Wall v. County of Monroe


 * 1) A county in Arkansas, when sued on its warrants by a bona fide holder thereof for value, may set up any defence to which they were subject in the hands of the original payee.
 * 2) The same rule is applicable where the warrants are issued to the payee, in lieu of others in his favor cancelled by the county court, after it found them to be just claims against the county.
 * 3) Neither the order directing the issue of the original warrants, nor that cancelling them and substituting others in their place, has the force of a judicial determination concluding either the payee of them or the county.

ERROR to the Circuit Court of the United States for the Eastern District of Arkansas.

This is an action upon the warrants of the county of Monroe, Arkansas, which were drawn by the clerk of the county [p75] upon its treasurer, in favor of one Frank Gallagher, and transferred by him to the plaintiff.

The following is a copy of one of them. The others are of like tenor and effect, though some of them are for only $20.

They were renewal warrants, drawn in lieu of others which, under the laws of Arkansas, had been called in by the county court for examination, registration, and reissue. The called-in warrants, having been found to be just and legal claims against the county, were cancelled by order of the court, and the clerk was directed to issue new warrants in lieu thereof to the original payee, Frank Gallagher.

The new warrants were purchased in good faith for a valuable consideration by the plaintiff, who, on the refusal of the treasurer to pay them on demand, instituted this action. The answer sets up as a defence that said Gallagher was, at the time the warrants were issued to him, indebted to the county as surety on the official bond of one Ambrose Gallagher, tax-collector of the county, in a sum larger than the amount sued for; that since then the county has recovered a judgment against the said Frank Gallagher for a much larger amount than the warrants in suit; that the judgment was recovered before the transfer of the warrants to the plaintiff, and has not been reversed or modified, and is still in full force and unsatisfied; and it asks that the judgment may be set off against the warrants. The plaintiff demurred to the answer, alleging as the cause of demurrer that its allegations were not sufficient to constitute a defence at law.

Upon the argument of the demurrer the following questions arose:—

First, Is the defendant estopped by the reissue of the war- [p76] rants to set up a defence known to have been existing at the time they were reissued in lieu of the original warrants surrendered to the county court, and by its order cancelled?

Second, Can the claim set up in the answer, if held by the county against the original payee when the warrants were issued or while they were still in his possession, be set up as defence of set-off in a suit by a holder of them for value, who had not notice of such defence when he acquired them?

On which questions the opinions of the judges were opposed, and the demurrer having been overruled, final judgment was rendered for the defendant.

Whereupon, upon motion of the plaintiff, the points on which the disagreement happened were stated under the direction of the judges, and certified to this court for final decision.

Mr. M. T. Sanders for the plaintiff in error.

Under the law of Arkansas, the warrants which are the foundation of this suit are negotiable instruments. Rev. Stat., sects. 602, 603, 605; Crawford County v. Wilson, 7 Ark. 214; Carnall v. Crawford County, 11 id. 604; Gunn v. Pulaski County, 3 id. 427; Adamson v. Adamson, 9 id. 26; Brem v. Arkansas County Court, id. 241; Reiff v. Conner, 10 id. 241; Jefferson County v. Hudson, 22 id. 595.

Sect. 27, art. 7, of the Constitution of the State gives to the county court exclusive original jurisdiction in the local concerns of the county. It is a court of record. Its judgment allowing demands against the county, and directing the issue of a warrant for their payment, merges them and all preexisting equities between the parties, and cannot be collaterally impeached.

The transferee of the warrants sued on must be treated as the assignee of the judgment pursuant to which they were issued. A defence which might have been made available against the original claim cannot be set up in an action on the judgment. Noble v. Merrill, 48 Me. 140; Guinard v. Heysinger, 15 Ill. 288; Flint v. Sheldon, 13 Mass. 443; Ellis v. Clarke, 19 Ark. 420.

The defence here does not arise out of the transaction in which the warrants, all of which bear date in 1875, were issued. It rests upon a claim of the county against the original payee, [p77] who was a surety of the defaulting county tax-collector for the year 1872. Conceding that they are of no higher grade than bills of exchange or promissory notes negotiated after maturity, the county could not avail itself of the defence set up.

The indorsee of an overdue negotiable note takes it subject to all the equities which attached to it in the hands of the payee, if they are connected with the note itself, but not to such as grow out of distinct and independent transactions. National Bank of Washington v. Texas, 20 Wall. 72, 89; Oulds v. Harrison, 10 Exch. Rep. 572; Burrough v. Moss, 10 Barn. & Cress. 558; Renwick v. Williams, 2 Md. 356.

Mr. Augustus H. Garland, contra.

MR. JUSTICE FIELD delivered the opinion the court.