Ehrlich v. Jennings , 78 S.C. 269 ( 1907 )

This case was argued first in this Court during the April Term, 1907, and afterwards ordered to be reargued before the Court en banc on September 27, 1907.

September 27, 1907. The opinion of the Court was delivered by The relator as holder of a coupon bond, No. 2525, for $1,000, payable to bearer, issued by the State in June, 1893, presented the same to the State Treasurer and demanded a certificate of stock in exchange therefor under the Act of 1892 entitled "An act to provide for the redemption of that part of the State debt known as the Brown Consul bonds and stocks by issuing other bonds and stocks." The State Treasurer refused to make the exchange on the ground that said bond had been previously redeemed, having been surrendered to the State Treasurer by a holder in exchange for stock, and thereafter had been stolen from the treasury vault by a clerk in the office. Mandamus is now sought to compel the State Treasurer to issue stock in exchange for said bond.

No marks to indicate the cancellation were ever placed upon the said bond, although the statute expressly declared that such surrendered bond "shall immediately upon such surrender be cancelled and filed by the State Treasurer with the permanent records of his office." It is admitted that relator is a bona fide holder for value before maturity and without notice. The general rule of law is that a thief of personal property cannot convey to purchaser, however innocent, any title to the stolen property as against the real owner. But from the highest considerations of public policy the law excepts from the rule negotiable instruments acquired in good faith before maturity and without notice, and makes the title of such holder good against the world. Bond Debt Cases, 12 S.C. 200;Spooner v. Holmes, 102 Mass. 503, 3 Am. Rep., 491;Evertson v. Na. Bk. of Newport, 66 N.Y., 14, 23 Am.Rep., 9; Murray v. Lardner, 2 Wall., 110; Cooke v. United States, 91 U.S. 389.

The "Bond Debt Cases," 12 S.C. 201, show that a coupon bond of the State, valid in its inception, is a negotiable security, and the State issuing such negotiable paper incurs the same responsibilities which attach to individuals or corporations in like cases. There is no suggestion that the bond in question was not valid when originally put in circulation, and it being admitted that relator is a bona fide holder thereof at this time, his title can in nowise be affected by the surrender of the bond to the Treasurer by some antecedent holder and the subsequent theft by means of which it was again put in circulation. The method which the State had adopted to take such bond out of circulation, cancellation, was not complied with by those intrusted by the State with that duty. The direction to cancel surrendered bonds was designed to prevent the very possibility which has happened, and the failure of the State officers to comply cannot be treated as a circumstance of no consequence, for the absence of marks of cancellation made it possible for the thief to put the bond in circulation.

The respondent relies upon the case of Branch v. Commissionersof the Sinking Fund, 80 Va., 427, 56 Am. Rep., 596. The syllabus of that case is as follows: "Coupon bonds issued by the State of Virginia had been redeemed and others had been issued in their stead. The bonds so redeemed were stolen from the State and came into possession of a bona fide holder for value who presented them to be refunded in other State bonds. Held, that mandamus would not lie to compel the funding." This result is based upon three reasons: (1) The bonds could not be funded because they were not legal outstanding obligations of the State, having been redeemed and extinguished. (2) That if the bonds were legal obligations of the State to be paid at maturity, the contract of the State was to pay money, not give other bonds for them. (3) That the bondholders were, under the circumstances, guilty of negligence in failing to inform themselves, as they could and ought to have done by a breath, as to the genuineness of the bonds. It will be observed that the third reason given is contradictory of the view that the holder was a bona fide holder for value before maturity without notice, as that language is understood in this State and now generally in this country and England.

