,125 Am.St.Rep. 795,13 Am.Ann.Cas. 1166, Ehrlich v. Jennings

• Decision Date: 27 September 1907
• Citation: 58 S.E. 922,78 S.C. 269
• Parties: EHRLICH v. JENNINGS, Treasurer.
• Court: South Carolina Supreme Court

58 S.E. 922

78 S.C. 269

EHRLICH v. JENNINGS, Treasurer.

Supreme Court of South Carolina

September 27, 1907

Pope C.J., Gary, A. J., and Gary, Klugh, Prince, and Hydrick Circuit Judges, dissenting.

En banc. Mandamus by Edward Ehrlich against R. H. Jennings, as State Treasurer, to compel him to issue a certificate of stock in exchange for a coupon bond, under Laws 1892, p. 24. Writ granted.

W. T Aycock, for Relator.

Attorney General J. Fraser Lyon, for State Treasurer.

JONES J.

The relator as holder of a coupon bond No. 2525, for $1,000 payable to bearer, issued by the state in June, 1893, presented the same to the State Treasurer, and demanded a certificate of stock in exchange therefor under the act of 1892 (Laws 1892, p. 24), entitled "An act to provide for the redemption of that part of the state debt known as the Brown consul bonds and stocks by issuing other bonds and stocks." The State Treasurer refused to make the exchange, on the ground that said bond had been previously redeemed, having been surrendered to the State Treasurer by a holder in exchange for stock, and thereafter had been stolen from the treasury vault by a clerk in the office. Mandamus is now sought to compel the State Treasurer to issue stock in exchange for said bonds.

No marks to indicate cancellation were ever placed upon said bond, although the statute expressly declared that such surrendered bond "shall immediately upon such surrender be canceled and filed by the State Treasurer with the permanent records of his office." It is admitted that relator is a bona fide holder for value before maturity and without notice. The general rule of law is that a thief of personal property cannot convey to a purchaser, however innocent, any title to the stolen property against the real owner; but from the highest considerations of public policy the law excepts from the rule negotiable instruments acquired in good faith before maturity and without notice, and makes the title of such holder good against the world. Bond Debt Cases, 12 S.C. 200; Spooner v. Holmes, 102 Mass. 503, 3 Am. Rep. 491; Evertson v. Nat. Bank of Newport, 66 N.Y. 14, 23 Am. Rep. 9; Murray v. Lardner, 2 Wall. (U. S.) 110, 17 L.Ed. 857; Cooke v. United States, 91 U.S. 389, 23 L.Ed. 237. The Bond Debt Cases, 12 S.C. 201, show that a coupon bond of the state, valid in its inception, is a negotiable security, and the state issuing such negotiable paper incurs the same responsibilities which attach to individuals or corporations in like cases. There is no suggestion that the bond in question was not valid when originally put in circulation, and, it being admitted that relator is a bona fide holder thereof at this time, his title can in no wise be affected by the surrender of the bond to the Treasurer by some antecedent holder and the subsequent theft, by means of which it was again put in circulation. The method which the state had adopted to take such bond out of circulation-cancellation-was not complied with by those intrusted by the state with that duty. The direction to cancel surrendered bonds was designed to prevent the very possibility which has happened, and the failure of the state officers to comply cannot be treated as a circumstance of no consequence, for the absence of marks of cancellation make it possible for the thief to put the bond in circulation.

