Bankers Trust Co. v. City of Statesville

A municipal bond payable to bearer, and otherwise complying as to form with the provisions of C. S., 2982, is a negotiable instrument, and as such when in the hands of a holder in due course as defined by C. S., 3033, is not subject to defenses which would otherwise ordinarily be available to the municipal corporation by which the bond was issued. The only defense available to the corporation in whose name and in whose behalf the bond was lawfully executed, when the bond is in the hands of a holder in due course, is that the corporation was without power or authority to issue the bond. Thus in Belo v. Commissioners, 76 N.C. 489, it is said by Bynum, J., speaking for this Court: "Municipal bonds are negotiable instruments, and the legal rights of the holders of such paper do not so much rest upon abstract principle, though true, as upon a system of practical rules found by experience to be essential to healthy commercial life. For the public protection and the convenience of trade every intendment is made in favor of the validity of negotiable instruments. Where bonds have been issued and sold in the market, and have come into the hands of a bona fide holder before maturity, as a general rule such bonds are prima facie valid, and the onus is upon the party impeaching them to show the contrary. This rule, however, which subsists between individuals, is much modified in respect to corporate bonds. Such bonds can be issued only in pursuance of a special grant of power, and the party claiming the benefit of such bonds must show a power in the corporate body to issue them. But if he is a purchaser for value, without notice and before maturity, he need do no more. If a municipal corporation has the power to issue bonds only on a compliance with conditions precedent, as, for instance, here in pursuance of a popular vote, and the bonds are issued, the presumption is that the conditions have been observed and they are prima facie valid, though the defendant may show the contrary, unless he is estopped by his own acts from doing so."

In the instant case, the city of Statesville had the power and authority to issue the bonds which are now in the hands of the plaintiff. The issuance and sale of the bonds was authorized to pay off and discharge a valid indebtedness of the city, incurred for a necessary expense, to wit: the expense of improving its streets and sidewalks. Kinston v. Trust Co.,169 N.C. 207, 85 S.E. 399. The jury has found under instructions of the court, to which the defendant did not except, that the defendant had the power to issue the bonds, which are now in the possession of the plaintiff. It is not contended by the defendant, on its appeal to this Court, that there was error in the trial in the Superior Court with respect to the instructions applicable to the first issue. In Commissioners v. Webb,148 N.C. 120, 61 S.E. 670, it is said by Hoke, J.: "When the power to incur a debt for a necessary expense exists, there would seem to be no good reason of law to prevent the governing authorities of a town from making provision for the present or ultimate payment of such a debt by issuing bonds for the purpose, if good business prudence and existing conditions are such as to render this course desirable." This principle is approved in Wolfe v. Mount Airy, 197 N.C. 450, 149 S.E. 589.

The defense urged by the defendant in the instant case that the bonds now in the possession of the plaintiff, were never delivered and that defendant received no value for the bonds, cannot avail the defendant. The delivery of the bonds by the defendant is conclusively presumed in favor of the plaintiff who purchased them from the Independence Trust Company, before maturity, without notice, and for value. It is expressly provided by statute that where an instrument negotiable in form, and executed by the defendant as maker, is in the hands of a holder in due course, a valid delivery of the instrument by the defendant, so as to make the defendant liable as maker of the instrument to the holder, is conclusively presumed. C. S., 2997. This conclusive presumption is applicable to a holder in due course of the green bonds now in the possession of the plaintiff, as well as to such holder of the yellow, or gold bonds, which were delivered by the defendant to Cutter, May and Company. The defendant has recognized the validity of these latter bonds, by paying the interest coupons attached to the same as they have become due. It would seem that as to these bonds, the defendant is estopped to deny their validity.

The defendant contends, however, that the bonds involved in this action, although in the hands of the plaintiff as a holder in due course, are void, because the ordinance by which the bonds were authorized, and under which they were executed, was passed at a special meeting, and not at a regular meeting of its board of aldermen, as provided in the charter of the city of Statesville. Whether this provision is mandatory, as contended by the defendant, or merely directory, as contended by the plaintiff, this contention cannot be sustained. It is generally held that where a municipal corporation has the power to issue bonds, and it is provided in its charter that such power shall be exercised in accordance with certain statutory provisions, the failure of the governing body of the corporation to act in strict accordance with such provisions will not invalidate the bonds in the hands of a holder in due course, especially where, as in the instant case, the corporation is estopped from attacking the validity of the bonds by its recognition for a long time of their validity. In such case, the principle on which Blackmore v. Duplin County, 201 N.C. 243, 159 S.E. 354, was decided is not controlling, See Proctor v. Commissioners, 182 N.C. 56, 108 S.E. 360, where it is said that in that case there had been no sale of the bonds proposed to be issued, and that for this reason the rights of purchasers for value, without notice and before maturity, were not involved. The judgment in the instant case is affirmed. There is

No error.