Citizens' Sav. Bank v. City of Newburyport

• Decision Date: 12 May 1909
• Docket Number: 784.,783
• Citation: 169 F. 766
• Parties: CITIZENS' SAVINGS BANK v. CITY OF NEWBURYPORT. CITY OF NEWBURYPORT v. CITIZENS' SAVINGS BANK.
• Court: U.S. Court of Appeals — First Circuit

169 F. 766

CITIZENS' SAVINGS BANK v. CITY OF NEWBURYPORT.

CITY OF NEWBURYPORT v. CITIZENS' SAVINGS BANK.

Nos. 783, 784.

United States Court of Appeals, First Circuit.

May 12, 1909

Edward F. McClennen (Brandeis, Dunbar & Nutter, on the brief), for Citizens' Savings Bank.

Robert G. Dodge (Saltonstall, Dodge & Carter and Mr. Withington City Sol., on the brief), for City of Newburyport.

Before COLT and PUTNAM, Circuit Judges, and ALDRICH, District Judge.

PUTNAM Circuit Judge.

These two writs of error arose out of certain purchases by the Citizens' Savings Bank of what were apparently promissory notes of the city of Newburyport. Suit was brought by the bank, and in that suit the city filed an account in set-off, the details of which we will refer to hereafter.

Questions of jurisdiction are raised. The bank's declaration contains seven counts, four of which are directly on promissory notes. The other three are of a mixed character apparently seeking to recover the money advanced by the bank going back of the notes in case they are held to be void. These counts we need not consider, in view of the conclusion we have reached as to the preceding counts. The notes declared on were in the form of a promise by the city to make payment 'to the order of J. V. Felker, City Treas.,' and the same, when negotiated, were indorsed in blank, 'J. V. Felker, City Treas.' Although, under some circumstances, with such a signature it might be held that Felker was personally liable on the notes, yet it is plain his name was used only to give the notes currency; and it is settled in the federal courts that his indorsement has no other effect. Falk v. Moebs, 127 U.S. 597, 8 Sup.Ct. 1319, 32 L.Ed. 266. Therefore, the notes in suit were in substance the same as though they had been made payable to the city of Newburyport in terms, and indorsed by it in blank before they were negotiated. By the law merchant this makes them notes payable to bearer, which pass by delivery without any indorsement or any form of assignment.

The jurisdictional inhibition of Act Aug. 13, 1888, c. 866, 25 Stat. 433 (U.S. comp. St. 1901, p. 508), does not reach notes payable to bearer and made by a corporation; and these notes were payable to bearer by the law merchant, and were made by a corporation; that is, the city of Newburyport. Lake County v. Dudley, 173 U.S. 243, 250, 19 Sup.Ct. 398, 43 L.Ed. 684. The exception from the inhibition of the statute is not limited by any of its terms to a case where the notes are first negotiated to a citizen of a state other than the state of which the quasi corporation is a citizen; and, by the very nature of the statutory provision on this particular point, it could not be, because, if it were, it would be mere surplusage. On the whole, the settled practice of the federal courts is against the contention of the city on this proposition as to the jurisdiction of the Circuit Court.

The notes sued on were issued in accordance with section 6, c. 27, of the Revised Laws of Massachusetts, as follows:

'Sec. 6. Cities and towns may by a majority vote incur debts for temporary loans in anticipation of the taxes of the municipal year in which such debts are incurred, and expressly made payable therefrom by such vote. Such loans shall be payable within one year after the date of their incurrence, and shall not be reckoned in determining the authorized limit of indebtedness.'

The ninth section of the same chapter gives directions with reference to certain methods of issuing municipal loans, which require that the bonds or notes or scrip shall be signed by the municipal treasurer, and, if issued by a city, countersigned by its mayor. It also provides that the notes shall carry interest payable semiannually, and shall be sold at not less than par. This, however, relates to the permanent indebtedness of the municipality, and not to the specific class of notes in question here, which are governed entirely by the sixth section, with which all the municipal proceedings and notes involved here comply strictly on their face.

