued, until a call for their redemption was advertised, they were not due upon their face until the day fixed for final payment; and the right reserved to the government, at its option, to anticipate the payment cannot be construed as affecting the contract injuriously to the holder any further than the law declaring it, either expressly or by necessary implication, requires. That law gives to the holder three months after the date of the call for redemption within which to present his bonds for payment or exchange, with interest to the date of redemption; but the only penalty it prescribes, if the holder chooses to retain his original security, is the loss of future interest. In no other respect does it alter the original contract. It seeks to impose upon it no other disability, nor take from it any other immunity. It stands, therefore, upon its statutory basis as a bond redeemable at the treasury on demand, without interest after the maturity of the call, payable according to its original terms, and not overdue, in the commercial sense, till after the day of unconditional payment. If the obligation had been originally written in that form-a promise to pay absolutely on the first day of July, 1885, with interest according to coupons attached, but redeemable at the treasury at and after July 1, 1870, interest to cease three months thereafter if not presented for redemption within that period-it would have expressed in advance the exact contract as it became by the exercise of the reserved option of redemption; and in that form it seems to us quite plain that it could not be considered an overdue obligation, in the sense in which that term is applied to ordinary commercial paper, until after the limit fixed for final payment had been passed.

The title of the purchaser of overdue negotiable paper, such as a bill of exchange or a promissory note, stands on the same footing as if it had been dishonored by a refusal to accept or pay, and had been put under protest. When transferred after it has become due, although not reduced to the rank of an ordinary chose in action, the legal title to which cannot pass by assignment or delivery, it carries on its face the presumption which discredits it, and deprives it of that immunity which, while the time for payment was still running, was secured to it in favor of a bona fide purchaser for value without actual notice of any defect, either in the obligation or the title. This was put by Mr. Justice BULLER, in Brown v. Davies, 3 Term R. 80, on the ground that to take an overdue note or bill was 'out of the common course of dealing.' Ordinarily a note or bill when due becomes functus officio, because it was made to be paid at maturity, and if it fails of its intended operation and effect, the presumption is that it is owing to some defect, which has furnished a sufficient reason to the party apparently chargeable for not having punctually performed his obligation. In the strong language of Lord ELLENBOROUGH in Tinson v. Francis, 1 Camp. 19, 'after a bill or note is due it comes disgraced to the indorsee.' No such presumption, in our opinion, arises to affect the title of a holder of the bonds of the United States, such as those now in question, acquired by a bona fide purchaser for value prior to the date fixed in the bonds themselves for their ul imate payment; for, as we have already shown, the only change in the original effect of the contract by the exercise of the right of earlier redemption is to stop the obligation to pay future interest. And as against one choosing for any purpose of his own to retain his bond as a continuing security for the value it always represents, having impressed upon it by the law of its creation the faculty of passing from hand to hand as money, and therefore just as useful in the pursuits of trade and the exchanges of commerce and banking as so much money in the form of coin or bank-notes, and more convenient because more portable, no such presumption can be entertained on the ground that its continued circulation is not in the due course of business, that it has fully performed all its intended functions, and that it has been, in any sense, dishonored by a refusal on the part of the obligor to fulfill its obligation. On the contrary, supposing the purchaser bound to know, what in fact does not appear on its face, that the bond has been called for redemption under penalty of a stoppage of interest after three months, the very notice, which it is said discredits his title, is in fact an advertisement, not that the maker has any ground to refuse payment, but that the previous holder preferred to hold the security for the money rather than to accept the money which it represents.

As we have seen, the true effect to be given to the exercise of the right of redemption within the period of absolute payment, is to make the bonds payable during that interval, on demand, but without interest after three months from the maturity of the call. But the rule as to ordinary negotiable paper, payable on demand, is that it is not due, without demand, until after the lapse of a reasonable time within which to make demand; and what the length of that reasonable time is, may vary according to the circumstances of particular cases, and must be governed very largely by the intentions of the parties, as manifested in the character of the paper itself, and the purposes for which it is known to have been created and put in circulation. It was said by Baron PARKE, in Brooks v. Mitchell, 9 Mees. & W. 15, that 'a promissory note, payable on demand, is intended to be a continuing security.' And in Losee v. Dunkin, 7 Johns. 70, it is said: 'The demand must be made in reasonable time, and that will depend upon the circumstances of the case and the situation of the parties.' In reference to the bonds involved in this litigation, we have no hesitation in saying that, at the time the title of the purchasers was acquired, no unreasonable length of time had elapsed after the maturity of the call. On the contrary, we think any holder had a right, without prejudice, except as to loss of interest, to wait without demand for the whole period, at the expiration of which the bond was unconditionally payable.

