Provident Life Trust Company of Philadelphia v. Mercer County Kentucky/Opinion of the Court

by David Josiah Brewer

United States Supreme Court

170 U.S. 593

Provident Life Trust Company of Philadelphia  v.  Mercer County Kentucky

No one can read the facts above stated, as found by the circuit court, without being impressed that the transactions between the county and the company, culminating in the delivery of the bonds to the latter, were had in the utmost good faith. There was no misrepresentation, concealment, or fraud. The work done by the company in constructing the railroad was obvious and satisfactory. The question whether that work was a compliance with the terms of the subscription was publicly discussed, and was fully considered at a meeting of the county court of claims, whose opinion was, and was so expressed, that the contract had been fully complied with, and that the bonds ought to be delivered. Prior to the time that such conclusion was reached, the company, in view of the question, commenced its preparations to construct the road to the south county line, and had obtained, with a single exception, the necessary right of way therefor. When advised by the opinion of the court of claims that the construction of the additional two miles of road was unnecessary, and the judgment of the trustee was announced that he considered the contract of subscription fully complied with, the company desisted, and took the bonds. The county accepted the stock issued by the company, voted upon it at stockholders' meetings, and has ever since retained it. For three years and a half it paid the interest on the bonds, without questioning their validity. So that, if good faith on the part of all concerned was the sole condition of the validity of these bonds, no question could be made concerning it.

We do not mean to imply that good faith is the only requisie , or that a condition plainly prescribed by the legislature can be ignored by a county, even with the best of intentions. On the contrary, we reaffirm the proposition laid down in Barnum v. Okolona, 48 U.S. 393, 395, 13 Sup. Ct. 638: 'That municipal corporations have no power to issue bonds in aid of a railroad except by legislative permission; that the legislature, in granting permission to a municipality to issue its bonds in aid of a railroad, may impose such conditions as it may choose; and that such legislative permission does not carry with it authority to execute negotiable bonds except subject to the restrictions and conditions of the enabling act,-are propositions so well settled by frequent decisions of this court that we need not pause to consider them. Sheboygan Co. v. Parker, 3 Wall. 93, 96; Wells v. Supervisors, 102 U.S. 625; Claiborne Co. v. Brooks, 111 U.S. 400, 4 Sup. Ct. 489; Young v. Clarendon Tp., 132 U.S. 340, 346, 10 Sup. Ct. 107.'

At the same time, when the good faith of all the parties is unquestionable, the courts will lean to that construction of the statute which will uphold the transaction as consummated. Especially will that be so in a case in which, the question of construction having been raised, the one party commences preparations to perform work which will put the matter beyond question, and desists therefrom only upon the representations of the other party that it is satisfied the work has been completed according to the terms of the contract. As said in Andes v. Ely, 158 U.S. 312, 321, 15 Sup. Ct. 957:

'While courts may properly see to it that proceedings for casting burdens upon a community comply with all the substantial requsitions of a statute in order that no such burden may be recklessly or fraudulently imposed, yet such statutes are not of a criminal character, and proceedings are not to be so technically construed and limited as to make them a mere snare to those who are encouraged to invest in the securities of the municipality. These considerations are appropriate to this case. The proceedings on the part of the town and the railroad company were carried on in evident good faith. No one questioned their validity; no effort was made to review the action of the county judge; the bonds were issued; more than $100,000 was spent within the limits of the town in the construction of the road; and years went by, during which the town paid the interest and part of the principal, before any question was made as to their validity.' See, also, Mercer Co. v. Hacket, 1 Wall. 83; Van Hostrup v. Madison City, Id. 291; Ray v. Vansycle, 96 U.S. 675.

