National Bank of Washington v. Texas

APPEAL from the Supreme Court of the District of Columbia; the case being thus:

The United States, on the 1st of January, 1851, issued to the State of Texas for the sale of a portion of her northwestern territory, five thousand coupon bonds of $1000 each, numbered successively from No. 1 to No. 5000, and 'redeemable after the 31st day of December, 1864.' They were made on their face all payable 'to bearer,' and declared to be transferable on delivery. The coupons, which extended to December 31st, 1864, and no farther, were equally payable 'to bearer.' These bonds were known as Texas indemnity bonds.

On the 16th of December, 1851, in anticipation of the bonds being delivered to it, the State of Texas passed an act authorizing their governor to receive them from the United States,

'And when received, to deposit them in the treasury of the State of Texas, to be disposed of as may be provided by law; provided, that no bond issued as aforesaid, as a portion of the said $5,000,000 of stock, payable to bearer, shall be available in the hands of any holders until the same shall have been indorsed in the city of Austin, by the governor of the State of Texas.'

After this act of December 16th, 1851, and between that day and the 11th of February, 1860, the State of Texas passed thirteen different acts, providing for the sale or disposal of the whole $5,000,000 of these bonds; for lawful State purposes; as ex gr., paying the public debt of the State; the erection of a State capitol; to establish a system of schools, &c., &c., the construction of railroads: the terms of none of these acts requiring an indorsement of the bonds by the governor, as required in the above-quoted act of December 16th, 1851, nor any of them designating by numbers on them the particular bonds to be appropriated to the particular objects authorized. Subsequently to this again, the rebellion having broken out, and the State having gone over to the rebel side, and there being a large number of the bonds still undisposed of in the State treasury, the legislature of Texas, by an act of January 11th, 1862, repealed the act of December 16th, 1851 (making an indorsement necessary), and the then authorities of Texas, through its 'military board,' in January, 1865, sold or transferred, as was said, and as in former cases in this court was supposed to be shown, certain of the bonds, but not all of them, to two persons, White and Chiles, for the purpose of aiding the rebellion. In those cases-the cases, namely, of Texas v. White and Chiles, and Texas v. Hardenberg, -it was determined that as against the true, that is to say, the loyal State of Texas (particular citizens of which had stopped payment of them at the Federal treasury), no title had passed to bonds which had been thus transferred; and that notwithstanding the transfer, the reconstructed State might reclaim the bonds or their proceeds.

How many bonds were transferred to White and Chiles, or what were their exact numbers, was not well ascertained; but, as already said, it was well known that the bonds transferred to White and Chiles did not comprise the whole issue for $5,000,000, and that a considerable number of them had been transferred under one or other of the thirteen enactments already mentioned. In particular, it appeared that one hundred and forty-eight of them (numbered from 4694 to 4842 inclusively) had been transferred, in pursuance of a statute, to the Southern Pacific Railroad Company; some of which the company paid out to contractors for work done on the road. These bonds were not indorsed by the governor.

In this state of things the State of Texas brought her complaint in chancery in the court below against the First National Bank of Washington, W. S. Huntington, its cashier, and others, for discovery and relief in regard to certain of these Texas indemnity bonds, of which the bill alleged that the State had been dispossessed by fraud or treasonable practices. The number now claimed was nineteen; thus numbered:

'Numbers 4226, 4227, 4229, 4703, 4705, 4706, 4748, 4813, 4825, 4843, 4844, 4912, 4927, 4928, 4929, 4960, 4961, 4962, 4963.'The bill alleged that these indemnity bonds were each for the sum of $1000, dated January 1st, 1851, redeemable after December 31st, 1864, and that those in controversy were received and remained in the treasury of the State of Texas until after the period fixed for redemption. It was alleged that in the year 1865 the insurrectionary power which had usurped control of the State, made a contract with White and Chiles by which from one hundred and forty-five to one hundred and sixty-two of the bonds were delivered to them, in consideration of which they agreed to furnish means to carry on the war against the United States in which that State was then engaged, with others, under the name of the Confederate States of America.

It was further alleged that these bonds, then overdue, afterwards came to the hands of the defendants, who purchased them with full notice of the purpose for which they had been delivered to White and Chiles.

It was also alleged that said bonds were never indorsed by the governor of the State of Texas in such manner as by the law of Texas was required, by reason of which no legal title to the same passed from the State, or was vested in the parties to whom they were delivered. The defendants were required to answer under oath, and a decree against them in regard to the bonds left with Taylor, or for other relief, was prayed.