The fact that interest was to cease to accrue three months after the date of call had no tendency to discredit the bonds or affect the title of a bona fide purchaser for value in the due course of trade. While it has been held that a note, the principal of which is payable by installments, is overdue when the first installment is overdue and unpaid, and is thereby subject to all equities between the original parties, (Vinton v. King, 4 Allen, 562,) yet it is said by the supreme judicial court of Massachusetts in National Bank of N. A. v. Kirby, 108 Mass. 497-501: 'We are referred to no case in which it has been held that failure to pay interest, standing alone, is to be regarded sufficient in law to throw such discredit upon the principal security upon which it is due, as to subject the holder to the full extent of the security to antecedent equities.' 'To hold otherwise,' said this court, in Cromwell v. County of Sac, 96 U.S. 51-58, 'would throw discredit upon a large class of securities issued by municipal and private corporations having years to run, with interest payable annually or semi-annually.' And the doctrine was reaffirmed in Railway Co. v. Sprague, 103 U.S. 756. These were cases where non-payment of interest was in breach of the contract, and constituted a default. It is much stronger in its application here, where the obligation to pay interest ceases because that is the contract, to which the holder of the bond has consented and to which he submits, because he prefers to hold a security, although not bearing interest, rather than to surrender it at once.

But an adequate and complete view of the nature and function of the right of redemption reserved in these bonds, and of its intended effect upon the rights of the parties under the contract, cannot be had without considering it in its actual operation and execution. The clause which makes the bonds redeemable was not a casual provision occurring in a single obligation, but was an effective and significant instrument in a series of great financial transactions. The five-twenty bonds issued under the acts of March 3, 1865, (13 St. 668,) and April 12, 1866, (14 St. 31,) as we are informed by public official documents, amounted to $958,483,550, nearly a thousand millions of dollars.

On March 1, 1871, the nearest date prior to the commencement of operations under the refunding act of 1870, the following amounts of 6 per cent. five-twenty bonds were outstanding:

Five-twenties of 1862,........ $493,738,

Five-twenties of March, 1864,.... 3,102,

Five-twenties of June, 1864,... 102,028,

(Five-twenties of 1865,. 182,112,

Act March 3, (Consols of 1865,. 264,619,

(Consols of 1868,. 39,663,

'(The National Loans of the United States,' by Bailey, Washington, 1882, p. 94.)

Of these, large amounts were held abroad by investors in foreign countries, and had been dealt in by bankers in the principal money centers of the world. It was expected and desired by congress that this should be so, as the secretary of the treasury had been expressly authorized by law to dispose of any of the bonds of the United States, 'either in the United States or elsewhere.' Act March 3, 1865, § 2. And under the refunding act of July 14, 1870, as we have already seen, the secretary of the treasury established an agency in London for the purpose of delivering the bonds sold under that act, and receiving in exchange therefor the outstanding securities of the United States agreed to be received in payment therefor. The object of this great exchange was to reduce the annual interest on the public debt of the United States from 6 to the lower rates of 5, 4 1/2, and 4 per cent. To have called in the redeemable debt and paid for it in gold coin, and to have obtained the gold coin for that purpose by sales of the new securities, would have been awkward, circuitous, and impracticable, involving the needless export and import of a mass of the gold coin distributed by the necessities of the world's commerce throughout its markets, the attempt to do which would have produced disturbances of market values, certain to have defeated it. Any transfer of specie, in large amounts, to meet balances occasioned by these operations, would have been almost as serious in its effects, and was, therefore, by every consideration of public and private interests, to be avoided. The difficult practical question was, how to avoid it,-how to substitute in the markets of the world one loan for the other by an exchange of securities without any serious and disturbing movement of coin. Congress had placed it within the power of the secretary of the treasury to accomplish this by authorizing him to receive the five-twenty bonds, to be redeemed in exchange at par for the bonds to be issued at a lower rate of interest. This he was enabled to do by calling in the five-twenty bonds for redemption, by which they were made equal in value as money to par and in erest then due, and by agreeing to treat and receive them as money in the exchange. This created a demand for the 'called bonds' to be used for that purpose, and they were bought from the holders by bankers and agents of the syndicates who had contracted to place the new loans under the act of 1870. This transaction could only have been successfully effected upon the assumption that the call for redemption did not affect the negotiable quality of the bonds, nor impose upon them any disability, except the cessation of interest after the maturity of the call, nor deprive them of any other immunity which had previously belonged to them.

