U.S. Supreme Court
Cromwell v. County of Sac, 96 U.S. 51 (1877)
Cromwell v. County of Sac
96 U.S. 51
1. An overdue and unpaid coupon for interest, attached to a municipal bond which has several years to run, does not render the bond and the subsequently maturing coupons dishonored paper, so as to subject them, in the hands of a purchaser for value, to defenses good against the original holder.
2. A bona fide purchaser of negotiable paper for value, before maturity, takes it freed from all infirmities in its origin, unless it is absolutely void for want of power in the maker to issue it, or its circulation is by law prohibited by reason of the illegality of the consideration. Municipal bonds, payable to bearer, are subject to the same rules as other negotiable paper.
3. Though he may have notice of infirmities in its origin, a purchaser of a municipal bond from a bona fide holder, who obtained it for value before maturity, takes it as freed from such infirmities as it was in the hands of such holder.
4. A purchaser of negotiable securities before their maturity, whatever may have been their original infirmity, can, unless he is personally chargeable with fraud in procuring them, recover against the maker the fall amount of them, though he may have paid therefor less than their par value.
5. When, at the place of contract, the rate of interest differs from that at the place of payment, the parties may stipulate for either rate, and the contract will govern.
6. Under the law of Iowa, municipal bonds in that state drawing ten percent interest before maturity draw the same interest thereafter, and matured coupons attached to them draw six percent. Judgments there rendered upon such bonds and coupons draw interest on the amount due on the bonds at the rate of ten percent a year, and on that due on the coupons at the rate of six percent a year.
This action was brought by Cromwell upon four bonds of the County of Sac, in the State of Iowa, each for $1,000, and four interest coupons attached to them, each for $100. The bonds were issued on the 1st of October, 1860, and made payable to bearer on the 1st of May, in the years 1868, 1869, 1870, and 1871, respectively, at the Metropolitan Bank, in the City of New York, with annual interest at the rate of ten percent a year. The coupons in suit matured after the 1st of May, 1868. They were, at the option of the holder, payable at that bank or receivable for county taxes at the office of the Treasurer of Sac County. chanroblesvirtualawlibrary
As a defense, the county relied upon the estoppel of a judgment rendered in its favor in a prior action, brought by one Samuel C. Smith upon certain earlier maturing coupons upon the same bonds, accompanied with proof that Cromwell was, at the time, the owner of those coupons, and that the action was prosecuted for his benefit. It appears from the findings in that action that the County of Sac authorized, by a vote of its people, the issue of bonds to the amount of $10,000 for the erection of a courthouse; that they were issued by the county judge and delivered to one Meserey, with whom he had made a contract for the erection of the courthouse; that immediately thereafter, the contractor gave one of the bonds as a gratuity to the county judge; that a courthouse was never constructed by the contractor or any other person pursuant to the contract; and that the plaintiff became the holder before maturity of the coupons in controversy, but it does not appear that he gave any value for them. Upon these findings, the court below decided that the bonds were void as against the county, and accordingly gave judgment in its favor upon the coupons, holding that any infirmity of the bonds by reason of illegality or fraud in their issue necessarily affected the coupons attached to them. When that case was brought here on a writ of error, this Court held that the facts disclosed by the findings were sufficient evidence of fraud and illegality in the inception of the bonds to call upon the holder to show not only that he had received the coupons before maturity, but that he had given value for them, and, not having done so, the judgment was affirmed. Smith v. Sac County, 11 Wall. 139.
When the present case was first tried, the court below, holding that the judgment in the Smith case was conclusive against Cromwell, excluded proof of his receipt of the bonds and coupons in this suit before maturity for value, and gave judgment for the county. But when the case was brought here at the last term, this Court held that the court below erred in excluding this proof, and that the point adjudged in the Smith case was only that the bonds were void as against the county in the hands of parties who had not thus acquired them before maturity and for value. The judgment was accordingly reversed chanroblesvirtualawlibrary
and the cause remanded for a new trial. Cromwell v. County of Sac, 94 U. S. 351.
Upon the second trial, the plaintiff proved that he had received, before their maturity, the bonds payable in 1870 and 1871, with coupons attached, and given value for them without notice of any defense to them on the part of the county.
As to the bonds payable in 1868 and 1869 and coupons annexed, it appears that the plaintiff purchased them from one Clark on the 1st of April, 1873, after their maturity, for the consideration of a precedent debt due to him from Clark, amounting to $1,500; that they had previously been held by one Robinson, who had pledged them to a bank in Brooklyn as collateral security for a loan of money; that Clark purchased them of Robinson on the 20th of May, 1863, by paying this loan to the bank, then amounting to $1,192, and applying the excess of the amount of the bonds over the amount thus paid in satisfaction of a precedent debt due to him by Robinson. To each of these bonds there were attached, at the time of Clark's purchase, the coupon due May 1, 1863, and all the unmatured coupons. Robinson stated to Clark that the coupons previously matured had been paid and that those due on the first of the month would be paid in a few days. Clark had no notice at the time of any defense to the bonds except such as may be imputed to him from the fact that one of the coupons attached to each of the bonds was then past due and unpaid. There was a special verdict referring to the judgment in Smith v. Sac County and showing the facts above stated as to the purchase of the bonds and coupons.
The law of New York allows interest at the rate of seven percent a year and any agreement for a greater rate avoids the whole contract. The law of Iowa provides that the rate of interest shall be six percent a year on money due by express contract where a different rate is not stipulated, and on judgments and decrees for the payment of money, but that parties may agree in writing for the payment of interest not exceeding ten percent a year, and that in such case any judgment or decree thereon shall draw interest at the rate expressed in the contract.
The main questions determined in the court below -- such, at chanroblesvirtualawlibrary
least, as are deemed sufficiently important to be here noticed -- were in substance these:
1st, whether the judgment in Smith v. Sac County barred a recovery by Cromwell;
2d, whether as to the bonds maturing in 1868 and 1869, and the coupons annexed, he had the rights of a holder for value before dishonor, and without notice of any defense to them;
3d, whether, if entitled to recover on the bonds and coupons, he should be allowed interest on them after maturity at the rate prescribed by the law of New York, or by that of Iowa, and
4th, whether the judgment should bear interest at the rate of ten, or only six, percent a year.
The judges of the circuit court were divided in opinion on these questions. Conformably to the opinion of the presiding judge, who held that the bonds which matured in 1868 and 1869, and the coupons thereto attached, were, when purchased by Clark, dishonored paper, judgment, bearing six percent interest per annum, was entered in favor of Cromwell only for the amount mentioned in the bonds which matured in 1870 and 1871, and the coupons annexed, with interest on them at seven percent a year after maturity. This judgment is now brought here for review, each party having sued out a writ of error. chanroblesvirtualawlibrary