The bank and Huntington answered and admitted the purchase of some of the Texas indemnity bonds, and having others as agents for the owners of them. They gave a list of all these, specifying those held in their own right and those held as agents. They averred that the bonds had all been paid to them in full by the Treasury of the United States before this suit was commenced, and that those owned by themselves were purchased for value (namely, ninety-eight cents to the dollar), without notice of any of the matters set up in the complainant's bill.

They denied all knowledge on their part, that the bonds claimed by them were part of the bonds issued to Chiles and White, or had been issued in aid of the rebellion; and they denied also the facts that they were so issued. And they denied the statements of the bill in these matters. A general replication was filed and testimony taken.

To make out its case, the State of Texas adduced the testimony of Mr. R. W. Taylor, the Comptroller of the Treasury of the United States, and of Mr. G. W. Paschall, one of the attorneys for the complainant. Mr. Taylor's deposition was a long one. What follows are extracts which bear principally on the case. He is under examination by the complainant's counsel.

'Question. I see it stated that these bonds came through the hands of J. P. White. Do your investigations enable you to say they were part of the bonds received by White and Chiles?

'Answer. I do not know anything more about that than what is to be gathered from the general appearance of the transaction. There was nothing at that time known here about the White and Chiles purchase; at least I had heard nothing of it.

'Question. But from this general appearance of which you speak, what is your opinion as to their having been part of the same bonds?

'Answer. From all the circumstances, my opinion is, those were of the White and Chiles bonds. That is only an opinion, however.'

CROSS-EXAMINED.

'Question. Do you know of your own knowledge that White and Chiles, or either of them, ever saw one of these bonds?

'Answer. I knew it only from the papers on file in the department, that is, from my opinion of what those papers show.

'Question. It would be a very tedious process (and I presume you could not do it) to furnish the various papers from which you make up your opinion?

'Answer. They are too numerous for me to present now, and I might add, that one would have to study them very carefully and make his calculations as to the different bonds.

'Question. Would you not have to do so by ascertaining the entire number of bonds, and then tracing those bonds into the hands of persons other than White and Chiles; would not your opinion be based upon the conclusion that, inasmuch as so many bonds were in the hands of other people, it followed, as a necessary result, that if White and Chiles had any, they must be those?

'Answer. It would be by taking the seven hundred and eighty-two bonds that were not indorsed, and tracing them back, by the evidence, into the hands of those parties who held them at different times, and ascertaining in some instances, the particular numbers that were known to be in the hands of particular parties before the transaction between White and Chiles and the military board, and taking others again, that came from the State of Texas, and then drawing my conclusions as to what were White and Chiles bonds.'

Mr. Paschall said in reply to questions in chief and on cross-examination:

'I was employed by Governor Pease to prosecute this suit, and caused it to be instituted in 1868; and judging from a careful examination made in Texas and in the Treasury Department here, I feel confident that the bonds redeemed for the bank, described by Mr. Taylor, were part of the bonds which passed through the hands of White and Chiles. I judge this from circumstances which he has stated. . . . I did satisfactorily to myself, identify those paid to Huntington, &c., because I found an affidavit of a brother of White attached to them, and was thus able to trace them as having come through White. I inferred so from the fact that they passed through the hands of White's brother, and through the hands of a Nashville man named Douglass. I thought I saw clearly that they appertained to that class, and from those numbers, knowing that the authorities of Texas had taken off the bonds, consecutively, from No. 1 of the 782. I knew about where these numbers would begin, but I was at a loss about the precise numbers, because I wanted to describe them in Texas, and I could not certainly identify them.'

Such, in the main, was the complainant's case. As this court held that it was in itself insufficient, the evidence by the other side is but adverted to. That evidence tended to show that in the case of all the bonds the cashier of the bank had gone, prior to purchasing them, to the Treasury of the United States, and had made full inquiry about them, that the Comptroller of the Treasury had advised that bon a fide holders of such bonds should be paid; that many such bonds were paid, and that the purchases here were made in view of this action; that of the nineteen bonds now in question, fifteen or sixteen had been bought in December, 1865, and in August and September, 1866, from Jay Cooke & Co., and three from Simon Wolf, of New York, acting as agent for various residents there; that of the fifteen or sixteen bought from Jay Cooke & Co., at least six were of the number transferred to the Southern Pacific Railroad Company; that four had never been delivered to the military board; that leaving the remaining to rest on the fact (among other facts) that they came from Jay Cooke & Co., who were not shown to have ever stood in relations of any sort with Chiles and White.

The court below decreed in favor of the complainant as to the nineteen bonds, and the defendants took this appeal.