On the contrary, it must have been within the contemplation of the treasury department, and of those with whom it was dealing, that the 'called bonds,' until finally absorbed by payments into the treasury in exchange for new bonds, which constituted the fact of redemption, were equivalent, in all legal qualities, to money itself, or to those usual equivalents of money which circulate, without question, as such, like treasury notes, payable on demand. And this view, we have already seen, the parties were authorized and justified in adopting by the language and purposes of the statutes under which the transactions were accomplished. By this means an enormous public debt was shifted and converted, so as largely to reduce the burden of its interest; the agents of the government were facilitated in the great work they had undertaken; the individual holders of the securities of the United States, scattered throughout the countries of Europe, received the money due them on the bonds for which they subscribed, at their own domiciles; and this series of great financial operations was successfully accomplished without interference with the usual course of the business of the world, without disturbing the fixed distribution of currency which commerce had apportioned to its appropriate markets, and without unsettling the value of property or labor, either at home or abroad. These benefical results were greatly facilitated, if not made feasible, by the unquestioned negotiability of the called bonds, which, when subjected to the right of redemption reserved by their terms, were thereafter considered and treated as the equivalent of money. This could not have been if the principles which protect bona fide purchasers for value, in the due course of trade, without actual notice of a defect in the obligation or title, had not been practically adopted. The practice, as found to have existed, was, in our opinion, well warranted by law. This confidence was invited by the convenience of the government itself, and certainly promoted its interests and advanced its purposes. The practice it engendered, on the part of the public dealing in its securities, had been expressly sanctioned by formal recognition and approval by the treasury department long prior to the negotiation of the war loans, which commenced in 1862. In 1860 Atty. Gen. Black officially advised the secretary of the treasury (9 Op. 413) that treasury notes, redeemable after one year from date, interest thereon to cease at the expiration thereafter of 60 days' notice of readiness to pay and redeem the same, were intended to be a continuing security, and to pass by delivery, after the period of redemption equally as before, as money or banknotes, not liable to any equities between the original or intermediate parties.

It was, by force of such a custom, declared by Lord SELBORNE 'to be the legitimate, natural, and intended consequence (unless there should be any law to prohibit it) of that representation and engagement which appears on the face of the scrip itself, when construed according to the obvious import of its terms,' that in the case of Goodwin Robarts, first in the exchequer chamber (L. R. 10 Exch. 337) and afterwards in the house of lords, (1 App. Cas 476,) an instrument, payable to bearer in the bonds of a foreign government, was held to be negotiable by delivery, on the ground t at, 'after those payments had been made and receipts for them signed, the scrip was as much a symbol of money due and as capable of passing current upon the principle explained in the authorities, with respect to bank-notes and exchequer bills, as the bonds themselves would have been if they had been actually delivered in exchange for it.' 1 App. Cas. 497.

We are, therefore, of opinion that the title of J. S. Morgan & Co., and of L. Von Hoffman & Co., respectively, to the bonds claimed by them, ought to have prevailed against that set up by the Manhattan Savings Institution; and, for error in not so holding, the several judgments of the court of claims in these cases are reversed, and the causes are remanded to that court, with directions to render judgments in accordance with this opinion; and it is so ordered.


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Provident Institution for Savings in Jersey City v. Mayor and Aldermen of Jersey City

This was a bill in equity filed in the court of chancery of New Jersey by the appellant, to foreclose two mortgages given to it on a certain lot in Jersey City by Michael Nugent and wife, and another person, the first being dated January 19, 1863, to secure the payment of $900 and interest, and the second, dated July 13, 1869, to secure the payment of $700 and interest. The complainants also claimed, under the stipulations of the mortgages, the amount of certain premiums of insurance paid by them. By an amended bi l, making the mayor and aldermen of Jersey City a defendant, the complainants alleged that the city claimed a lien on the mortgaged premises prior to that of the mortgages, for certain water rents, for supplying water to the occupants of the same for the year 1871, and from thence to the timeof filing the bill; that this claim was made under an act of the legislature time of filing the bill; that this claim authorizing the construction of water-works for the city, and the act revising the city charter, passed in March, 1871. The bill denied the validity of this claim, and averred that those portions of the said acts which purported to give such a priority had the effect to deprive the complainant of its property in the mortgaged premises withour due process of law, and were in violation of the constitution of the United States as well as that of New Jersey; and the complainant prayed for a foreclosure and sale of the lot in question as against all the defendants.