At one time in England, under the case of Gill v. Cubitt, 3 Barn C., 466, it was held that the holder to have good title must not have taken the negotiable paper under circumstances which ought to have excited the suspicion of a prudent man, and this view has received some support in this country, but in Goodman v. Harvey, 4 Ad. E., 870, the doctrine of Gill v. Cubitt was completely discarded and the rule declared that negligence, which is not so great as to warrant an inference of fraud or bad faith, will not affect the title of the holder. Such is now generally the rule in this country. Goodman v. Simonds, 20 How., 343; Murray v. Lardner, 2 Wall, 110; Witte v. Williams, 8 S.C. 290. We refer to this to show that in so far as the Virginia case rests upon the negligence of the holder as affecting his title, it cannot receive any sanction in this State, for if the holder was merely negligent his title should have been held unaffected, whereas if his negligence was so gross as to warrant an imputation of bad faith, that made a case wholly different from the case at bar, where there is not a suspicion of bad faith. With respect to the second reason given in the Virginia case, if it be conceded that the bond in question is a valid obligation of the State in the hands of a bona fide holder, it would seem clear that such bonafide holder is clothed by law with every right given to holders of the bonds by the statutes which authorized their issuance, exchange or redemption. The main reason upon which the doctrine of the Virginia case rests is that which treats the bonds when once surrendered to the Treasurer in exchange for other bonds as dead matter, whose vitality could never be restored without voluntary redelivery by the State, and there being no such redelivery, the bonds should be held to be in the category of commercial paper stolen from the maker before it had legal inception. Although there is conflict, much authority exists for the view that an innocent holder for value of paper commercial and negotiable in form but which had never been completed by delivery cannot acquire rights thereto against the alleged maker. Burson v. Huntington, 21 Mich., 415, 4 Am. Rep., 497; Cline v. Gutherie, 42 Ind., 13 Am. Rep., 357; Salley v.Terrill, 95 Me., 553, 55 L.R.A., 730.

This rule, however, cannot properly apply in a case where the negotiable paper has once become operative by a valid delivery. The real point of inquiry is, admitting a valid and strictly negotiable paper in the hands of a bona fide holder before maturity, how far can intervening circumstances affect the title of the holder? The general rule is that payment before maturity is no defense against a subsequentbona fide holder for value before maturity. 3 Randolph Com. Paper. sec. 1470; 2 Dan. Neg. Inst., sec. 1233;Haug v. Riley (Ga.), 40 L.R.A., 249; Rockville Nat.Bank v. Citizens Gas Light Co., 72 Conn., 581. It is the duty of the maker paying commercial paper before maturity to take reasonable precaution to prevent its restoration to circulation by accident or fraud. In Ingham v. Primrose, 7 C.B.N.S., 82, the acceptor of a bill after paying it, and intending to cancel it, tore it in halves and threw it into the street, but the drawer having picked up the pieces and pasted them together put the bill again into circulation. The acceptor was compelled to pay a second time.

In California v. Wells Fargo Co., 15 Cal., 236, certain warrants issued by the State of California were paid and deposited in the office of the Treasurer, and were afterwards stolen form the office and passed into the hands of a bonafide holder, who presented them to the Treasurer to be exchanged for bonds under a statute of that State. The Treasurer, not aware of the theft, exchanged bonds for warrants. On discovering the theft afterwards, he brought suit to recover the bonds, but the Court held that the bonds were valid debts of the State in hands of the innocent holder.

In Rockville Nat. Bank v. Citizens Gas Light Co.,72 Conn., 576, coupon bonds of the defendant had been paid before maturity and surrendered, but not marked cancelled, and left in the hands of the defendant's treasurer, who, with no power to reissue, fraudulently pledged same with plaintiff bank which took them before maturity, bona fide and without notice. The Court held that plaintiff was entitled to recover upon the bonds.

The case of District of Columbia v. Cornell, 9 Sup. Ct. Rep., 694, is distinguishable from this case in at least two important particulars: (1) the certificates involved in that case were held not to be strictly commercial paper, (2) when paid they were in fact marked cancelled, although the marks of cancellation were removed by the thief, a clerk in the office.

