Lytle v. Town of Lansing

• Decision Date: 03 January 1893
• Docket Number: No. 79,79
• Citation: 13 S.Ct. 254,147 U.S. 59,37 L.Ed. 78
• Parties: LYTLE v. TOWN OF LANSING
• Court: U.S. Supreme Court

147 U.S. 59

13 S.Ct. 254

37 L.Ed. 78

LYTLE

v TOWN OF LANSING.

No. 79.

January 3, 1893.

Suit by the town of Lansing against John T. Lytle, brought in the supreme court of the state of New York, for cancellation of certain bonds. The defendant removed the cause to the circuit court of the United States, and filed a cross bill. Decree for complainant. 38 Fed. Rep. 204. Defendant appeals. Affirmed.

Statement by Mr. Justice BROWN.

This was an appeal from a decree requiring the appellant to surrender for cancellation 75 bonds, of $1,000 each, purporting to have been executed by the town of Lansing, and dismissing a cross bill filed by Lytle to compel the payment of the overdue coupons attached to such bonds.

By an act of the legislature of New York, passed in 1869, it was provided that whenever a majority of the taxpayers of any municipal corporation, owning or representing a majority of the taxable property, should make application to the county judge, stating their desire that* such corporation should issue its bonds to an amount not exceeding 20 per cent. of the taxable property, and invest the same in the stock or bonds of such railroad company as might be named in the petition, it became the duty of such county judge to order a notice of such petition to be published, and to take proof as to the number of taxpayers joining in the petition, and the amount of taxable property represented by the petitioners. In pursuance of this act, in December, 1870, petitions of certain taxpayers of the town of Lansing were presented to the county judge of Tompkins county, who caused the proper notice to be published, proceeded to take proofs, and on March 20, 1871, adjudged and determined that the petition was duly signed by a majority of the taxpayers of the town of Lansing; that the petitioners represented a majority of the taxable property; that the sum of $75,000, mentioned in the petition, did not exceed 20 per cent. of the whole taxable property of the town; and that all the requirements of law respecting the issuing of town bonds to the amount of $75,000, and for the investment of the same in the stock or bonds, or both, of the 'Cayuga Lake Railroad Company,' had been fully complied with. He thereupon appointed three freeholders and taxpayers of said town as commissioners, whose duty it would be to execute such bonds, and to discharge all such other duties as should be required of them as such commissioners. On March 27, 1871, a writ of certiorari was sued out of the supreme court to review these proceedings, and in May, 1872, the general term of such court ordered and adjudged that all the proceedings in relation to the issuing of these bonds should be reversed, annulled, and held for naught, for the reasons that the Cayuga Lake Railroad Company was not a legal corporation; that the articles of association failed to state the name of each county through or into which the road was intended to be made; that no valid charter was produced before the county judge; that the petition did not direct whether the money was to be invested in stock or bonds; and that it was not shown that a majority of the taxpayers had signed the petition. People v. Van Valkenburgh, 63 Barb. 105.

In some way—though exactly how did not clearly appear—the railroad company induced the commissioners to issue and deliver to them these bonds, for which they received a certificate for an equivalent amount of railroad stock. The allegation of the bill in this connection was that the officers of the railroad company fraudulently, and by false pretenses, procured the commissioners to deliver the bonds, by representing and inducing them to believe that their action would not in any way injure or affect the town, and also by presenting to them an undertaking of the company to indemnify and save them harmless from the consequences of their act. It was further alleged that the stock of the company received in exchange for these bonds was of no value, that the company had ceased to do business, and was insolvent, and that the town was ready to deliver up the stock in exchange for the cancellation of the bonds.

It appears that these bonds, when delivered to the railroad company, were pledged by it to Leonard, Sheldon & Foster, a banking firm in New York city, as collateral security for a loan of $50,000 to the railroad company; that this loan was afterwards transferred to Elliott, Collins & Co., bankers at Philadelphia, to whom the bonds were also turned over as collateral; that this latter company also had authority from the railroad company to sell them for the company at the price of from 70 to 80 cents on the dollar; and that in February, 1873, the firm sold them, deducted from the proceeds the amount of their loan, and left a balance of $4,745.83 to the credit of the railroad company. It did not appear to whom Elliott, Collins & Co. sold the bonds, but subsequently an action was brought in the United States circuit court against the town upon these bonds by one John J. Stewart, in which action a verdict was rendered on December 19, 1878, for the defendant. The judgment in favor of the town was afterwards, and on June 30, 1882, affirmed by this court. Stewart v. Lansing, 104 U. S. 505. In February, 1882, the bonds appear to have been sold by Stewart to one Brackenridge, who afterwards, and in May, 1884, sold them to Lytle, the plaintiff in this suit, for an interest in a rance.