With these preliminary observations, we pass to a consideration of the questions presented; and, in the first place, it must be noticed that no matter of constitutional limitation is involved. The only inquiry is whether the conditions prescribed in the statute have been fully complied with, and, if not, whether the county is in a position to avail itself of the noncompliance. The statute in terms authorizes the issue of negotiable bonds. The bonds are negotiable, and issued by the proper county officers; carry on their face recitals that they have 'been issued pursuant to the authority conferred' by an act of the legislature, which is named, and 'pursuant to an order entered by the county judge of said county in conformity with said act subscribing in behalf of said county for the capital stock' of the railroad company. By a long series of decisions such recitals are held conclusive in favor of a bona fide holder of bonds that precedent conditions prescribed by statute and subject to the determination of those county officers have been fully complied with. For instance, whether an election has been held, whether at such an election a majority voted in favor of the issue of bonds, whether the terms of the subscription have been complied with, and matters of a kindred nature, which either expressly or by necessary implication are to be determined in the firs instance by the officers of the county, will, in favor of a bona fide holder, be conclusively presumed to have been fully performed, provided the bonds contain recitals similar to these in the bonds before us. See, among other cases, Town of Coloma v. Eaves, 92 U.S. 484; Warren Co. v. Marcy, 97 U.S. 96; Buchanan v. Litchfield, 102 U.S. 278; Northern Bank v. Porter Tp., 110 U.S. 608, 4 Sup. Ct. 254; Bernards Tp. v. Morrison, 133 U.S. 523, 10 Sup. Ct. 333; Citizens' Savings & Loan Ass'n v. Perry Co., 156 U.S. 692, 15 Sup. Ct. 547; Andes v. Ely, 158 U.S. 312, 15 Sup. Ct. 954.

But it is said that the recitals in this case can be held conclusive only as to matters transpiring before the placing of the bonds in the hands of the trustee, such as the election, etc., because by section 4 of the statute the bonds, when executed, were to be deposited with a trustee, to be held in escrow, and delivered only upon the performance of a certain condition,-a condition to be performed subsequently to the execution of the bonds. Assuming, without deciding, that such limitation must be placed upon the recitals, we pass to inquire whether that condition was in fact performed, and, if not, whether, after delivery by the trustee, the county can be permitted to raise the question as against bona fide holders. That condition is that the bonds shall not be binding 'until the railway of the said company shall have been so completed through such county that a train of cars shall have passed over the same.' It is contended that the word 'through' means clear through the county,-from one end of the county to the other; and that, while the railway enters the north line of the county, and runs within the county limits a distance of nearly 20 miles, it does not touch the south county line, nor come within a nearer distance of it than 2 miles. So it is said the railway does not run through the county, and therefore the condition upon which the bonds could become binding and valid obligations did not and does not exist. It is true, the primary meaning of the word 'through' is from end to end, or from side to side, but it is used in a narrower and different sense. Its meaning is often qualified by the context. Thus, if one should say that he had spent the summer traveling through New England it would not be understood as carrying an affirmation that he had been from one side clear to the other or from one end clear to the other, but that his travels had been within the limits of New England. That book which is said to have had a wider circulation than any except the Bible, Bunyan's Pilgrim's Progress, opens with this sentence: 'As I walked through the wilderness of this world, I lighted on a certain place where there was a den, and laid me down in that place to sleep.' Does the writer mean that he passed from one end of the wilderness to the other, and at the further end found the den, or simply that as he traveled in the wilderness he lighted on the den? Obviously, the latter. Many similar illustrations might be cited. They show that 'through' does not always mean from end to end, or from side to side, but frequently means simply 'within.' Now, the language here is 'so completed through such county that a train of cars shall have passed over the same.' Obviously, the primary thought is not the extent of the line, but the extent to which the work shall be completed. In other words, the principal thing is not that a railroad shall be partially completed from one end of the county to the other, but that a railroad shall be so completed within and substantially through the county that a train of cars passes over it. It may well be believed that, inasmuch as the company's road was to commence at Louisville, on the northern border of the state, and its principal city, the purpose was to connect the county with that city, and that the road should be so fully completed as to permit the moving of trains over it, i. e. be in a condition for actual use, and not that a road, no matter how far constructed, shol d be extended from one end of the county to the other. This view of the intent of the legislature is sustained by the last clause of the section, which provides 'that no such subscription shall be binding unless such railroad shall pass to or through the corporate limits of the town of Harrodsburg.' This contemplates that the line coming from the north shall enter the county and pass through it so far as to reach the corporate limits of the town of Harrodsburg, that town being the county seat. The proviso is not that the road, in passing through the county, shall touch or pass through the town of Harrodsburg, but simply that it shall pass to or through that town; and either is sufficient. It seems not an unreasonable construction of this statute that the condition of subscription was fully complied with when the railroad was so completed from the northern line of the county to Harrodsburg, the county seat, that a train of cars passed over it. If that be the correct construction, then, of course, we need inquire no further; and, on the other hand, if, though not correct, it be not an unreasonable construction, the courts should, in view of the unquestioned good faith of both parties, of the fact that it was adopted by the authorities of the county, and that by reason thereof the company desisted from further work, accept, if possible, the interpretation placed by the parties as correct. This view is certainly persuasive.