Messrs. E. R. Hoar and J. Hubley Ashton, for the appellants, contended that on the complainant's own case, as proved, the bill ought to have been dismissed; that the testimony of Taylor and Paschall fell within the case of Carter v. Boehm, in which Lord Mansfield said of such testimony: 'It is mere opinion, which is not evidence;' that all the allegations of the bill were denied by answers responsive to it; and was not sustained by any evidence overcoming the denials; that Huntington v. Texas had decided that the State must prove not only unlawful issue and use, but also the further fact of notice to the defendant; that though express notice was here averred, none was proved; that the doctrine of constructive notice, applicable to dishonored private mercantile paper, payable to order on a day certain, could not be applied to public securities like these, under the circumstances attending them, when purchased in the open market after the day had passed when, by their tenor, they were redeemable; that they were issued as stock, not payable to bearer on any certain day, but 'redeemable after the 31st day of December, 1864;' that they stated that interest would be paid for fourteen years, but that after December, 1864, the bonds might be redeemed at the pleasure of the United States; that the bonds were not dishonored; that dishonor and non-payment at maturity, in the case of private mercantile paper, were not necessarily the same thing; that a note on demand was mature and demandable at once, but was not dishonored until after such a lapse of time that the law considered the paper ought to have been paid, and that every one was bound to suppose that payment must have been demanded and refused within that time; that Mr. Attorney-General Black had held, after full consideration, that the reason of the rule which makes ordinary bills and notes, when transferred after maturity, subject to prior equities, did not apply to treasury notes of the United States, redeemable after one year from their date, and that a purchaser for value of such a note, after maturity, was entitled to the same protection as the bon a fide holder of ordinary commercial paper taken before maturity.

The counsel contended further, that it was clear enough, viewing the bonds specifically, that these particular bonds had not been the bonds of White and Chiles; ten of them assuredly had not been so, and the presumptions were that the others had not been.

That even if it were clear that they all had passed under the White and Chiles transaction, that the State ought not to recover; that this court was reviewing the decree below in its capacity as a court of equity; that the property had been acquired honestly and in good faith for a full consideration, without knowledge or notice of that transaction, and after due and full inquiry instituted at the Treasury Department, whose duty it was, as this court has said, to ascertain and decide whether the bonds had or had not been issued in aid of the rebellion.

Messrs. R. T. Merrick and T. J. Durant, having referred to the case of Texas v. White and Chiles, to show the history of the Texas indemnity bonds, and referred to the testimony of Messrs. Taylor and Paschal as that of persons intimately acquainted with the history of the bonds now specifically involved, submitted—

That upon the state of facts shown, the absence of the indorsement of the governor raised a presumption against the validity of the alienation of the bonds; and that the cause of justice would best be subserved by giving effect to this presumption, and requiring the holder of a bond not indorsed to prove that it had been issued by the State for some lawful and proper purpose.

That circumstances having been proved establishing illegality in the original transfer of the bonds, the burden of showing that value was given for them before maturity was cast upon the holder; and if it appeared that he took them after they became due, he would be regarded as having taken them subject to all the rights and equities of the State, and could not protect a defective title by any rule of commercial law.

That the questions involved in this case were all decided in Texas v. White and Chiles; that they again came before the court in the case of Texas v. Hardenberg, in which the court, referring to the opinion in the case of White and Chiles, says:

'This conclusion leaves but one question for consideration, namely, whether Hardenberg at the time he purchased the bonds had notice of the equity of the State of Texas. This question was not concluded by the decree, but it was fully considered by the court upon the former argument, and our conclusion, as stated in the opinion, as then delivered, was that Hardenberg, as well as the other purchasers of indemnity bonds about the same time, was affected by such notice. We will not restate what we then said; it is only necessary to say, that we have reconsidered the grounds of that decision, and are still satisfied with it.'

That the expressions in the opinion delivered in White and Chiles, and referred to in the above extract, would be found on page 732 of 7th Wallace, and were as follows:

'We think it clear, if a State, by a public act of her legislature, imposes restrictions upon the alienation of her property, that every person who takes a transfer of such property must be held affected by notice of them. Alienation, in disregard of such restrictions, can convey no title to the alienee.'

The learned counsel, referring to the opinion of the court in the subsequent case of Huntington v. Texas, as qualifying and explaining the fundamental principles announced in the preceding cases, and regulating their application, submitted that it did not in any way annul the fundamental principles declared in those previous cases, but, on the contrary, reaffirmed them.

Mr. Justice MILLER delivered the opinion of the court.