US SUPREME COURT DECISIONS

The United States cannot be held liable in the Court of Claims for the amount of registered bonds which the Register of the Treasury cancels without authority of law, not being liable for nonfeasances or misfeasances or negligence of its officers.

The only remedy in such case is by appeal to Congress.

The plaintiffs, having been held liable to the owners of bonds so improperly cancelled as parties to the transaction, are not entitled to be subrogated to the heirs of the estate in the suit against the United States, since a person who invokes the doctrine of subrogation must come into court with clean hands.

This was a petition by the German Bank of Memphis, as successor of the German National Bank of Memphis, and the Chemical National Bank of New York, against the United States, to recover the amount of three registered bonds, alleged to have been wrongfully cancelled by the Register of the Treasury under the following circumstances:

In 1869, one Henry P. Woodward died in Shelby County, Tennessee, leaving a will in which he directed that certain insurance money due his estate should be invested in United States interest-bearing bonds, with coupons attached, which coupons were to be given to his wife, Sallie, as they fell due, for her support and the support and education of her child, and that when the child should arrive at the age of 21 years, the bonds should be divided between the said child and its mother equally, one Marcus E. Cochran being appointed sole executor of the will.

The will was admitted to probate in November, 1869, and Cochran qualified as executor. Having a balance of insurance remaining after paying the debts, he invested the same in three registered bonds of $5,000 each, in which it was certified that "the United States of America are chanrobles.com-red

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indebted unto M. E. Cochran, executor or assigns, the sum of five thousand dollars," etc. "This debt is authorized by Act of Congress approved March 3, 1865, and is transferable on the books of this office."

Cochran collected the interest on these bonds regularly, and paid the same to the widow of the testator, as provided in the will, until May, 1873, when he died. On September 9, one James A. Anderson, public administrator, was appointed by the probate court administrator de bonis non of Woodward's estate, duly qualified as such, and three days thereafter obtained these bonds from the Union and Planters' Bank of Memphis, in whose custody they had been, and by which the interest had been collected and paid over, giving therefor a receipt as administrator. He subsequently gave another receipt to the attorney of Mrs. Cochran, as administrator of her deceased husband.

In December, 1876, Anderson, who had long been a depositor in the German National Bank and a man of high standing, took two of these bonds to this bank and requested it to sell them, saying that he wanted to invest for a better interest; that he could get ten percent for the money at the same time showing a paper from the Treasury Department at Washington which in some way recognized his authority to transfer the bonds, but by whom the paper was written and the exact terms of it do not appear, no copy of the same being in evidence. The bank sent the bonds to the Chemical National Bank of New York by express, with a letter directing them to sell the same, and place the proceeds to their credit, adding:

"Judge J. A. Anderson filed the proper papers with the department, as per memo. enclosed. We do not wish to be responsible, after paying the funds over here, for any irregularity in papers."

On receiving these bonds, the Chemical National Bank wrote to the Register of the Treasury notifying him of the receipt of the bonds from the German National Bank, describing them as

"No. 7,701, to order M. E. Cochran, executor, of Memphis, Tenn. $5,000; do. No. 6,081, to order of M. E. Cochran, executor, $5,000, which said bank request us to sell,

Page 148 U. S. 575

but distinctly state they do not want to be held responsible, after paying the funds over, for any irregularity in papers, which I herewith enclose. We desire to comply with the wishes of the German Nat., but do not wish to be responsible for regularity, etc., and therefore refer the case to you. Please inform us what action to take. The certificates are assigned in blank by J. A. Anderson, adm'r of H. P. Woodward, deceased, and appear to have been witnessed by a notary public, having his official seal attached. If you are willing, we will forward them for registration in our own name, as in their present shape they are not a good delivery in this market."

The register replied to this, and stated:

"There is on file in this office satisfactory power in favor of your bank to transfer the bonds referred to, and a reassignment by your Mr. Jones as pres't to any party purchasing will be recognized, or, if preferred, new bonds will be issued to your bank under the present assignment."

The bank replied to this letter under date of December 28, 1876, and requested the register to issue new bonds in the name of "the Chemical National Bank of N.Y."

In January, 1877, Anderson took the third bond to the German National Bank, by which it was transferred to the Chemical National Bank with similar instructions. The latter bank transferred the bond to the Treasury Department, which thereupon issued to the Chemical National Bank three new bonds, in which it was certified that "the United States of America are indebted to the Chemical National Bank of New York, or assigns, in the sum of five thousand dollars," etc. The Chemical National Bank of New York having thus obtained title to these bonds, sold the same, and transferred the proceeds, $16,840.60, to the German National Bank of Memphis, where they were passed to the personal credit of said Anderson, drawn out by him from time to time on his personal checks, and lost to the beneficiaries by conversion to his own use.

The original bonds had borne upon their back a blank form of assignment, executed by Anderson, with certain instructions, chanrobles.com-red

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among which were that the execution of the assignment must be witnessed by a public officer, attested by his official seal, and that

"executors, administrators, and trustees, when the stock stands in the name of the person they represent, must furnish legal evidence of their official character to be filed."

The regulations of the Treasury Department at this time required that,

"in case of death or successorship, the representative or successor must furnish official evidence of decease and appointment. An executor or administrator may assign stock standing in the name of a deceased person. Where there is more than one legal representative, all must unite in the assignment unless by a decree of court or provision of will someone is designated to dispose of the stock. If the stock was held by the deceased as a fiduciary, the letters of administration must be accompanied by an order of the court authorizing the transfer."

When taken to the German National Bank of Memphis, the blank form of assignment had been filled out, except the name of the assignee, for which a blank was left, signed by Anderson, and executed before a notary public.

In 1872, the widow of said Woodward married Thomas H. Covington, who died in 1884. Anderson paid her the interest on the bonds up to 1880, when he failed and the payments ceased. During that year, a bill was filed in the equity court by Covington and wife and Henriella P. Woodward, minor child of testator, against Anderson, who had become insolvent, the German National Bank of Memphis, the Chemical National Bank of New York, and others, defendants, charging Anderson with a breach of trust in the sale of the bonds, and the conversion of the proceeds to his own use, and the two banks with participating therein by receiving and selling the bonds charged with notice of the trust. The final result of this suit after trial in the Chancery Court of Memphis and in the Supreme Court of Tennessee on appeal was a decree against the two banks in favor of the plaintiffs in the sum of $23,211.82, that being the principal and interest of the bonds so converted. Covington v. Anderson, 16 Lea 310. chanrobles.com-red

Page 148 U. S. 577

Subsequently the two banks paid the amount of this judgment to a trustee appointed by the Chancery Court, and on November 22, 1888, filed a petition in the Treasury Department for the payment of the money here claimed. The petition was referred to the Solicitor of the Treasury, who advised that the amount for which the bonds were sold should be paid by the government, but the Secretary of the Treasury thought the claim presented was not of such a nature as to be properly adjudicated by him. On March 12, 1889, another petition was presented to the Treasury Department, which decided that the government was not liable, and this suit was begun.

Upon a finding of facts, of which the above statement is the substance, the Court of Claims dismissed the petition, 26 Ct.Cl. 198, and the claimants appealed to this Court.