This action was begun by the town of Lansing in the supreme court of the state of New York in May, 1887, for the purpose of obtaining the annulment and cancellation of the bonds, compelling the defendant, Lytle, to deliver them up for cancellation, and also enjoining him from transferring them pending the suit. Lytle removed the action to the circuit court of the United State, and filed a cross bill to compel the payment of the bonds. In March, 1889, the court rendered a decree in favor of the town of Lansing, (38 Fed. Rep. 204,) from which Lytle took an appeal to this court.

T. G. Shearman and E. P. Wheeler, for appellant.

H. V. Howland, for appellee.

Mr. Justice BROWN, after stating the facts in the foregoing language, delivered the opinion of the court.

As the bonds in this case, though good upon their face, were undoubtedly void as between the railroad company and the town of Lansing, it is incumbent upon the defendant, Lytle, to show that he, or some one through whom he obtained title to them, was a bona fide purchaser for a valuable consideration. Orleans v. Platt, 99 U. S. 676.

The judgment of the supreme court of the state of New York, holding these bonds to be invalid, must be respected by this court, not only because it passed upon the validity of acts done in alleged pursuance of a statute, but because in a collateral proceeding of this kind its binding effect could only be avoided by showing a total lack of jurisdiction on the part of the court. When these bonds were before this court in the case of Stewart v. Lansing, 104 U. S. 505, it was held that the judgment of the supreme court reversing and annulling the order of the county judge invalidated them, that if they had not been delivered before, they could not be afterwards, and that the judgment of reversal was equivalent between those parties to a refusal by the county judge to make the original order. It was further held that, the actual illegality of the paper being established, it was incumbent upon the plaintiff to show that he occupied the position of a bona fide holder before he could recover. In such a case, however, the plaintiff fulfills all the requirements of the law by showing that either he, or some person through whom he derives title, was a bona fide purchaser for value without notice. Commissioners v. Bolles 94 U. S. 104; Montclair v. Ramsdell, 107 U. S. 147, 2 Sup. Ct. Rep. 391; Scotland Co. v. Hill, 132 U. S. 107, 1 Sup. Ct. Rep. 26.

We proceed to examine the title of the several holders of these bonds from the time they were delivered to the railroad company, which, of course, was not a bona fide holder, to the time they came into possession of the plaintiff.

1. Leonard, Sheldon & Foster. These were New York bankers, to whom the bonds were pledged as security for a loan of $50,000 to the railroad company. They also received them with power and instruction from the company to sell them. It is sufficient to say, in this connection, that this firm never purchased the bonds, that they continued to be the property of the railroad company while in their hands, and that while, doubtless, they would have been protected as bona fide holders to the amount of their advances, they never took title to the bonds, and when they transferred them to Elliott, Collins & Co., and received from them the amount of their advances, they transferred them as the property of the railroad company, and their interest in them from that time wholly ceased.

2. Elliott, Collins & Co. took up the loan of the prior firm upon the written order of the treasurer of the company, and stood in the same position theyhad occupied. They subsequently sold the bonds for the railroad company for $54,337.50, paid their loan to the amount of $49,591.67, and credited the company with a balance of $4,745.83. It does not appear to whom they sold them, but it does appear that they never took title to themselves. It is significant, in this connection, that in the suit of Stewart v. Lansing Mr. Elliott, the senior member of the firm, stated: 'We did not sell the bonds at all. * * * They were negotiated by Mr. Delafield [the treasurer of the company] either personally or by letter.'

3. John J. Stewart appears as the next holder of these bonds. There is no evidence whatever to show how Stewart, who lived in New Orleans, became possessed of them, or even that he paid value for them, or that he took them without notice of their original invalidity. It does appear, however, that a suit against the town was brought in his name to...