Carolina National Bank v. State , 60 S.C. 465 ( 1901 )

April 18, 1901. The opinion of the Court was delivered by This action was brought pursuant to a joint resolution of the General Assembly, approved February 17, 1900, 23 Stat., 554, to test the liability of the State to pay two notes taken by the superintendent of the State penitentiary for the hire of convicts, and by him indorsed to the plaintiff. The appeal comes from an order of Judge Klugh, overruling the State's demurrer to the complaint for insufficiency. The complaint, demurrer, order overruling and the exceptions thereto, are officially reported herewith.

The questions presented by the exceptions may be thus stated:

1. Whether Neal, as superintendent of the State penitentiary, had power to collect and receive the hire due the State for convicts.

2. Whether, if he had such power, he also had power, express or implied, to take negotiable notes therefor, and bind the State by his indorsement thereof to the plaintiff bank.

3. Whether the State is estopped to deny its liability by the alleged acquiescence in and approval of such negotiations, and the retention of the benefits thereof.

The first question has been recently determined by the case of State v. Neal, 59 S.C. 259, where the Court held that the superintendent of the penitentiary is criminally liable in failing to turn over to his successor moneys coming into his hands from the hire of convicts, since it was his duty under the statute to receive moneys arising from the hire of convicts. But power to receive money for convict hire does not imply power to bind the State by the officer's indorsement and negotiation of notes taken therefor. No express authority to so pledge the credit of the State is alleged or shown, and no such power can be implied unless it is necessarily incident to the power to receive money for convict hire. It needs no argument to show that the power to pledge the State's credit is not necessary to execute the power to receive money for the State's use. Testing the question by the law of private agency, all the authorities hold that the right of an agent to indorse the principal's name on common paper is not necessarily incident to the agent's power to collect and receive money for the use of the principal. Under this principle, an attorney to sue for, recover and receive money for his client, is not warranted under such authority to assign the judgment obtained. Noonan v. Ex'ors, 1 Bailey, 437. So strict is the law applicable to commercial paper in this State, an express authority to an agent to indorse commercial paper in the name of the principal will not authorize the agent to receive notice of dishonor, since that is not necessarily incident to the right to indorse. Valk v. Gaillard'sAdm., 4 Strob., 99. All the authorities agree that an agent cannot bind the principal by indorsement of negotiable paper except under an express power to the execution of which such indorsement is essential. 1 Parson's Contracts, 62; 1 Daniel Neg. Inst., 294; Tiedman on Com. Paper, 77, 312, 431; Jackson v. Bank, 36 Am. St. Rep., 84, and notes. Sometimes the act of the private agent may bind the principal if within the apparent scope of his authority. But in this case, we deal with the act of a public officer, whose authority to act must be real, not merely apparent. A public officer derives his authority from statutory enactment, and all persons are in law held to have notice of the extent of his powers; and, therefore, as to matters not really in the scope of his authority, they deal with the officer at their peril.Bond Debt Cases, 12 S.C. 200; 19 Am. Eng. Enc. Law. 506, and cases cited in the note on page 507. Whenever the United States Supreme Court, notwithstanding the inhibition of suits against the State without its consent, rightfully assumes jurisdiction of a suit against a State officer, it is upon the ground that the officer's act is not State action, but the individual act of the person holding the office, in cases where the officer's act is not authorized by a valid and constitutional statute. If authorized by valid law, the officer's act is the State's act; if not so authorized, the officer's act is his own. See among many cases that might be cited, the noted Virginia Coupon Cases, 114 U.S. 270, et seq., and InRe Ayers, 123 U.S. 443. In this case the State has waived exemption from suit; but the question yet remains whether the officer's act was the State's act, and that question depends upon whether the officer's act was authorized by any valid statute. The complaint alleges no such statute, and there is none; and if such existed, a grave question as to its constitutionality would arise under art. X., sec. 7, which provides: "No scrip, certificate or other evidence of State indebtedness shall be issued except for the redemption of stock, bonds or other evidences of indebtedness previously issued, or for such debts as are expressly authorized in this Constitution." The complaint alleges that there was a usage or practice for the superintendent of the penitentiary to so indorse notes taken for convict hire, and that such practice was known to and approved by the defendant. But such usage, if it existed, was unreasonable and in conflict with law, and could have no effect to authorize what could not be done without legislative authority. The statute giving Neal the right merely to receive money for convict hire, constituted his specific instructions as a public agent, and the usage could not vary or enlarge the statutory authority. Barksdale v.Brown, 1 Nott McCord, 517. This is a proper occasion to say that any such usage is unlawful and intolerable, in so far as it is thereby sought to pledge the credit of the State; for, as said in the Bond Debt Cases, supra. "The credit of a State is a sacred thing; should not be prostituted to every common purpose and hawked about on 'change like the note of a huckster." The complaint, in alleging the government's acquiescence in and approval of such conduct, states a mere conclusion of law which is not admitted by a demurrer. The State's acquiescence in or approval of such conduct could only be manifest by a valid act or joint resolution of the General Assembly, and none such is alleged.