There was annexed to the bill and referred to therein a copy of the 'Tariff of Rates and Regulations for the Use of Passaic Water; also Rules Regulating the Plumbing of Houses and the Tapping of Sewers;' being the regulations adopted by the board of public works of Jersey City under the statutes referred to in the bill. The water rates specified in this tariff (except for measured water) were graduated in a table according to the width and number of stories of the houses, and were made payable annually in advance on the first of May in each year, with a penalty of 3 per cent. if not paid by the first of July, and interest at the rate of 7 per cent. from the twentieth of December. The regulations extend to many details, making provision for extra charges to certain kinds of establishments, providing penalties for misuse of the water, etc. The city authorities answered the bill, admitting that they had assessed upon the mortgaged premises the water rents set forth in the bill, and alleged that they were imposed in pursuance of an act of the legislature of New Jersey, entitled 'An act to authorize the construction of works for the supplying of Jersey City and places adjacent with pure and wholesome water,' approved March 25, 1852, and an act entitled 'An act to reorganize the local government of Jersey City,' passed March 31, 1871, and the supplements thereto; and insisted that said water rents were a lien prior to the mortgages, and prayed that it might be so adjudged.

The other defendants made no defense.

The complainant and the city authorities entered into a stipulation to the effect that the allegations of fact in the bill were to be taken as true; that in the assessment of the water rents, interest, and penalties, all the requirements of the act 'to reorganize the local government of Jersey City,' passed March 31, 1871, and the supplements thereto, had been complied with, and that the only question to be determined by the court was whether, upon the facts stated in the bill, the water rents and interest and penalties mentioned therein, or any of them, were liens upon the property in question prior to the lien of the complain ant's mortgages.

The chancellor decided that the giving of a priority of lien to the water rents over the mortgages, pursuant to the statutes, did not deprive the complainant of its property without due process of law, and did not otherwise conflict with the constitution of the United States or with that of New Jersey; and he decreed that, for the purpose of raising the money due on the mortgages, the mortgaged premises must be sold subject to such lien, and that the bill must be dismissed as against the city. This decree, being appealed from, was affirmed by the New Jersey court of errors and appeals, and the record was remanded to the court of chancery. The case is brought here by writ of error, and the errors assigned resolve themselves into the single error of sustaining the priority of the lien of the water rents over that of the complainant's mortgages.

''Chas. H. Hartshorn'', for plaintiff in error.

[Argument of Counsel from pages 508-511 intentionally omitted]

''Wm. Brinkerhoff'', for defendant in error.

Mr. Justice Bradley deliverd the opinion of the court. He recited the facts as above stated and continued:


text: Talk:Provident Institution for Savings in Jersey City v. Mayor and Aldermen of Jersey City


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Provident Institution for Savings in Jersey City v. Mayor and Aldermen of Jersey City/Opinion of the Court

The ground on which the decision below was placed was that the laws having made the water rents a charge on the land, with a lien prior to all other incumbrances, in the same manner as taxes and assessment, the complainant took its mortgages subject to this condition, whether the water was introduced onto the lot mortgaged before or after the giving of the mortgage; and hence the complainant had no ground of complaint that its property was taken without due process of law.

We do not well see how this position can be successfully controverted. The origin of the city's right to priority of lien goes back to the year 1852, when the legislature passed the act 'to authorize the construction of works for supplying Jersey City and places adjacent with pure and wholesome water.' That act laid the foundation of a scheme for leading water from the Passaic river to Jersey City, a distance of seven or eight miles, across the channel of the Hackensack river, and over the ridges of Lodi and Bergen. Power was given to a board of commissioners appointed for that purpose, to take the necessary lands by right of eminent domain, to borrow money on the credit of the city, to lay pipes through the streets, and to make all necessary and proper regulations for the distribution and use of the water, and 'from time to time to fix the price for the use thereof and the times of payment;' and, by section 14 of the act, it was declared 'that the owner and occupier of any house, tenement, or lot shall be liable for the payment of the price or rent fixed by the commissioners for the use of the water by such occupier, and such price or rent so fixed shall be a lien upon said house, tenement, or lot, in the same way and manner as other taxes assessed on real estate in Jersey City are liens, and shall be collected in like manner.' This law has been substantially continued to the present time. On a revision of the city charter in 1871, the board of water commissioners was replaced by a board of public works, invested with the same powers and duties; and by section 81 of the revised charter, after providing for the fixing of the water rents as in the act of 1852, it was, among other things, further enacted as follows:

