Combs v. Hodge

THIS was an appeal from the Circuit Court of the United States for the District of Columbia.

The chronological history of the case was this:

In 1839, Combs was the proprietor of a large amount of bonds issued by the State of Texas for various sums, which certificates concluded in this way:

'This certificate is transferable by the said Leslie Combs, or his legal attorney or representative, on the books of the stock commissioner only.'

Two of these certificates-viz: No. 5219, for five thousand dollars, and No. 5229, for one thousand dollars-were the subjects of the present suit. No notice will be taken in this report of the other bonds.

In 1840, Combs endorsed these certificates in blank, and placed them in the hands of James Love, of Galveston, Texas, for the purpose, as he alleged, of enabling Love to receive payment, which was then expected, but which was not made.

In 1846, one Josiah Lee brought a suit in the Commercial Court of New Orleans against William L. Hodge, to recover back money which he had paid to Hodge for the purchase of Texas bonds. Hodge took defence upon two grounds, viz: 1. That it was supposed that there was a power to transfer in the hands of a Mr. Love, of Galveston, which plaintiff was bound to refer to. 2. That the blank endorsement of the owner authorized plaintiff to write over it the necessary authority. The court, however, gave judgment for Lee against Hodge.

By subsequent legislation of Congress and of Texas, the bonds became payable at the Treasury of the United States, where payment of them was claimed by J. Ledgear Hodge, a resident of Pennsylvania, administrator with the will annexed of Andrew Hodge, deceased, in whose name the bonds had been deposited at the Treasury. Whereupon Combs filed a bill against J. L. Hodge, the administrator as aforesaid, William L. Hodge, and James Love. An injunction was obtained to stay the payment of the money until the determination of the suit. The record of the suit in New Orleans and copies of letters were attached to the bill as exhibits.

J. L. Hodge, the administrator, answered that he had no personal knowledge of any of the matters stated in the bill.

William L. Hodge, amongst other matters, said that the bonds had been transferred by Love to Andrew Hodge fairly and for their full value. The Circuit Court dismissed the bill, and Combs appealed to this court.

It was argued by Mr. Bradley and Mr. Baxter for the appellant, and Mr. Reverdy Johnson, jun., and Mr. Reverdy Johnson, sen., for the appellees.

The principal points made by the counsel for the appellant were the following:

I. This is a proceeding in the nature of a bill of interpleader, the Treasury of the United States being the stakeholder. (Clarke v. Clarke, 17 How., 321.)

In such a controversy, the parties stand on their respective legal and equitable rights.

II. The appellant is the creditor of Texas, holding the legal title to this scrip, which can pass only in the manner prescribed by the law of Texas, and apparent on the face of the scrip. (Menard v. Shaw, 5 Texas Rep., 334.)

The distinction between stocks passing by delivery or assignment, except in a particular mode, and the effect of their assignment in any other mode, is well established. (Union Bank v. Laird, 2 Wheat., 251; Zacharie and others v. Black and others, 3 How., 513; Glynn v. Baker, 13 East., 509; Gongen v. Melville, 3 B. and C., 45; 10 E. C. L., 16; Attorney General v. Diamond, 1 Cromp. and Jar., 356, 70; Attorney General v. Hope, 1 Cromp., Mees., and Ros., 330; Jame v. Bowens, 4 Mees. and Wels., 171; Miller v. Race, Smith L. C., 250, and notes; Story Con. of L., sec. 383, and notes.)

III. The legal title being in Combs, the appellees have shown no equity in themselves.

IV. Had Love authority to sell?

1. It was argued below that the power was conferred by the endorsement in blank.

2. That such authority is proved by complainant's Exhibit H., in which Love asserts he had a power of attorney.

As to the power implied from the endorsement.

1. There is an express limitation on the face of these bonds upon their transferable character. It is not denied that, as between the original parties, an endorsement in blank, for a fair consideration, followed by delivery, would vest in the purchaser an equitable title, which would, upon satisfactory proof, enable him to compel the endorser, in a court of equity, to do everything necessary to effect a complete transfer of his interest. He could sue in his own name in equity alone. His title would be equitable. And it may be conceded that he had an assignable property in the bonds. But he could assign no more than his equity. 'The stream could not rise higher than the fountain.' The purchaser, therefore, could not, as against the original party, stand in any better condition than the first assignee.

These are familiar general principles, and will be found to be fully sustained in the following cases: Turton v. Benson, 1 P. Wm.'s, 496; S.C.., 2 Vern., 764; Davies v. Austin, 1 Ves., jun., 247, and see the cases collected in the note, [Perkins's Ed.,] 1 Bro. Ch., 434; Cator v. Burke, and 3 Bro. Ch., 179; Davies v. Austin and others, and notes; Scott v. Shreeve, 12 Wheat., 605; and also 17 How., 615.

Undoubtedly, these general principles are subject to certain exceptions; but there are none such in this case. It is not pretended that the purchase was from Combs, and it is obvious they understood his authority was requisite to complete the title. They have failed to show any facts giving rise to an equity other than the actual possession of the bond with Combs's name endorsed upon it; and this alone is wholly insufficient, the object for which that was done having been satisfactorily shown.

2. The statement contained in the letter of Love is introduced by the complainant for the purpose of showing the pretences under which it is supposed the defendant sets up title, and to negative such pretension.

The bill is sworn to, and emphatically states and reiterates that complainant never gave any authority, in any form, to Love, to dispose of the bonds.

