US SUPREME COURT DECISIONS

MERCHANTS' BANK V. BERGEN COUNTY, 115 U. S. 384 (1885)

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U.S. Supreme Court

Merchants' Bank v. Bergen County, 115 U.S. 384 (1885)

Merchants' Bank v. Bergen County

Argued October 27, 1885

Decided November 18, 1885

115 U.S. 384

APPEAL FROM THE CIRCUIT COURT OF THE UNITED

STATES FOR THE SOUTHERN DISTRICT OF NEW YORK

Syllabus

The bona fide holder, for value, of a bond of a municipal corporation, containing no recitals, apparently one of a series issued under authority of an act of the legislature of the state, but actually issued in excess of the number of bonds authorized by that act, and as security for the personal debt of a fiscal officer of the corporation to the holder, is not protected in his holding, and cannot cast upon the county the consequences of his own mistake.

This was a suit in equity to compel the Merchants' Exchange National Bank of the City of New York, one of the defendants below and the appellant here, to surrender to the Board of Chosen Freeholders of the County of Bergen, New Jersey, one hundred and two bonds of $500 each, drawn in the form of, and purporting to be, negotiable obligations of the board, on the ground that they were never issued by its authority. The suit was brought not only against the bank which held the bonds, but also against the Sheriff of the City and County of New York, who had previously levied an attachment upon them in an action brought by the bank against Benjamin C. Bogert, upon his alleged indebtedness to it of $51,000.

The sheriff, having no interest in the controversy between the board and the bank, made no contest and did not appear in the suit. The decree was therefore only against the bank.

The facts of the case are briefly these:

The complainant below, the Board of Chosen Freeholders of Bergen County, is a municipal corporation having general charge of the affairs of the county. It is composed of thirteen representatives, one from each township of the county. Its officers are a director and a clerk elected by the board, the former from one of its own members. It also elects annually a collector, who acts as treasurer of the county, but is not a member or an officer of the board. It is his duty to collect the revenues of the county and to pay its expenses and liabilities.

During the late civil war, bonds were issued by the Board of chanrobles.com-red

Page 115 U. S. 385

Chosen Freeholders of Bergen County for money to enable it to raise and equip its quota of men under the different calls for troops by the government. These bonds were about to mature when the legislature, by an act passed on the 5th of April, 1876, authorized the boards of chosen freeholders of the several counties of the state to renew bonds previously issued by them for any loan made by them under authority of law, which should thereafter become due, and for which no provision should be made for their payment. The act required that the new bonds should be made payable within thirty years from date, and be so issued that three and one-third percent thereof should become due and payable each year; that they should draw interest not exceeding seven percent; should bear the seal of the corporation; be signed by the director of the board and its clerk, and countersigned by the collector of the county, and have coupons attached to each one for the semiannual interest, except that, when the board might judge it best, the bonds might be registered and be made payable to the order of the purchaser and issued without coupons. The act declared that all bonds issued under it should be numbered, and a register of the number, denomination, date of issuing, and name of person to whom issued, if registered, and time of payment, should be made by the collector in a book to be provided by the board for that purpose.

On the 10th day of May, 1876, the board of Bergen County passed a resolution empowering its finance committee to reissue county bonds in place of those becoming due on July 1 of that year. Blanks for 800 bonds, each for $500, with coupons attached, were accordingly prepared by order of the committee and bound in three books, with a margin or stub to each bond. The first book contained the blanks from 1 to 250; the second from 251 to 500; the third from 501 to 800, and these numbers were stamped on the backs of the books respectively. The name of the payee and the year of maturity were left unfilled in the blanks. These books were delivered to Benjamin C. Bogert, who was at the time collector of the county. James Vanderbeek was then director of the board, and Michael M. Wygant its clerk. chanrobles.com-red

Page 115 U. S. 386

At different times during the months of July and August, 1876, the three books were produced by Bogart at the room of the finance committee in the courthouse at Hackensack, the county seat of Bergen County, and there all the 800 bonds in blank were signed by Vanderbeek, the director, and by Wygant, the clerk. This was done at the request of Bogert, who represented that this course was advisable as some of the blanks might be injured or soiled before they were issued, he agreeing to destroy all the unused blanks. The director and the clerk both seemed to have implicit confidence in the integrity of Bogert, and it does not appear that there was any hesitation on their part to comply with his suggestion. The books, with the blanks in this condition, were left in his hands, but they had neither the seal of the county nor his signature. These were to be attached as the bonds were issued. The outstanding bonds of the county at the time amounted to $362,000, of which sum $14,000 were paid in cash. To meet the balance, 696 bonds were issued, and, with the exception of two of them, were exchanged for the old bonds. Two were sold, and the proceeds applied towards the payment of the balance. A register of the bonds thus issued was prepared as required by law, containing a tabulated statement of the number of each one, to whom issued, with its amount and date of maturity, and was kept by the collector, and was open to inspection by the public.