'And the said board shall from time to time determine and give public notice of the times and places at which the said water rents shall be due and payable, and the penalties to be charged for delaying the payments beyond the times so fixed; and the said water rents shall, until paid, be liens upon the property charged therewith; and the said board may, at any time after the twentieth day of December, in each year, deliver to the board of finance and taxation of Jersey City an account, certified under the hand of the president, of all such water rents and penalties for delinquency as are then due and remain unpaid; and the said board of finance and taxation shall, upon receiving said certified account, cause said lands to be sold for the payment of said water rents and penalties, and the interest thereon, from said twentieth day of December, at the rate of twelve per centum per annum, and also costs, charges, and expenses of advertising and sale, in the same manner as said board of finance and taxation may be authorized by law to sell lands in said city for the payment of taxes thereon, and said proceedings and the effect thereof shall be the same in all things as if the said lands were sold for taxes.'

By section 151 of the same charter it was enacted (substantially as the law had been since the year 1839) 'that all taxes and assessments which shall hereafter be assessed or made upon any lands, tenements, or real estate situate in said city, shall be and remain a lien thereon from the time of the confirmation thereof until paid, notwithstanding any devise, descent, alienation, mortgage, or other incumbrance thereof; and that if the full amount of any such tax or assessment shall not be paid and satisfied within the time limited and appointed for the payment there f, it shall and may be lawful for the board of finance and taxation to cause such lands, tenements, or real estate to be sold at public auction, for the shortest term for which any person will agree to take the same and pay such tax or assessment, or the balance thereof remaining unpaid, with the interest thereon, and all costs, charges, and expenses.' And it was provided 'that all moneys paid for the redemption of said lands, tenements, or real estate, as aforesaid, together with such taxes and assessments as shall be paid by a mortgagee or other creditor, under a judgment, attachment, or mechanic's lien, shall be a lien on said lands, tenements, or real estate for the amount so paid, with interest at the rate of seven per centum per annum; and such lien shall have precedence of all other liens on said lands, tenements, or real estate; and on foreclosure of any mortgage by such mortgagee redeeming, shall be directed to be made out of said lands, and on sale of said lands under any such judgment, attachment, or mechanic's lien, shall be paid out of the proceeds of sale.'

These extracts are sufficient to show the general character of the system by which the water rates are imposed and enforced in Jersey City. Much discussion has taken place in the state courts as to the precise nature of these water rents: whether they are a tax, or an assessment for benefits, or a stipulated compensation resting on implied contract. If regarded as taxes, they have been supposed to conflict with a clause in the state constitution, adopted in 1875, declaring that 'property shall be assessed for taxes under general laws, and by uniform rules, according to its true value.' If regarded as special assessments for benefits arising from a public improvement, they have been held as open to the objection of not being laid on correct principles,-being distributed according to the dimensions and measurements of the several lots and buildings, and not according to the benefits received. These objections were held to be conclusive in the case of water rents imposed on unoccupied lots, and lots not supplied with water; both the act of 1852, and the revised charter of 1871, having provided for the imposition of water rents on property of that kind, situated on streets in which water-pipes were laid. The supreme court of the state has decided that under the state constitution this imposition cannot be sustained; because, for the reasons just stated, it is neither valid as a tax, nor as a special assessment for benefits. State v. Jersey City, 43 N. J. Law, 135. But the rents imposed for water actually used, as in the case now under consideration, have been held valid on the ground of an implied contract to pay them. The terms being public and well known, persons applying for a supply of water are supposed to assent to them. Vreeland v. O'Neil, 36 N. J. Eq. 399; S.C.. on appeal, 37 N. J. Eq. 574.