The notes on which the verdict was rendered for the plaintiff bear the numbers 796, which is for $25,000, and 797, 798, and 799, each of which is for $10,000; and all of them bear date April 13, 1906. They were all negotiated with another note of the same form for $25,000, and of the same date, but of and earlier number, 795. The total of the five notes, as will be seen, was $80,000. They were negotiated in one lot, at Boston to Blake Bros. & Co. of that city. We are not aware whether the record shows that these notes were purchased by Blake Bros. & Co. for themselves and subsequently sold to the plaintiff, or whether they were bought at the outset for the plaintiff. It is of no importance to this case how this may have been. The negotiations were covered by three letters, given in the record and explained therein as follows:

'(On letter paper entitled 'City of Newburyport, Office of City Treasurer and Collector of Taxes, City Hall, Newburyport, Mass.,' and containing an imprint of the city seal.)

'April 9, 1906.

'Messrs. Blake Bros. & Co., Boston, Mass.

'Gentlemen: Would be pleased to receive your lowest offer to discount City of Newburyport note or notes aggregating $80,000, to be dated Apl. 13, 1906, on six months time. Your bid to be received on or before eight o'clock, Wednesday evening, April 11th, 1906.

'Very truly yours,

J. V. Felker, City Treas.'

'Office of Blake Brothers & Co., 48 State Street.

'Boston, April 11, 1906.

'J. V. Felker, Esq., City Treasurer, Newburyport, Mass.

'Dear Sir: Referring to your letter of the 9th inst., we will discount notes of the city of Newburyport to the amount of eighty thousand dollars ($80,000), said notes to be dated April 13, 1906, and payable in six months in Boston, at the rate of four and fifty-four one-hundredths per cent (4 54/100%) per annum.

'Our bid is made subject to our being satisfied that the loan is legally issued, that we are furnished all papers necessary to show the same, and is for the whole amount, $80,000, and not for any part thereof.

'In case our bid is accepted, we will advise you as to what denominations we would like, and the notes are to be payable or indorsed to our order.

'Kindly send us a list of the bid and bidders, and oblige.

'Yours very truly,

Blake Bros. & Co.' 'Newburyport, Mass., April 11, 1906.

'Messrs. Blake Bros. & Co., Boston, Mass.

'Gentlemen: Your offer to discount the notes of the city of Newburyport of $80,000, dated Apl. 13, 1906, on six months time at a rate of 4 54/100% per annum is hereby accepted.

'Kindly telephone me as early as convenient tomorrow forenoon what denominations you would like them. I will deliver them on Thursday forenoon.

'Yours very truly,

J. V. Felker, City Treas.'

The $80,000 specified in these letters covered note 795 for $25,000, already referred to. We are not aware that the record shows where it is. As, however, the question in this case is really one of overissue, it is not impossible that that note is entitled to priority over those in suit. The computation of the defendant at one place makes the overissue $18,475, and at another $18,000. Which of these two is correct is not important. If the transaction with Blake Bros. & Co. was that of a sale in one lump of $80,000 of notes, the matter is divisible in the eyes of the law, and only the last two notes of $10,000 each would in any event be lost to the plaintiff, after securing to note 795 its apparent priority.

In view of the fact that the defendant contends that, unless the plaintiff can recover specifically on the notes in question, it cannot recover in an action of the nature of one for money had and received, or in any other action for any part of the cash paid out for the notes, and as such is apparently the law, it would be an injustice so gross to compel the parties holding the notes here to make an entire loss of $80,000 for an overissue of the amount stated, less than $19,000, that we are of the opinion that, if it were necessary to resort to such an application of the law, the law would hold the transaction divisible, and due priority secured, and that the breaking up of the notes as they were in fact broken up, with the numerical order given them which was given them, would render such a division practical, and would point out the way in which it could be accomplished; so that, in any event, nothing would be lost except the two notes last in numerical order of $10,000 each. However, the conclusion we have reached does not render it necessary for us to follow this view of the matter to its conclusion, and we refer to it only that it may be understood that it has not been overlooked.

The next thing in the order of statement is an ordinance of the city of Newburyport, established in 1869, a part of which is as follows:

'There shall be appointed at the commencement of each municipal year, a committee on finance consisting of the mayor, one member of the board of aldermen and five members of the common council, which committee shall negotiate all loans to the city which may be authorized by the city council, and shall report the same to the city treasurer.'

This provides that the committee on finance should negotiate all loans; but, in view of the following order, this ordinance becomes immaterial, because it cannot be maintained that an ordinance of one city council can deprive a subsequent city council of its right to exercise the inherent powers vested in it by the laws of the state, according to the various circumstances as they arise from time to time. Therefore, we turn to the following order of the city council and votes of the committee on finance. The order was as follows....