And it is a violent invasion of the rules of evidence to say, that when a complainant introduces, by way of exhibits, in his bill, the unsworn statements of his defaulting agent, as to transactions alleged to be fraudulent, and sought to be set aside, and under oath negatives them, he shall be held bound by the very falsehoods he seeks to overthrow, and they shall be taken as proof that his sworn statements are false. The essence of the bill is, that the agent had fraudulently appropriated the bonds to his own use, under the pretence of an authority to sell; and it is to repudiate and discredit this pretended authority that he makes him and his imputed assignee parties defendant, and seeks from them a discovery of the facts. The answer of Love would have been evidence against the complainant. Hodge, upon leave, could have examined him as a witness. Yet he does not answer, and is not examined. The complainant was entitled to his answer under oath; to that extent, it was a bill for a discovery. He was duly summoned, but, being a non-resident, there was no means of compelling his answer. His failure to answer must, so far as he is concerned, be taken as an admission of the allegations of the bill. But if the statement of this letter was true, he could not, and for his own sake would not, have refused, at the instance of an innocent purchaser from him, to have produced the power, and supported it by proof. The pretence in the letter is contradicted in terms, and charged to have been a fraud. To say, then, that it is evidence to prove the authority, is a solecism, and a contradiction in terms of the plainest rules of chancery pleading. If this is out of the case, there is no scintilla of proof to give countenance to the pretence of an authority.

Finally, Combs having the legal title, the whole burden is on the appellees to establish, by satisfactory proof, an equity which will draw to it the legal title. (Judson v. Corcoran, 17 How., 612.)

I. That there is evidence that Love had authority from complainant to dispose of these certificates; and if so, there can be no question as to the propriety of the decree.

The ground upon which the judgment rested in the case of 'Lee v. Hodge,' filed as Exhibit E to bill, was, that in that case there was an agreement by defendant for a special power of transfer, which was not obtained; though, had there been no such special agreement, say the court, the blank endorsement standing alone would have weight in the view there urged, that such blank endorsement gave authority to a holder to write over it the necessary power to transfer.

In the case at bar, the blank endorsement does stand alone, (in the sense of being affected by any special agreement,) and the argument based upon it is strengthened by the avowals of the agent as to his power from Combs, appearing in complainant's Exhibit H to bill, which is also made evidence in the cause by agreement.

II. That the possession of these certificates by Love, with complainant's blank endorsement, constituted him, as to third persons, an agent for the general negotiation of the bonds, and complainant cannot limit his liability by special private instructions to the agent, which are not divulged to a bona fide purchaser for value.

The blank endorsement on the certificates can mean nothing else than authority to Love to place over it the necessary form of power of attorney. As the certificates call for a transfer in person, or under such a power, the Government of Texas would in no event have paid to Love the amount of the certificates, except upon presentation by him of some such authority; and as it is not pretended that, when these certificates were first placed in Love's hands for the purpose indicated in the bill, there was any separate power of attorney given, the endorsement in blank of complainant's name, where the parties were many hundred miles apart, could import nothing else than authority to fill over the name such power as would authorize Love to surrender to the Government, upon receipt of the sums indicated; and that would be, equally as to third parties, innocent bona fide purchasers, without notice of special instructions, power to receive purchase-money, and transfer to them upon the books of Texas. (1 Parsons on Contracts, 39; 1 Peters, 290, Schinmelpennick v. Bayard; 3 Gill, 251, Chesley v. Taylor; 9 Howard, 580, Baldwin v. Ely; Story on Agency, sec. 73, p. 3, sec. 127; 19 Howard, 322, Commercial Ins. Co. v. Union Ins. Co.; 22 Engl. Law and Eq. R., 516, Montague v. Perkins; 10 Cush. Mass. R., 373, Androscoggin Bank v. Kimball; 22 Wendell, 348, Com. Bank of Buffalo v. Kortright; 4 Dow and Ryls, 641, Gorgier v. Mieville-16 E. C. L., 217; Douglass, 633, Peacoke v. Rhodes; 1 Bos. and Pull, 648, Collins v. Martin.)

III. If Love's possession of the certificates so endorsed be not, as to third persons, authority to dispose generally of the bonds, yet it was sufficient to have induced a person or ordinary precaution to infer such authority; and if, by the fraud of Love, such party was misled into a bona fide purchase of the bonds for full value, even a court of law, and a fortiori a court of equity, will throw the loss upon the principal who put it into the agent's power to commit a fraud on innocent parties. (Story on Agency, sec. 127; 1 Term R., 12, Fitzherbert v. Mather; 4 Barn. and Ald.; 1 Wookey v. Pole, 6 E. C. L., 323; 22 Eng. Law and Eq., 516, Montague v. Perkins.)

IV. Although the face of the certificates calls for a transfer on the books of Texas by Combs, or his attorney or representative, such clause relates only to the legal title; and if equity supports the appellee's claim, or that of any purchaser under similar circumstances, it would decree that Combs transfer the naked legal title as required by the certificate. (3 Howard, 483, Black v. Zacharie; 22 Wendell, 348, Com. Bank of Buffalo v. Kortright.-See Chancellor's Opinion.)

V. But the act of Texas of 1846, (p. 220,) modifies the stringency of the original certificates by authorizing the transfer on the books of the State to be made, not only by the original holder, his attorney or representative, but also by his assignee-in which position we stand in equity, and can therefore, as against the complainant, in a court of equity, call for a transfer of the bonds.

Mr. Justice CAMPBELL delivered the opinion of the court.