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Co. 8 S. D. 343, 66 N. W. 1077, 13 S. D. 95, 82 N. W. 413; Fanset v. Garden City State Bank, 24 S. D. 248, 123 N. W. 686.

ants Barnes Brothers, in their capacity of, Sherman v. Port Huron Engine & Thresher investors, have established an agency anywhere, but they stand ready to buy and sell such securities as are sent to them with satisfactory evidence of the value of the security.

Pepper v. Cairns, 133 Pa. 114, 7 L.R.A. 750, 19 Am. St. Rep. 625, 19 Atl. 336; 27 Enc. Pl. & Pr. 150 B.

The application for the loan being one made directly to John Hayes, defendant Barnes had a right to presume that he had carried out the terms of his obligations before surrendering the papers.

Dart v. Minnesota Loan & T. Co. 74 Minn. 426, 77 N. W. 288; Boyd v. Boyd, 128 Iowa, 699, 111 Am. St. Rep. 215, 104 N. W. 798. Plaintiff having given Mr. Sanders full scope to negotiate the loan, any arrangements which he made with the Citizens' State Bank or John Hayes must be deemed to be authorized by her.

Although a mortgage recites a loan of money as its consideration, and although the money was actually paid out by the mortgagee, yet if it never reached the hands of the mortgagor, the mortgage is without consideration and cannot be enforced.

27 Cyc. 1054; Security Co. v. Kent, 83 Iowa, 30, 48 N. W. 1047; Mizner v. Kussell, 29 Mich. 228.

The holder must be a bona fide holder without notice.

Fisher v. Meister, 24 Mich. 447; Terry v. Tuttle, 24 Mich. 206; Bishop v. Felch, 7 Mich. 371.

Plaintiff never having received any consideration for the note and mortgage, if defendants Barnes Brothers make the claim that they are bona fide holders for value without notice, the burden of proving such is upon them.

35 Cyc. 364; Whitaker Iron Co. v. Preston Nat. Bank, 101 Mich. 146, 59 N. W. 395; Letson v. Reed, 45 Mich. 27, 7 N. W.

rier v. Cameron, 31 Mich. 379, 18 Am. Rep. 192; 2. Schouler, Pers. Prop. § 609; Devoe v. Brandt, 53 N. Y. 462; Lynch v. Beecher, 38 Conn. 490; Cappon & B. Leather Co. v. Preston Nat. Bank, 114 Mich. 263, 72 N. W. 180; Kilpatrick-Koch Dry Goods Co. v. Kahn, 53 Kan. 274, 36 Pac, 327.

1 Clark & S. Agency, § 45; Equitable Mortg. Co. v. Thorn, Tex. Civ. App. - 26 S. W. 276; Loan, Mortg. Invest. & Agency Co. v. Vinson, 105 Ala. 389, 17 So. 23; Cooper v. Headley, 12 N. J. Eq. 48; Lantry v. Sutton, 22 N. Y. S. R. 244, 5231; Berry v. Whitney, 40 Mich. 65; CarN. Y. Supp. 14; Henken v. Schwicker, 67 App. Div. 196, 73 N. Y. Supp. 656, affirmed in 174 N. Y. 298, 66 N. E. 971; Englemann v. Reuse, 61 Mich. 395, 28 N. W. 149; Lipman v. Noblit, 194 Pa. 416, 45 Atl. 377; Barksdale v. Security Invest. Co. 120 Ga. 388, 47 S. E. 943; Thomas v. Desney, 57 Iowa, 58, 10 N. W. 315; Massachusetts Mut. L. Ins. Co. v. Boggs, 121 Ill. 119, 13 N. E. 550; Cox v. Massachusetts Mut. L. Ins. Co. 113 Ill. 382; Merck v. American Freehold Land Mortg. Co. 79 Ga. 213, 7 S. E. 265. Messrs. T. H. Conniff and Harry P. Atwater, for respondent:

Sanders, as plaintiff's agent, had no authority to appoint any subagent, or to receive anything but money; and any money | deposited by Barnes Brothers in the bank was not in accordance with the authority, and would, therefore, not be binding upon the plaintiff.

