U.S. Supreme Court
Scotland County v. Hill, 132 U.S. 107 (1889)
Scotland County v. Hill
Argued April 16-17, 1889
Decided November 4, 1889
132 U.S. 107
The negotiable security of a municipal corporation, invalid in the hands of the original holder by reason of an irregularity in its issue to which be was a party, but which becomes valid in the hands of an innocent purchaser for value without knowledge or notice of the irregularity, remains valid when acquired by another purchaser for value, who was no party to the irregularity, but who at the time of his purchase has knowledge of the infirmity and of a pending suit against the original holder and others to have the whole issue declared invalid by reason thereof.
The litigations respecting the Scotland County bonds in the state courts and in the courts of the United states reviewed.
In the absence of a provision to the contrary, overdue coupons bear interest at the legal rate in the place where they are payable.
This action was commenced in the year 1876 to recover on coupons issued by the County of Scotland, in Missouri, in payment of a subscription to the stock of the Missouri, Iowa, and Nebraska Railway Company. Answer was made. In 1879, an amended complaint was filed, and, issue being joined, such proceedings were had in the cause that judgment was entered for the plaintiff. To this judgment the defendant sued out a writ of error. Argument on this was had at October term, 1884, which resulted in the remand of the cause for a new trial ( 112 U. S. 112 U.S. 183). After the remand an amended answer was filed. Issue was joined and trial had, which resulted in a verdict for the plaintiff for X46,944, and judgment on the verdict. To this judgment the defendant sued out this writ of error. The case is stated as follows by the court in its opinion:
This writ of error brings up for review a judgment against the County of Scotland, in the State of Missouri, for the amount of certain coupons of bonds, bearing date September 1, 1870, and purporting to have been issued by that county to the Missouri, Iowa and Nebraska Railway Company, a corporation chanroblesvirtualawlibrary
created by the consolidation of the Alexandria and Nebraska City Railroad Company, of Missouri (formerly known as the Alexandria and Bloomfield Railroad Company), with the Iowa Southern Railway Company of Iowa. The coupons are payable to bearer at the Farmers' Loan and Trust Company, New York, while the bonds are payable to the above consolidated company, or bearer at the same place, on the 31st of December, 1895, with interest thereon from December 31, 1870, payable annually in that city at the rate of eight percent per annum. Each bond recites that it is issued under and pursuant to an order of the county court for subscription to the stock of the Missouri, Iowa and Nebraska Railway Company,
"as authorized by an act of the General Assembly of the State of Missouri, entitled 'An act to incorporate the Alexandria and Bloomfield Railroad Company,' approved February 9, 1857."
It appeared in proof that the county court, in conformity with the petition of taxpayers and residents, made an order on the 9th of August, 1870, for the subscription of $200,000 to the stock of the Missouri, Iowa, and Nebraska Railway Company, payable in coupon bonds of the above kind, and at the same time designated an agent with authority to make the subscription upon the books of the company, to represent the county at the meetings of stockholders, and to receive dividends on its stock. The order stated that the subscription was upon certain specified terms and conditions, among which was one providing for the delivery to the railway company of $100,000 of the bonds when the road was
"graded, bridged, and tied, the track laid, and the cars running thereon from Alexandria, Missouri, to a permanent depot, located within one-half mile of the courthouse in Memphis,"
and for the delivery of the remaining $100,000 of the bonds when the road was completed from Memphis to the west or north line of the county, and the cars were running over it. By the same order, the county attorney was directed to have the bonds printed, the presiding justice of the county to sign them, and the clerk to make proper attestation of his signature.
At the same time, Charles Mety was appointed trustee for chanroblesvirtualawlibrary
the county, and charged in that capacity with the duty of receiving the bonds from the county clerk as soon as they were issue, and of delivering them to the railway company, in exchange for stock, upon its complying with the conditions specified in the order for the subscription. The trustee was required to give bond in the sum of $300,000 for the faithful performance of his trust.
On the 11th of September, 1871 -- the road being then nearly completed to Memphis, the county seat -- Levi Wagner and other taxpayers and citizens brought a suit in the Circuit Court of Scotland County to perpetually enjoin Mety from delivering the bonds or coupons to the railway company. It was alleged as a principal ground for such relief that the subscription made by the county to pay which the bonds had been executed was without proper legal authority, and therefore null and void. The defendants in that suit were Mety, the county trustee and custodian of the bonds; Fullerton, county treasurer; Dawson, Cooper, and Marguis, justices of the county, and sitting as the county court at the time the subscription was made, and the Missouri, Iowa, and Nebraska Railway Company. A few days prior to September 20, 1871, Mety went to Warsaw, Illinois, taking with him $100,000 of the bonds, to be there delivered to the railway company upon completion of the road to Memphis. He and the justices of the county court had then heard of the institution of the Wagner suit, and he went to Warsaw, under the direction of the members of that body, in order to evade the service upon him of the proposed injunction. While there, he received from Dawson and Cooper, a majority of the justices composing the county court, an official communication, under date of September 20, 1871, in these words:
"The iron is laid on the Missouri, Iowa, and Nebraska Railway to the depot and the building is up. The company having complied with all the requirements, you will please deliver them the first hundred thousand dollars of the county's subscription and receive stock for the same."
He complied with this order by delivering the bonds at Warsaw, on the same day, taking from the company, as suggested by the justices, its bond chanroblesvirtualawlibrary
indemnifying him against all damages, costs, expenses, etc., which he, as trustee for the county, might incur "by reason of certain injunction suits now pending in the Scotland County Circuit Court." On the 11th of December, 1871, the county court, by an order entered upon its record, so modified the previous order of August 9, 1870, as to authorize Mety to deliver to the company the second installment of $100,000 of bonds, upon the execution to him, as trustee, and to the county, of an indemnifying bond containing certain specified provisions. Such an obligation was imm the execution to him, as trustee, and to the county, of an indemnifying bond containing certain specified provisions. Such an obligation was imm the execution to him, as trustee, and to the county, of an indemnifying bond containing certain specified provisions. Such an obligation was immediately executed by the company, and the second installment of bonds was thereupon delivered to it by the court while in session at the county seat.
The Wagner suit was taken, by change of venue, to the Circuit Court of Shelby County, Missouri, by which a final decree was rendered on the second of June, 1874, declaring the bonds void for the want of legal authority in the Scotland County court to make the subscription of stock to the Missouri, Iowa, and Nebraska Railway Company, and ordering them to be surrendered for cancellation. This decree was affirmed by the Supreme Court of Missouri at its October term, 1878. That judgment of affirmance proceeded mainly upon the ground that, as the privilege given by its charter of 1857 to the Alexandria and Bloomfield Railroad Company (afterwards the Alexandria and Nebraska City Railroad Company, Laws of Missouri, 1865-66, p. 222) of having municipal subscriptions without a previous vote of the people was not exercised prior to the formation, by consolidation, in 1870, of the Missouri, Iowa, and Nebraska Railway Company, such privilege passed, if at all, to the consolidated company, subject to the prohibition in the state constitution of 1865 against municipal subscriptions to corporations or companies, except upon the previous sanction of two-thirds of the qualified voters at a regular or special election for that purpose. Wagner v. Meety, 69 Mo. 150. That ruling, the court said, was in harmony with its previous decision in State v. Garroutte, 67 Mo. 445. chanroblesvirtualawlibrary