The respondent relies upon the case of Branch v. Commissioners of the Sinking Fund, 80 Va. 427, 56 Am. Rep. 596. The syllabus of that case is as follows: "Coupon bonds issued by the state of Virginia had been redeemed, and others had been issued in their stead. The bonds so redeemed were stolen from the state, and came into possession of a bona fide holder for value, who presented them to be refunded in other state bonds. Held, that mandamus would not lie to compel the funding." This result is based upon three reasons: (1) The bonds could not be funded because they were not legal outstanding obligations of the state, having been redeemed and extinguished. (2) That, if the bonds were legal obligations of the state to be paid at maturity, the contract of the state was to pay money, not to give other bonds for them. (3) That the bondholders were under the circumstances guilty of negligence in failing to inform themselves, as they could and ought to have done by a breath, as to the genuineness of the bonds. It will be observed that the third reason given is contradictory of the view that the holder was a bona fide holder for value before maturity without notice, as that language is understood in this state and now generally in this country and England. At one time in England, under the case of Gill v. Cubitt, 3 Barn. & C. 466, it was held that the holder, to have good title, must not have taken the negotiable paper under circumstances which ought to have excited the suspicion of a prudent man, and this view has received some support in this country, but in Goodman v. Harvey, 4 Ad. & E. 870, the doctrine of Gill v. Cubitt was completely discarded, and the rule declared that negligence which is not so great as to warrant an inference of fraud or bad faith will not affect the title of the holder. Such is now generally the rule in this country. Goodman v. Simonds, 20 How. (U. S.) 343, 15 L.Ed. 934; Murray v. Lardner, 2 Wall. (U. S.) 110, 17 L.Ed. 857; Witte v. Williams, 8 S. C. 290, 28 Am. Rep. 294. We refer to this to show that, in so far as the Virginia case rests upon the negligence of the holder as affecting his title, it cannot receive any sanction in this state, for, if the holder was merely negligent, his title should have been held unaffected; whereas, if his negligence was so gross as to warrant an imputation of bad faith, that made a case wholly different from the case at bar, where there is not a suspicion of bad faith. With respect to the second reason given in the Virginia case, if it be conceded that the bond in question is a valid obligation of the state in the hands of a bona fide holder, it would seem clear that such bona fide holder is clothed by law with every right given to holders of the bonds by the statutes which authorized their issuance, exchange, or redemption. The main reason upon which the doctrine of the Virginia case rests is that which treats the bonds when once surrendered to the Treasurer in exchange for other bonds as dead matter, whose vitality could never be restored without voluntary redelivery by the state, and, there being no such redelivery, the bonds should be held to be in the category of commercial paper stolen from the maker before it had legal inception. Although there is conflict, much authority exists for the view that an innocent holder for value of paper commercial and negotiable in form, but which had never been completed by delivery, cannot acquire rights thereto against the alleged maker. Burson v. Huntington, 21 Mich. 415, 4 Am. Rep. 497; Cline v. Guthrie, 42 Ind. 227, 13 Am. Rep. 357; Salley v. Terrill, 95 Me. 553, 50 A. 896, 55 L. R. A. 730, 85 Am. St. Rep. 433.

This rule, however, cannot properly apply in a case where the negotiable paper has once become operative by a valid delivery. The real point of inquiry is, admitting a valid and strictly negotiable paper in the hands of a bona fide holder before maturity: How far can intervening circumstances affect the title of the holder? The general rule is that payment before maturity is no defense against a subsequent bona fide holder for value before maturity. 3 Randolph, Com. Paper, § 1470; 2 Dan. Neg. Inst. § 1233; Haug v. Riley, 101 Ga. 372, 29 S.E. 44, 40 L. R. A. 249; Rockville Nat. Bank v. Citizens' Gaslight Co., 72 Conn. 581, 45 A. 361. It is the duty of the maker paying commercial paper before maturity to take reasonable precaution to prevent its restoration to circulation by accident or fraud. In Ingham v. Primrose, 7 C. B. N. S. 82, the acceptor of a bill after paying it, and intending to cancel it, tore it in halves and threw it into the street, but the drawer, having picked up the pieces and pasted them together, put the bill again into circulation. The acceptor was compelled to pay a second time. In California v. Wells Fargo & Co., 15 Cal. 336, certain warrants issued by the state of California were paid and deposited in the office of the Treasurer, were afterwards stolen from the office and passed into the hands of a bona fide holder, who presented them to the Treasurer to be exchanged for bonds under a statute of that state. The treasurer, not aware of the theft, exchanged bonds for warrants. On discovering the theft afterwards, he brought suit to recover the bonds, but the court held that the bonds were valid debts of the state in hands of the innocent holder. In Rockville Nat. Bank v. Citizens' Gaslight Co., 72 Conn. 576, 45 A. 361, coupon bonds of the defendant had been paid before maturity and surrendered, but not marked "Canceled," and left in the hands of the defendant's treasurer, who, with no power to reissue, fraudulently pledged same with plaintiff bank, which took them before maturity, bona fide, and without notice. The court held that plaintiff was entitled to recover upon the bonds. The case of District of Columbia v. Cornell, 130 U.S. 655, 9 S.Ct. 694, 32 L.Ed. 1041, is distinguishable from this case in at least two important particulars: (1) The certificates involved in that case were held not to be strictly commercial paper. (2) When paid, they were, in fact, marked "Canceled," although the marks of cancellation were removed by the thief, a clerk in the office.

The principle that a bona fide holder cannot acquire title where there is absolute want of power in the state or its officers to issue negotiable paper has no application in this case the bond in question having been originally issued by...