Mercer County v. Hacket

• Citation: 1 Wall. 83,17 L.Ed. 548,68 U.S. 83
• Parties: MERCER COUNTY v. HACKET
• Decision Date: 01 December 1863
• Court: United States Supreme Court

68 U.S. 83

17 L.Ed. 548

1 Wall. 83

MERCER COUNTY v. HACKET.

December Term, 1863

By act of Assembly, passed in 1852, the legislature of Pennsylvania authorized the commissioners of Mercer County in that State to subscribe to the stock of the pittsburg and Erie Railroad, which road, if built, would pass through their county and benefit it. The act, however, contained this proviso:

'Provided, that the subscription shall be made subject to the following restrictions, limitations, and conditions, and in no other manner or way whatever, viz.: all such subscriptions shall be made by the county commissioners, and shall be made by them after, and not before, the amount of such subscription shall have been designated, advised, and recommmended by a grand jury of said county; and such bonds shall in no case, or under any pretence, be sold, assigned, or transfered by the said Railroad Company at less than the par value thereof: And provided, further, that the acceptance of this act by the said company shall be deemed also an acceptance of the provisions of the act passed the 11th day of March, 1851, entitled An act fixing the gauges of railroads in the County of Erie.'

Rightly or wrongly—with authority or without it—the bonds to the extent of several thousands of dollars were issued. The instruments were elegantly engraved, with such external indications as were calculated to arrest the eye, and through it to inspire confidence. They were signed by the commissioners of Mercer County, attested by their clerk, and authenticated by the county seal conspicuously put. At the head of the bonds it was announced that they were issued for stock in the Pittsburg and Erie Company, and were payable in twenty years from their date in the city of New York. The words in the obligatory part of the instrument were as follows:

'Know all men by these presents, that the County of Mercer, in the Commonwealth of Pennsylvania, is indebted to the Pittsburg and Erie Railroad Company in the full and just sum of one thousand dollars, which sum of money said county agrees and promises to pay, twenty years after the date hereof, to the said Pittsburg and Erie Railroad Company, or bearer, with interest, at the rate of six per centum per annum, payable semi-annually on the first Monday of January and July, at the office of the Ohio Life Insurance and Trust Company, in the city of New York, upon the delivery of the coupons severally hereto annexed: for which payments of principal and interest, well and truly to be made, the faith, credit and property of the said County of Mercer are hereby solemnly pledged, under the authority of an act of Assembly of this Commonwealth, entitled A supplement to the act incorporating the Pittsburg and Erie Railroad Company, which said act was approved the 21st day of April, A. D. 1846, and which said supplement became a law on the 4th day of May, 1852.'- A number of the bonds having got, bon a fide and for value paid, into the possession of one Hacket, a citizen of New Hampshire, and the coupons,—themselves also payable to bearer, being due and unpaid, he sued the County of Mercer upon them, in the Circuit Court for the Western District of Pennsylvania. Having put the bonds and coupons in evidence, the county now offered to prove that no such recommendation as was required by the act was made by the grand jury, but that the jury signed a paper, in which they state that they 'would recommend the commissioners of Mercer County to subscribe to the capital stock of the company to such an amount, and under such restrictions as may be required by the act of Assembly authorizing them to subscribe stock to said road, to an amount not exceeding $150,000.' The county proposed further to prove, that while by the provisions of the act the railroad company was required to accept 'an act fixing the gauges of railroads in Erie County,' before it should be entitled to the benefit of said act authorizing counties to subscribe to the capital stock of said company, the company, by a resolution of the stockholders, had refused to accept those provisions, and had declared it to be inexpedient to accept subscriptions made by counties. All this being offered for the purpose of showing that the commissioners of Mercer County acted illegally in making the subscription, and in issuing bonds in payment thereof; and that they issued the same without authority of law; so that the bonds are not binding upon the county. The county proposed to prove further, 'that the bonds issued were paid out by the railroad company to contractors at about sixty-six and two-thirds cents on the dollar; all this for the purpose of showing that the bonds were procured from the County of Mercer by misrepresentation and fraud, and were not binding upon her, and after being thus obtained were disposed of at less than their par value, in violation of the provisions of the act authorizing the county to subscribe and issue bonds; and also for the purpose of showing want and failure of consideration.'