As the case comes before us, it is not necessary to enter into the discussions that have occupied the state courts. We are to assume that the rents, penalties, and interest claimed by the city have been imposed and incurred in conformity with the laws and constitution of the state, and that, by virtue of said laws and constitution, they are a lien on the property mortgaged to the complainant prior to that of its mortgages; and, this being so, we are only concerned to inquire whether those laws thus interpreted are or are not repugnant to the constitution of the United States. The only clause of the constitution supposed to be violated is that portion of the fourteenth amendment which declares that no state shall deprive any person of life, liberty, or property without due process of law. It is contended that the mortgages createo in 1863 and 1869, there being then no valid water rents due on the lot mortgaged, invested the complainant with the first lien thereon, and that that lien is property; and that the statutes of 1852 and 1871, by giving a superior lien to water rents afterwards accused, de rive it of its said property without due process of law. What may be the effect of those statutes in this regard upon mortgages which were created prior to the statute of 1852, it is unnecessary at present to inquire. The mortgages of the complainant were not created prior to that statute, but long subsequent thereto. When the complainant took its mortgages, it knew what the law was. It knew that by the law, if the mortgaged lot should be supplied with Passaic water by the city authorities, the rent of that water, as regulated and exacted by them, would be a first lien on the lot. It chose to take its mortgages subject to this law; and it is idle to contend that a postponement of its lien to that of the water-rents, whether after accruing or not, is a deprivation of its property without due process of law. Its own voluntary act, its own consent, is an element in the transaction. The cases referred to by counsel to the contrary, holding void a consent exacted contrary to the constitution, have no bearing on the present cases.

It may, however, be contended (though it is not by the counsel in this case) that the revised charter of 1871 introduced new impositions, additional to the mere water rent, such as authorizing a penalty to be imposed by the board of public works, if payment of the water rents were not made by a certain time, and a heavy rate of interest on rents continuing in arrear. But we look upon these provisions as merely intended to enforce prompt payment, and as incidental regulations appropriate to the subject. The law which authorized these coercive measures gave to mortgagees and judgment creditors the right to pay the rents and to have the benefit of the lien thereof; so that it was in their own power to protect themselves from any such penalties and accumulations of interest. They are analogous to the costs incurred in the foreclosure of the first mortgage, which have the same priority as the mortgage itself over subsequent incumbrances.

In what we have now said in relation to the anterior existence of the law of 1852 as a ground on which this case may be resolved, we do not mean to be understood as holding that the law would not also be valid as against mortgages created prior to its passage. Even if the water rents in question cannot be regarded as taxes, nor as special assessments for benefits arising from a public improvement, it is still by no means clear that the giving to them a priority of lien over all other incumbrances upon the property served with the water would be repugnant to the constitution of the United States. The law which gives to the last maritime liens priority over earlier liens in point of time, is based on principles of acknowledged justice. That which is given for the preservation or betterment of the common pledge is in natural equity fairly entitled to the first rank in the tableau of claims. Mechanics' lien laws stand on the same basis of natural justice. We are not prepared to say that a legislative act giving preference to such liens even over those already created by mortgage, judgment, or attachment, would be repugnant to the constitution of the United States. Nor are we prepared to say that an act giving preference to municipal water rents over such liens would be obnoxious to that charge. The providing of a sufficient water supply for the inhabitants of a great and growing city is one of the highest functions of municipal government, and tends greatly to enhance the value of all real estate in its limits; and the charges for the use of the water may well be entitled to take high rank among outstanding claims against the property so benefited. It may be difficult to show any substantial distinction in this regard between such a charge and that of a tax strictly so called. But as the present case loes not call for an opinion on this point, it is properly reserved for consideration when it necessarily arises.

The decree of the court of errors and appeals of New Jersey is affirmed.


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Rh between the two sects, save that "wrong was more wrong for the Catholic," who had more light and guidance; but this of a man's desertion filled them with contempt. "It is a bad idea for a man to change," said one.

It may have been accidental, but you see how this phrase pursued me; and for myself, I believe it is the current philosophy in these parts. I have some difficulty in imagining a better. It’s not only a great flight of confidence for a man to change his creed and go out of his family for heaven's sake; but the odds are—nay, and the hope is—that, with all this great transition in the eyes of man, he has not changed himself a hair's-breadth to the eyes of God. Honour to those who do so, for the wrench is sore. But it argues something narrow, whether of strength or weakness, whether of the prophet or the fool, in those who can take a sufficient interest in such infinitesimal and human operations, or who can quit a friendship for a doubtful process of the mind. And I think I should not leave my old creed for another, changing only words for other words; but by some brave