Wall v. County of Monroe/Opinion of the Court

MR. JUSTICE FIELD delivered the opinion of the court.

The warrants in suit are evidences of indebtedness by the county of Monroe, issued by that branch of its government to which is intrusted, by the laws of the State, the examination and approval of claims against the county. They are orders upon the treasurer of the county to pay out of its funds for county purposes, not otherwise appropriated, the amounts specified. They establish, prima facie, the validity of the claims allowed and authorize their payment. But they have no other effect. Their issue determined nothing as to other demands of the payee against the county, or of the county against him. Had there been other claims to be adjusted and settled between the parties, these warrants, if lawfully issued, would have been taken as approved items in the account—nothing more.

The warrants being in form negotiable, are transferable by delivery so far as to authorize the holder to demand payment of them and to maintain, in his own name, an action upon them. But they are not negotiable instruments in the sense of the law merchant, so that, when held by a bona fide purchaser, evidence of their invalidity or defences available against the original payee would be excluded. The transferee takes them subject to all legal and equitable defences which existed to them in the hands of such payee.

There has been a great number of decisions in the courts of the several States upon instruments of this kind, and there is [p78] little diversity of opinion respecting their character. All the courts agree that the instruments are mere prima facie and not conclusive evidence of the validity of the allowed claims against the county by which they were issued. The county is not estopped from questioning the legality of the claims; and when this is conceded the instruments conclude nothing as to other demands between the parties. The cases will be found collected in notes to the fourteenth chapter of Dillon on Municipal Corporations. The law respecting these instruments is also fully stated by this court in Mayor v. Ray, reported in the 19th of Wallace. That case was upon warrants of a city and not of a county, a circumstance which does not affect the doctrine. The court, speaking through Mr. Justice Bradley, said: "Vouchers for money due, certificates of indebtedness for services rendered, or for property furnished for the uses of the city, orders or drafts drawn by one city officer upon another, or any other device of the kind, used for liquidating the amounts legitimately due to public creditors, are, of course, necessary instruments for carrying on the machinery of municipal administration, and for anticipating the collection of taxes. But to invest such documents with the character and incidents of commercial paper, so as to render them in the hands of bona fide holders absolute obligations to pay, however irregular or fraudulently issue, is an abuse of their true character and purpose." And again: "Every holder of a city order or certificate knows that, to be valid and genuine at all, it must have been issued as a voucher for city indebtedness. It could not be lawfully issued for any other purpose. He must take it, therefore, subject to the risk that it has been lawfully and properly issued. His claim to be a bona fide holder will always be subject to this qualification. The face of the paper itself is notice to him that its validity depends upon the regularity of its issue. The officers of the city have no authority to issue it for any illegal or improper purpose, and their acts cannot create an estoppel against the city itself, its taxpayers, or people. Persons receiving it from them know whether it is issued, and whether they receive it for a proper purpose and a proper consideration. Of course they are affected by the absence of these essential ingredients; and all [p79] subsequent holders take cum onere, and are affected by the same defect." These observations apply equally to the county warrants in suit, as to the city warrants there considered. And the same reasons which deny to them negotiability in the sense of the law merchant, allow any matter of set-off to them which the county held against the original parties.

The case of Crawford County v. Wilson, in the Supreme Court of Arkansas, is cited as showing that a different rule prevails in that State. The language of the opinion, that county warrants are endowed with the properties of negotiable instruments, must be read in connection with the point involved, which was whether county warrants were transferable by mere delivery, so as to vest the legal interest in the holder. To this extent they may be called negotiable, but no court of Arkansas has held that they were negotiable in the sense of the law merchant, so as to shut out, in the hands of a bona fide purchaser, inquiries as to their validity, or preclude defences which could be made to them in the hands of the original parties. The law is not different there from that which obtains in other States.

The cancellation of the warrants originally issued and the substitution of others in their place did not change their charter. Neither that proceeding nor the original auditing of the claims of Gallagher had the force of a judicial determination, concluding either him or the county. There was no litigation on the subject between adversary parties which could give to the result any greater efficacy than the award of an ordinary board authorized to audit claims against a municipal body. Shirk v. Pulaski County, 4 Dill. 209.

We answer, therefore, the first question certified to us in the negative, and the second in the affirmative, and accordingly affirm the judgment.

Judgment affirmed.