Flagg v. Sch. Dist. No. 70, Barnes Cnty.

Citation4 N.D. 30,58 N.W. 499
PartiesFLAGG v. SCHOOL DIST. No. 70, BARNES COUNTY.
Decision Date19 March 1894
CourtUnited States State Supreme Court of North Dakota
OPINION TEXT STARTS HERE
Syllabus by the Court.

1. An instrument providing for the payment of exchange on a point other than the place of payment, in addition to principal and interest, is not a negotiable instrument; and one who purchases the same before maturity, for value, and without notice of any defense thereto, nevertheless takes it subject to the defense of want of consideration good as between the original parties to the instrument. Wallin, J., dissenting.

2. Defendant was authorized to issue bonds to fund its outstanding indebtedness in case certain statutory prerequisites were complied with. A record of the proceedings culminating in the decision to issue bonds was to be made in the district, and a certified copy thereof was to be filed with the county clerk, and preserved as a record in his office. It was made the duty of the county clerk to examine such record in his office, and if satisfied, from such examination, that all the requisites of the act with respect to the preliminary proceedings had been complied with, and that the bonds were authorized to be issued as provided for in the act, he was to register the bonds, and indorse upon each of them his certificate in the form prescribed in the statute. The bonds in question were so registered and certified. Held, that a purchaser of such bonds, for value, before maturity, and without notice that any of the conditions of the statute relating to proceedings to authorize the issue of the bonds had not been complied with, could rely upon the certificate of the county clerk as finally settling all such matters, and that the court below did not err in rejecting defendant's offer to prove that such conditions had not been complied with.

3. By an amendment to the act, it was provided that no district, in which the title to the school site was not in the school board, should bond its debt until it had obtained such title. But it was declared in such amendment that, after the bonds had been registered and certified, their validity should not be questioned in any tribunal, but should be and remain valid and binding. Held, that this provision made it the duty of the county clerk to pass upon this question of title before registering and certifying the bonds, and that, therefore, his decision, evidenced by registering and certifying the bonds, that such condition as to title to the school site had been complied with, was final on the point, as against the district, in favor of one who purchased the bonds in good faith, for value, without notice that this condition had not been complied with.

4. The right of a bona fide purchaser of municipal bonds to rely upon a recital or certificate as to facts which the person making the same had authority to determine does not depend upon the bond being a negotiable instrument. It exists in the case of a bona fide purchaser of a nonnegotiable bond as well.

5. The statute declared that a committee should audit the claims against the district, and determine the amount of indebtedness to be funded. Held, that the auditing by the committee of claims against the district, and the vote of the district to bond to pay such claims, and the issue of bonds accordingly, would preclude an inquiry as to the validity of such claims as a consideration for such bonds, as against a bona fide purchaser of such bonds; that, as against such purchaser, the district could not show, to prove a want of consideration between the original parties, that the bonds were in fact paid for by the one to whom they were originally issued by the district, by the surrender of void claims held by him against the district, provided such claims had in fact been audited and canceled, and bonds voted and issued under the provisions of the statute.

Appeal from district court, Barnes county; Roderick Rose, Judge.

Action by Samuel D. Flagg against school district No. 70, Barnes county, to recover interest on bonds. Plaintiff had judgment, and defendant appeals. Reversed.

Corliss, J., dissenting.G. K. Andrus, for appellant. Ball & Watson and Williams, Goodenow & Stanton, for respondent.

CORLISS, J.

Judgment has been recovered and entered in favor of the plaintiff and against the defendant upon interest coupons of certain bonds issued by defendant. The appeal is from such judgment. The court below directed a verdict for the plaintiff, and it was upon this verdict that the judgment was entered.