Of the blanks not used, 104 were left in the possession of Bogert. Two of these were substituted in place of others defaced in preparation. Of the remaining 102 blanks, none was required or used for the county, nor was their use ever authorized in any form by its board of chosen directors. Yet on the 26th of July, 1876, Bogert pledged 66 of them to the Merchants' Exchange Bank as security for a loan made to him individually for $30,000. Payments on this amount were made from time to time until, on May 9, 1878, it was reduced to $9,000. Soon afterwards, however, $2,000 more were added to this sum, and all the bonds were taken up except twenty-four. Previously to the loan, and on the 14th of March, 1876, Bogert had borrowed of the same bank $40,000, and chanrobles.com-red

Page 115 U. S. 387

given as collateral two documents purporting to be temporary loan certificates of Bergen County, each for $20,000. Certificates of this character had on different occasions been authorized by boards of chosen freeholders to raise money in anticipation of the collection of taxes. The two certificates, however, pledged to the bank were fictitious and fraudulent papers, never having been authorized by the board. In May, 1878, Bogert was defeated as collector of the county and another party took his office. After that, and on the 28th of September following at his request, the two loans were consolidated into one, for which he gave a new note for $51,000; took up the fictitious loan certificates, and in their place deposited with the bank, as collateral, seventy-eight of these county bonds. Thus the bank held 102 of them.

Bogert died January 8, 1880, and soon afterwards the issue of these 102 bonds, and their possession by the bank, were discovered, and the present suit was brought to compel their surrender. The court below held the bonds void, and decreed that they be delivered up to the complainants. From this decree an appeal is taken to this Court. chanrobles.com-red

Page 115 U. S. 390

MR. JUSTICE FIELD delivered the opinion of the Court. He stated the facts in the language above reported, and continued:

There was evidence at the hearing of a very persuasive character that the seventy-eight bonds deposited with the bank on the 28th of September, 1878, when the two loans of Bogert were consolidated, were not signed by him, and that the seal of the county was not attached until after he had ceased to be collector. Our judgment leads to that conclusion. If this be the fact, they fall within the rule in Anthony v. County of Jasper, 101 U. S. 699, where the Court said that

"Purchasers of municipal securities must always take the risk of the genuineness of the official signature of those who execute the paper they buy. This includes not only the genuineness of the signature itself, but the official character of him who makes it."

But in the view we take of this case, it is not material whether the bonds were signed before or after Bogert had ceased to be collector. The board of chosen freeholders of the county never directed nor permitted their issue. The law under which it derived all its powers provided only for the issue of bonds to meet the indebtedness from those then about to mature. All such maturing bonds had been surrendered for the new bonds except for a small amount which was paid in cash. The power of the board under the law was then exhausted. Any further issue was beyond its authority. Unless, therefore, there is something in connection with their issue to estop the board from contesting their validity, they can in no manner bind the county. This is not a case where chanrobles.com-red

Page 115 U. S. 391

there existed in the board a general power to issue negotiable securities of the county, so that parties would be justified in taking them when properly executed in form by its officers. It is a case where there was no power, except as specially delegated by law for a particular purpose. All persons taking securities of municipalities having only such special power must see to it that the conditions prescribed for the exercise of the power existed. As an essential preliminary to protection as a bona fide holder, authority to issue them must appear. If such authority did not exist, the doctrine of protection to a bona fide purchaser has no application. This is the rule even with commercial paper purporting to be issued under a delegated authority. The delegation must be first established before the doctrine can come in for consideration. See Case of Floyd Acceptances, 7 Wall. 676; Marsh v. Fulton, 10 Wall. 676; Mayor v. Ray, 19 Wall. 469.

There is a class of cases where recitals in obligations are held to supply such proof of compliance with the special authority delegated as to preclude the taking of any testimony on the subject, and estop the obligor from denying the fact. These have generally arisen upon municipal bonds, authorized by statute, upon the vote of the majority of the citizens of a particular city, county, or town, and in which certain persons or officers are designated to ascertain and certify as to the result. If, in such cases, the bonds refer to the statute and recite a compliance with its provisions, and have passed for a valuable consideration into the hands of a bona fide purchaser without notice of any defect in the proceedings, the municipality has been held to be estopped from denying the truth of the recitals. The ground of the estoppel is that the officers issuing the bonds and inserting the recitals are agents of the municipality empowered to determine whether the statute has been followed, and thus bind the municipality by their determination. See, of the late cases on this point, Northern Bank of Toledo v. Porter Township Trustees, 110 U. S. 608 and Dixon County v. Field, 111 U. S. 83.

In the bonds of Bergen County there are no recitals. The bank, in taking them, was bound to ascertain whether or not chanrobles.com-red

Page 115 U. S. 392

they were authorized. Had it examined the register of the bonds issued to take up the matured bonds, which was a public record of the county and open to inspection, it would have learned that the bonds which it received were not of the number thus authorized. Content to rely upon the unsupported representations of Bogert, it cannot now cast upon the county the consequences of its own mistake. Buchanan v. Litchfield, 102 U. S. 278.

Judgment affirmed.



























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