But if the true-the only permissible-construction be otherwise, and the demand of the statute is that the road be actually constructed from the north to the south line of the county, and so constructed that a train of cars shall have passed over it, then the question arises as to the effect of the decision of the trustee that the condition had been complied with, and of his delivery of the bonds, and their subsequent purchase by a bona fide holder. It is said that the bonds were placed in escrow, and that when an instrument is so placed there can be no valid delivery until the condition of the escrow has been performed; and if, without performance, the instrument passes out of the hands of the one holding the instrument in escrow, it is not enforceable against the maker, and that in a suit on the instrument the inquiry is always open whether the condition of the escrow has been performed. Whatever may be the rule in case the instrument so placed in escrow be a deed or nonnegotiable contract, we are of opinion that a different rule obtains when the instrument is a negotiable obligation.

'It is generally agreed that a delivery of negotiable paper left in escrow, contrary to the terms upon which it was to have been delivered, will pass a good title to the bona fide transferee for value and before maturity.' Long Island Loan & Trust Co. v. Columbus, C. & I. C. Ry. Co., 65 Fed. 455, 458.

In Fearing v. Clark, 16 Gray, 74, 76, Chief Justice Bigelow thus states the law:

'The rule is different in regard to a deed, bond, or other instrument placed in the hands of a third person as an escrow, to be delivered on the happening of a future event or contingency. In that case no title or interest passes until a delivery is made in pursuance of the terms and conditions upon which it was placed in the hands of the party to whom it was intrusted. But the law aims to secure the free and unrestrained circulation of negotiable paper, and to protect the rights of persons taking it bona fide without notice. It therefore makes the consequences which follow from the negotiation of promissory notes and bills of exchange through the fraud, deception, or mistake of those persons to whom they are intrusted by the makers to fall on those who enabled them to hold themselves out as owners of the paper jure disponendi, and not on innocent holders who have taken it for value, without notice.'

In Burson v. Huntington, 21 Mich. 415, 433, it is said:

'If the maker or indorser, before delivery to the payee, leave the note in the hands of a third person asa n escrow, to be delivered upon certain conditions only, * * * and the person to whom it is thus intrusted violate the confidence reposed in him, and put the note into circulation, this, though not a valid delivery as to the original parties, must, as between a bona fide holder for value and the maker or indorser, be treated as a delivery, rendering the note or indorsement valid in the hands of such bona fide holder.'

See, also, Vallett v. Parker, 6 Wend. 615, 620; Bank v. Faurot, 149 N. Y. 532, 44 N. E. 164; Graff v. Logue, 61 Iowa, 704, 17 N. W. 171.

Within these authorities it must be held that when the trustee adjudged that the condition had been complied with, and delivered the bonds, the railroad company took such a title as, transferred to a bona fide holder, enabled him to recover against the county, notwithstanding the condition had in fact not been performed. That the trustee was the agent of the county, and responsible to it for the manner in which he discharged this duty, is obvious from the provision in the statute that he shall give 'bond, with good surety, approved by the county judge, for the faithful performance' of his duty. If, in case the condition was not performed, the county had a perfect defense to the bonds, even in the hands of a bona fide holder, there were little need of requiring the trustee to give any security.

Another significant feature in this connection is the fact that by statute the bonds were to be negotiable. Counsel for the county suggest that this provision of the statute can be satisfied by giving to the bonds the benefit of negotiability as between successive holders; but we know of no reason why the general significance of the word 'negotiable' should be so limited. The third of the three peculiar and distinguishing characteristics of negotiable instruments, as stated in 1 Daniel on Negotiable Instruments (section 1) is respecting the consideration; and the author says:

'As between immediate parties, the true state of the case may be shown, and the presumption of consideration rebutted. But when a bill of exchange or negotiable note has passed to a bona fide holder for value, and before maturity, no want or failure of consideration can be shown. Its defects perish with its transfer; while, if the instrument be not a bill of exchange or negotiable note, they adhere to it in whosesoever hands it may go.'

To hold that by this provision the legislature intended that the quality of negotiability should inhere in the instruments only as between the successive holders, and not between the maker and any bona fide holder, cannot be justified by any reasonable construction of the language used.

It follows from these considerations that these bonds in the hands of the life and trust company, a bona fide holder, must be adjudged the valid obligations of the county. The judgment of the court of appeals is therefore reversed, and the judgment of the circuit court is affirmed.

Notes