31 Cyc. 1425, 1428; Bleecker v. Satsop R. Co. 3 Wash. 77, 27 Pac. 1073; Topliff v. Shadwell, 64 Kan. 884, 67 Pac. 545; Kornemann v. Monaghan, 24 Mich. 36; Hirshfield v. Waldron, 54 Mich. 649, 20 N. W. 628; King v. Hawkins, 2 Ariz. 358, 16 Pac. 434; Emerson v. Providence Hat Mfg. Co. 12 Mass. 237, 7 Am. Dec. 70; Harris v. San Diego Flume Co. 87 Cal. 526, 25 Pac. 758; Lyon v. Jerome, 26 Wend. 485, 37 Am. Dec. 271; Newton v. Bronson, 13 N. Y. 587, 67 Am. Dec. 89; White v. Davidson, 8 Md. 169, 63 Am. Dec. 699; Merrill v. Farmers' Loan & T. Co. 24 Hun, 300; Barnard v. Coffin, 141 Mass. 37, 55 Am. Rep. 444, 6 N. E. 364;

Gates, J., delivered the opinion of the court:

On or about April 1, 1913, respondent applied to S. E. Sanders of Wall, South Dakota, for a loan upon 160 acres of land owned by her. She caused a formal application to be executed, which contained, among other things, the following: "The statements made in this application are made by me for the purpose of obtaining a loan of money from John Hayes of Fort Pierre, South Dakota, and are true to the best of my knowledge and belief. I hereby appoint and constitute S. E. Sanders, my agent, for the purpose of procuring said loan, and to whom I do hereby grant full authority to receive the funds herein applied for. Payment to my said agent of the amount due me under this loan shall be construed and held to be sufficient consideration for the execution and delivery to the mortgagee of the papers given for said loan."

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This application was forwarded to John Hayes of Ft. Pierre. Mr. Hayes procured an abstract of title, approved the loan, and sent to respondent two mortgages for execution, both running to appellant Barnes

Brothers, a corporation, one for the sum of a provision in the application for the loan $350, and one for the sum of $43.75. Upon designating the party to whom payment the return of the executed mortgages to should be made, the lender, upon the auhim, Mr. Hayes sent all of the papers, in- thority of the cases cited, might have been cluding the application, to Barnes Brothers, protected by payment to John Hayes. But of Minneapolis, with instructions to deposit here there was a positive appointment of the money in a bank at Minneapolis to the S. E. Sanders as agent to receive the money. credit and advice of the Citizens' State The lender received this application. It Bank of Ft. Pierre, of which Mr. Hayes must be held to be charged with knowledge was president. About that time the bank of its contents. Whatever relation Hayes at Ft. Pierre was taken in charge by the or the bank at Ft. Pierre bore to the restate bank examiner, who has proceeded to spondent in the making of this loan, such wind up the affairs of the bank. The pro- relation did not authorize Barnes Brothers ceeds of the loan have never been paid to to make payment to them in the face of an respondent nor to her agent, S. E. Sanders, explicit written declaration making Sanders but it is claimed by appellants that the her agent for the purpose of receiving the money was virtually paid to respondent by money. We are therefore compelled to hold reason of the fact that the books of the that in failing to pay the money to the bank at Ft. Pierre show a credit to her. agent Sanders, or to the plaintiff, the apThis action was begun in July, 1913, for pellant Barnes Brothers made payment to the purpose of canceling said mortgages of Hayes or the bank at Ft. Pierre, if it did record. It was alleged in the complaint so, at its own risk. Until the proceeds of that Barnes Brothers assigned the first the loan were paid to the borrower or to mortgage to appellant Charles Schmit, by her agent, Sanders, there was no compleassignment duly recorded. Said defendant tion of the loan on the part of the lender. answered, separately admitting that the Therefore there was no consideration for mortgage had been assigned to him, alleged the notes and mortgages given by the rethat, before the commencement of the ac-spondent to Barnes Brothers. 27 Cyc. 1054, tion, he had resold the same to Barnes But it is contended that, even if the Brothers, and he disclaimed any interest therein. Trial was had by the court, which made findings of fact and conclusions of law for the plaintiff, and entered judgment canceling the said mortgages of record. From the judgment and order denying a new trial, defendants appeal.