The principle that a bona fide holder cannot acquire title where there is absolute want of power in the State or its officers to issue negotiable paper has no application in this case, the bond in question having been originally issued by due authority. The holder is not claiming by virtue of anyreissue of the bond after its redemption, but by virtue of the original issue and relation to it as a bona fide holder unaffected by intervening facts. The claim is not that the Treasurer, or any one in his office, had power to reissue the bond, but that he was charged by the State with the duty to keep it out of circulation by cancellation and that his failure to do so was the State's failure. It is true the doctrine of estoppel in pias does not apply to a sovereign State and that the State can only act under its constitution and through its legislative enactments, and that therefore contracts cannot be created against the State except under such sanctions. Bank v. State, 60 S.C. 475, 38 S.E., 629. But here we have a bond of the State issued by due authority of the Legislature, which the representative of the State failed to cancel as directed by statute, and which is now under the law merchant the property of the relator. As stated by Chief Justice Waite in Cook v. United States,91 U.S. 243: "A government may suffer loss through the negligence of its officers. If it comes down from its position of sovereignty and enters the domain of commerce it submits itself to the same laws that govern individuals there. Thus if it becomes the holder of a bill of exchange it must use the same diligence to charge the drawers and indorsers that is required by individuals; and if it fails in this, its claim upon the parties is lost. U.S. v. Barker. 12 Wheat., 559. Generally in respect to all the commercial business of the government, if an officer specially charged with the performance of any duty authorized to represent the government in that behalf neglects that duty and loss ensues the government must bear the consequences of his neglect." It may be further said that the right of a bonafide holder of commercial paper under circumstances like these does not wholly rest upon the law of estoppel, but is grounded upon high public policy which is subserved by making him secure in his title.

It is urged in behalf of the respondent that the recognition of the bond in question as a valid debt of the State when it has already been redeemed by the issue of stock in exchange would result in increasing the debt of the State in violation of the Constitution, sec. 11, art. X, which forbids the General Assembly from creating any further debt or obligation without first submitting the question to the qualified electors, etc. As declared inWhaley v. Galliard, 21 S.C. 581, with reference to a similar provision in the Constitution of 1868, the object of the provision was to place restrictions upon the power of the Legislature to contract debts. It has no application to a case like this. We are not concerned now with the validity of the stock issued in exchange for the bond, but the principle announced touching the rights of a bona fide holder would surely protect the holder of such stock in his title. The bond in question in the hands of the relator is no new debt attempted to be created by the unauthorized act of some officer, or even by the judgment of a court, but represents the old debt provided for in the statute authorizing the issue of that series of bonds.

Having thus established the status of relator's title to the bond in question, we proceed to consider whether mandamus should issue to compel the exchange demanded.

Mandamus lies to compel a public officer to perform a plain ministerial duty imposed by law, involving no discretionary power to the performance of which the relator has a right and to enforce which he has no other adequate and specific legal remedy. Every condition of this law governing mandamus is met in this case. There is no other adequate legal remedy. We have shown the relator's title to the bond in question to be impregnable. As owner of the bond he is unquestionably entitled to every right conferred upon the holder by the statute authorizing its issuance, exchange or redemption. He has presented to the proper public officer the actual bond for exchange and his demand has been refused. The officer has no discretion to refuse such demand by a bona fide holder and the statute imposes upon him the plain ministerial duty to make the exchange upon demand and surrender of the bond.

In Lord v. Bates, 48 S.C. 95, 26 S.E., 213, the Court refused mandamus because the statute required the funding of certain bonds upon their actual surrender, a condition which the holder had not met. In this case the bond is actually tendered, hence there is nothing in the case ofLord v. Bates antagonistic to the issuance of the writ in this case.

The Attorney General, however, waives all questions as to the remedy.

The right of a bona fide holder of negotiable paper is not merely equitable. It is a legal right under the law merchant, and mandamus should not be denied upon the ground that relator's right is a mere equity.

This is in no sense a suit against the State without its consent, for whenever mandamus lies it compels the the performance of official duty imposed by the State.

The writ should be issued as prayed.

MR. JUSTICE WOODS AND CIRCUIT JUDGES WATTS, GAGE, DANTZLER, MEMMINGER AND WILSON concur in thisopinion.