The court below refused to let such evidence be given and the suit having accordingly gone against the county, the correctness of the ruling was the point now considered here.

Mr. Stewart for the county: If the bonds were not issued in accordance with the requirements of law, which authorized the commissioners to make a subscription and issue bonds in payment therefor, they are void. In Mercer County v. The Railroad Company,¹ where the subscription to this same road by this same county came in question, the Supreme Court of Pennsylvania decided that there was such a failure on the part of the grand jury to perform the duty imposed upon it by the act of the legislature, passed the 4th day of May, 1852, as rendered the act of the commissioners, in making the subscription and issuing the bonds, illegal. The court accordingly rescinded the subscription, and ordered the bonds in possession of the railroad company to be surrendered. In that case it is decided, that by a proper and necessary construction of the act all discretionary power was vested in the grand jury and withheld from the commissioners, and that the grand jury not having designated, advised and recommended the amount to be subscribed, the commissioners had no authority to make a subscription,—the performance of the duty enjoined upon the grand jury having been a prerequisite to vest authority in the commissioners. The act of Assembly requiring certain things as conditions precedent to the issue of the bonds, and of course to their validity, is specifically referred to by name and date in the face of the instruments. This is the same as if it was set out at length.

If the bonds were issued without legal authority, no subsequent transfer can render them valid. Even a note, strictly negotiable, made by an assumed agent who acts without authority, acquires no increased obligation upon the principal by passing from hand to hand. There was no authority proceeding from the principal to put it upon its course, and be it long or short, it imparts to it no increased virtue. The inquiry always addresses itself to every one, Is it the contract of the party whose name it bears? The responsibility of a correct reply to this inquiry is imposed upon every one who gives it currency.

Bonds were never recognized by the lex mercatoria as commercial paper. The distinction between specialties and simple promises is defined by the common law. The remedies for their enforcement have always been different, and these lines of distinction have never been obliterated by any general system of jurisprudence, in this or any other country, with which we have any juridical comity, either as to their nature or the means of enforcing them. The same equities which exist between the original parties remain and follow specialties into whatever hands they may go, without regard to supervening equities. In no State has this ancient and salutary rule of law become so fixed as in Pennsylvania. Diamond v. Lawrence County² is a strong case, and almost in point. The bonds apparently were in the hands of bon a fide holders for value. But the court adverts to the shocking frauds which had prevailed in obtaining the issue, and declared that the county was not bound for more than the railroad had received. The law of the place where the contract is made, and the obligation there assumed, govern its construction. Every one making a contract is presumed to make it with reference to its legal effect, whether direct or incidental, in the State where it is made; and if this court were to act on any other principle, our system, political and judicial alike, would be deranged.

Mr. Loomis for the bondholder: All the elegance of the engraver's art, all the plighted 'faith, credit and property,' of modern finance, all the strength and assurances of language, have here been used to allure the purchaser. Reference is made on the face of the bond to an act of Assembly—not to put him on his guard, lest the preliminary requisition may not have been complied with—but to attract him by evidence that the instrument is issued under the highest sanction. It had that effect, and the paper passed readily into the hands of a confiding holder in the distant State of New Hampshire, as a safe and secure investment. How can the county now, with the proceeds of the bond in its treasury—with riches which the railway will bring to its people in enjoyment—set up the defence it does, and proclaim to the nations, 'Base is the slave who pays?'

The recommendation of the grand jury was sufficient to warrant the subscription. If it were not, the county is concluded by Commissioners of Knox County v. Aspinwall, decided in this court,³ from denying the sufficiency. The act, no doubt, required the amount to be designated by the grand jury. But the jury signed a paper in which they stated that they 'would recommend' the commissioners to subscribe 'to such an amount and under such...