As we view this case, there are only two questions of importance to decide. The first relates to the authority of the mortgagee to pay the proceeds of the loan to any person other than the plaintiff or the agent Sanders. Our attention has been called to a number of decisions, where the actual custodian of the money failed to account to the borrower, and to decisions where the question of usury was involved, and to decisions where the question of knowledge of an encumbrance by the loan agent was involved, all of which we have carefully examined. But the principle involved in this case was absent from those cases. Here the question is: To whom should Barnes Brothers have paid the money? The claim of appellants that the corporation, Barnes Brothers, was an innocent purchaser for value from Hayes, is not sustained by the proof. It was the original mortgagee. Hayes was simply an agent. Whether he was agent for it or for the borrower in procuring the loan is im material in this case. If he was agent for the borrower, payment to him might, under certain circumstances, be held to be payment to the borrower. In the absence of

mortgages were invalid, the first mortgage of $350 was assigned to Schmit, a bona fide holder in due course before maturity, and that, when Schmit resold and assigned the same to the corporation Barnes Brothers, it took the mortgage freed from any defense that may have existed when it first held the paper. Some of the sections of the negotiable instruments act of 1913 (Laws 1913, chap. 279) are cited in support of this contention. That act was not in force when this transaction was had. We are of the opinion that, in repurchasing the paper, Barnes Brothers took it subject to the same defenses that existed when it first held it. We approve the reasoning of Mr. Justice Cooley on this subject in Kost v. Bender, 25 Mich. 515, viz.: "It is perfectly true, as a general rule, that the bona fide holder of negotiable paper has a right to sell the same, with all the rights and equities attaching to it in his own hands, to whoever may see fit to buy of him, whether such purchaser was aware of the original infirmity or not. Without this right he would not have the full protection which the law merchant designs to afford him, and negotiable paper would cease to be a safe and reliable medium for the exchanges of commerce. For, if one can stop the negotiability of paper against which there is no defense, by giving notice that a defense once existed while it was held by another, it is obvious that an important element in its value is at once taken away. But I am

not aware that this rule has ever been ap- | ular highway to the construction of other plied to a purchase by the original payee, highways within the county.

nor can I perceive that it is essential to the protection of the innocent indorsee that it should be. It cannot be very important to him that there is one person incapable of succeeding to his equities, and who consequently would not be likely to become a purchaser. If he may sell to all the rest of the community, the market value of his security is not likely to be affected by the circumstance that a single individual cannot compete for its purchase, especially when we consider that the nature of negotiable securities is such that their market value is very little influenced by competition. Nor do I perceive that any rule or principle of law would be violated by permitting the maker to set up this defense against the payee, when he becomes in dorsee, with the same effect as he might have done before it had been sold at all, or

that there is any valid reason against it. If the defendant had a legal and just defense to the note, either in whole or in part, arising from the conduct of the plaintiff, it was the duty of the latter to recognize and allow it, and he had no moral

right to cut it off, or to attempt so to do, by any transfer. But having done so, and afterwards acquired the note a second time, the law, we think, will not permit him to take advantage of this wrong, but will remit the defendant to his original rights. Such, we think, should be the rule, because it avoids circuity of action, expense to the parties, and inconvenience to the courts, without, at the same time, endangering any substantial rights."

See also note in 54 L.R.A. 673.

(December 12, 1914.).

the Chancery Court for Hamilton CounPPEAL by defendants from a decree of ty in complainant's favor in a mandamus proceeding to compel defendants to proceed with the construction of a system of highways substituted for that for which bonds

had been issued. Affirmed.

The facts are stated in the opinion.
Mr. S. H. Ford for appellants.
Messrs. Cooke, Swaney, & Hope and T.
S. Myers for the State.

Williams, J., delivered the opinion of the court:

Acts

In 1909 the general assembly passed an act authorizing Hamilton county to issue bonds to an amount not exceeding $65,000, Lookout mountain, in that county. for the purpose of building a road across 1909, chap. 417. The bonds were shortly thereafter voted and sold, realizing $65,000. A commission was appointed to supervise the construction of that road, but for some

reason the fund was allowed to remain in

bank almost wholly unused.

The general assembly at its 1913 session 1909 so as "to provide for the diversion of passed an act amending the above act of to other roads in said county, and to prothe fund arising from the sale of said bonds vide for the manner in which said funds shall be expended." Private Acts 1913, chap. 272.

The bill of complaint alleged these facts, in substance, and the further facts that

Considerable evidence was received, both Cummings, county judge and financial agent

oral and documentary, that was not admissible. But there was sufficient compe

tent evidence to sustain the findings and

decision of the trial court.

Finding no prejudicial error, the judg ment and order appealed from are affirmed.

TENNESSEE SUPREME COURT.

STATE OF TENNESSEE EX REL. BELL

V.

WILL CUMMINGS et al.

(130 Tenn. 566, 172 S. W. 290.)

of the county, and the other defendants, who are the public road commissioners of the

county, refused to recognize the act of 1913 as constitutional or in operation, and rethe construction of the substituted system fused to proceed, after due demand, with of highways. A mandamus was prayed for.