The doctrine of equitable estoppel has no application to a sovereign State. Equitable estoppel rests upon an implication of fraud in the party sought to be estopped, and fraud ought not to be imputed to the sovereign. The State can only act under its Constitution and through its legislative enactments pursuant thereto, and can only ratify in the manner in which it could originally authorize; and if it could be estopped to assert the truth, the effect might be to fix upon the State responsibilities in conflict with its Constitution and laws. All men are bound to take notice of the special authority of the State's officers, and when dealing with them outside their authority, they assume the peril with their eyes open, and cannot be heard to say that they placed reliance upon the State. The question is not one of intention, but of power; and if the officer has not power to act, his action is not State action, and so affords no basis upon which to predicate estoppel against the State. And if it were in any sense a question of intention, the State's intention can only be evidenced in a constitutional way. On the question whether equitable estoppel applies to a State, respondent cites from a note to Williamson v. James, 4 A. E. Dec. in Equity, 367, to this effect: "The principles of estoppel also extended as far as they are applicable to a State — State v. Taylor, 28 La. An., 460; State v. Ober, 34 La. An., 359; State v. Flint c. R.R. Co., 89 Mich., 481; and to the United States — U.S. v. Scott, 38 Fed. Rep., 393." But further on, in the same note, it is stated that "nothing short of legislative act or resolution will estop a State from claiming the title to property — Alexander v. State, 56 Ga. 478." And further, that "the acts of State officers in assessing and collecting from a third person taxes on property owned by the State will not estop it, though the moneys so collected were applied to public uses — State v.Jones, 95 Ind., 175; McCaslin v. State, 99 Ind., 428; State v. Portsmouth Savings Bank, 106 Ind., 435." On this point the attorney general cites Bishop on Contracts, sec. 310, where it is stated, "Ordinarily and by most opinions an estoppel does not take effect against the sovereign State or United States." Throop on Pub. Officers, p. 552, where it is stated, "The government is never estopped on the ground that its agent is acting under apparent authority which is not real." To the same effect, the attorney general cites State v. Bevers, 96 N.C. 588, and People v. Brown, 67 Ill., 435; to which may be added the leading case in North Carolina,Taylor v. Shufford, 15 Am. Dec., 512, and in Illinois, the case of Dement v. Roker, 126 Ill., 174; 19 N.E. Rep., 33. In the case of Filor v. United States, 9 Wall, 45, the Supreme Court of the United States held that the "unauthorized acts of officers cannot estop the government from insisting upon their invalidity, however beneficial they have proved to the United States." Heyward v. Farmers c.Co., 42 S.C. 138. See, also, the following cases: State v.Brewer, 64 Ala., 287; Pulaski County v. State,42 Ark. 118; Salem Imp. Co. v. McCourt, 26 Or., 93;41 Pac., 1105.

Nor do we think this action can be sustained, as contended by the respondent, as an action for money had and received. The State has only received that to which it was entitled, viz: money for the hire of convicts, received from the hands of the superintendent of the penitentiary. Plaintiff has paid no money to the State by mistake; for in the eye of the law plaintiff dealt with Neal, not with the State, and received from Neal all that it contracted for, the liability of the makers of the notes, supported by Neal's indorsement. In addition to this, as has already been shown, no equitable estoppel arises against the State as a basis for an implied contract, and the State cannot be made liable as for an implied contract, when there was no power to make an express contract in the manner of this case.

The judgment of the Circuit Court is reversed and the case remanded, with instructions to sustain the demurrer and dismiss the complaint.