Among other errors assigned is one based upon the refusal of the trial court to allow the defendant to prove that the bonds in question were issued without consideration. It cannot be doubted that a want of consideration would have constituted a perfect defense to the bonds in the hands of the original taker. But it is urged that the plaintiff is a bona fide holder, for value, before maturity, of the bonds, and their interest coupons. As a matter of fact, this contention of the plaintiff is fully sustained by the record; but he can derive no protection therefrom unless the bonds or coupons are negotiable instruments, within the rule which entitles the bona fide purchaser of such paper to protection, as against defenses to the same in the hands of the original holder. Are the bonds or the coupons negotiable instruments? If not, we must reverse the judgment, and allow the defendant to make proof, if it can, of its defense of want of consideration. The only provision in the bonds and coupons which it is claimed affects their standing as negotiable instruments is that they shall be paid at St. Paul, Minn., with New York exchange. The rule is familiar to all that the amount to be paid must be certain,-must be ascertainable from the face of the instrument, and from the law which governs the contract. No resort to extrinsic evidence is allowed. Our statute establishes no different rule. “A negotiable instrument is a written promise or request for the payment of a certain sum of money to order or bearer in conformity to the provisions of this article.” Section 4456, Comp. Laws. That the provision that the maker, in addition to the sum specified, shall pay an indefinite sum, called “exchange,” renders it impossible to ascertain how much money is needed to extinguish the obligation at maturity, without resort to evidence of a fact outside of the paper, cannot admit of a moment's doubt. No court has ever challenged the truth of this proposition. But it is insisted by those courts which uphold the negotiability of instruments embracing such a provision that the amount to be paid is substantially certain; that it can be readily ascertained, as it is fixed by the rate of exchange among bankers the day the paper falls due; that the amount of the exchange is usually very small; and that the spirit of the rule requiring certainty is therefore not violated by this exception to the letter of the rule. Indeed, it is asserted that the provision amounts to no more, in effect, than a requirement that the paper be paid at the place on which exchange is to be paid. The argument is made that, when the maker is called upon to pay exchange on a specified place, he is really compelled to do no more than pay out the same sum to satisfy the obligation that he would have been forced to pay had it been payable, without exchange, at the place on which the exchange is to be paid. This reasoning is fallacious. There is a marked difference, both to debtor and creditor, with respect to the amount to be paid and received, between cases where the paper is payable at one place, with exchange on another, and cases where the paper is payable, without exchange, at the last-named place. Suppose, when the money is payable in this state, the creditor wishes to use the money here. He is doubly benefited by the provision to pay here, with New York exchange. Had the paper been payable in New York, without exchange, he might be compelled to pay exchange on some western point, to bring the money to this state. But by having it paid here he saves this sum, and, in addition, places in his pocket the amount of New York exchange paid him by the debtor. In times of great financial fright, like those through which we have been passing, the difference might be equal to a considerable sum. Nor is the effect the same upon the debtor. Should his money be in New York, he must pay the cost of bringing it west, and also pay the creditor the further cost of sending it back, although the creditor may not desire it remitted, whereas, had the debt been payable in New York, without exchange, he would have saved both of these items of exchange.

But even if it should be conceded that the effect, in dollars and cents, would be the same to both parties, under all circumstances, it would not follow that the courts would be justified in ingrafting this exception upon the law merchant. An agreement to pay a sum of money equivalent to the market price of a specified amount of a certain commodity at a particular time and place is, in its effect upon the parties, the same as an agreement in terms to pay that sum of money. But it would not be seriously urged that the former agreement would constitute a negotiable instrument. It would not be negotiable, because resort would have to be had to extrinsic evidence to settle the amount due, whereas, in the case where that amount (although precisely the same) is fixed by the terms of the paper, certainty exists upon the very face of the contract itself. It is this certainty which the law merchant requires. To ingraft upon this rule the exception contended for by respondent would be open to serious objections. In analogous cases, there would be no escape from further modification of the doctrine requiring certainty. When once the strict letter of the rule is departed from, the business world is wholly at sea. No one can tell in advance what other analogous provisions, introducing uncertainty into the...

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22 cases
  • Jones v. Brightwood Independent School District, No. 1, Richland County
    • United States
    • United States State Supreme Court of North Dakota
    • April 10, 1933
    ...... 889; Louisville & N.R. Co. v. School Dist. (Ky.) 64 S.W. 974. . .          A. ...St. Rep. 411; Bismarck Water Supply Co. v. Barnes, 30 N.D. 555, 153 N.W. 454; Farrington v. New. England ...811; Gentis v. Hunt (Okla.) 247. P. 358; Flagg v. School Dist. 4 N.D. 56, 58 N.W. 499, 25. L.R.A. 363. ......
  • Troy Nat. Bank v. Russell County
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  • Stutsman v. Arthur, 6895.
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    • United States State Supreme Court of North Dakota
    • December 12, 1944
    ......249, 55 N.W. 587,28 L.R.A. 649;Flagg v. School District, 4 N.D. 30, 58 N.W. 499,25 L.R.A. ......
  • State v. Sch. Dist. No. 50 of Barnes Cnty.
    • United States
    • United States State Supreme Court of North Dakota
    • March 13, 1909
    ......* * * Where negotiable bonds are issued containing no recitals of authority, it is quite generally held that they are unimpeachable in the hands of bona fide holders.” In speaking upon this question in Flagg v. School District, 4 N. D. 30, 58 N. W. 499, 25 L. R. A 363, Judge Corliss, among other things, said: “Some cases appear to hold that a mere recital that the bond was issued in pursuance of a particular statute is a sufficient recital of performance of all the conditions precedent prescribed by ......
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