The defendants demurred and answered, contesting on several grounds that the amendatory act of 1913 is not constitutional, Note.- Right of state to authorize or direct diversion of county funds to purpose other than that for which collected.

This note is confined to the consideration of the question of the power of a state legislature to change the purpose for which a county fund was raised. The question of the right of the legislature to apportion a county fund among different localities within the county, where there is no diversion The legislature may divert the proceeds to other purposes, is not within the scope. of bonds issued by a county under statutory For such cases, see Sanderson v. Texarkana, authority for the construction of a partic-103 Ark. 529, 146 S. W. 105; Duval County

County

funds.

control by legislature over

but the chancellor decreed against them and in favor of complainants. This appeal resulted. Only one phase of defendants' case on appeal will be dealt with in this opinion, the others being disposed of orally and in the decree of this court.

The chief contention of the appellants is that, after the bonds were voted, issued, and sold for a specific purpose, that of constructing a highway over Lookout mountain, it was not in the power of the legislature to divert the fund, in whole or in part, to the construction of different roads, as was attempted by the act of 1913.

delegates the power of taxation, but it may withdraw such power, and itself assess taxes for municipal purposes."

In the absence of constitutional restraints, and our Constitution contains none, it was declared in Luehrman v. Taxing Dist. 2 Lea, 425, 438, the maxim of republican government that local affairs should be managed in the local district is subject to such exceptions as the legislative power shall see fit to make.

"The legislature has the power to do whatever is not expressly, or by necessary implication, forbidden by the Constitution." Ibid. Meriwether v. Garrett, 102 U. S. 511, 26 L. ed. 204; Redistricting Cases, 111 Tenn. 234, 290, 80 S. W. 750.

This involves a consideration of the relation sustained by a county as a public corporation to the state. In Demoville v. Davidson County, 87 Tenn. 214, 225, 10 S. It follows that a county as a mere arm W. 353, it was said: "The county is but an of the sovereign power can have, as against emanation from the state. It does not exer- the legislative power of the sovereign, no cise any power or franchise under any con- vested rights in the powers conferred upon tract between itself and the state. The lat-it for governmental purposes, and that the ter creates, and it may destroy. The state legislature has plenary power to make provi| specific purposes for which the money was collected were those heretofore directed by the legislature, and this act, being a later expression of the will of the legislature, controls the subject, and, so far as it conflicts with previous acts, repeals them.

v. Jacksonville, 36 Fla. 196, 29 L.R.A. 416, 18 So. 339; Hannibal v. Marion County,

69 Mo. 571.

The opinion expressed by Justice Field in Tippecanoe County v. Lucas, 93 U. S. 108, 23 L. ed. 822, set out in STATE EX REL. BELL V. CUMMINGS, that a county's tenure of property derived from the state for specific public purposes, or obtained for such purposes through means which the state alone can authorize, that is, taxation, is So far subject to the control of the legislature that the property may be applied to other public uses than those originally designated, is sustained by the other cases in point, except so far as the power of the legislature in the premises has been limited by specific constitutional provisions.

The extent of the decision in STATE EX REL. BELL V. CUMMINGS would seem to be that the legislature may direct or authorize the diversion of a county fund so long as it is not to the purpose of another municipality. The decision finds support in Cage v. Hogg, 1 Humph. 49, where it was held that the legislature had power to convert a county internal improvement fund, which had been donated to the county by the state, into a common-school fund of the county, the court stating that the fact that the legislature has power to change direction | of a donation to a county before it has been appropriated or a right acquired under it is too plain a proposition to require argu

ment.

That none of the principles of taxation laid down in the Missouri Constitution were violated by an act directing a county to appropriate part of its funds to pay a portion of the police expenses of a city situated within the county was held in State ex rel. Police Comrs. v. County Ct. 34 Mo. 546, although the act directed the appropriation of county money already collected for a specific purpose. The court stated that the

The court said further, in the course of its opinion, that it is immaterial "in considering the constitutional authority of the general assembly to pass the act in question, to inquire how the county has acquired or may acquire the money necessary to make the payments required by the act. The money belongs to the county by virtue of acts of the general assembly, and is expended under the direction of the same authority. Counties are subdivisions of the state in which some of the powers of the state government are exercised by local functionaries for local purposes; in this instance, and generally, the functionary being the county court. The funds of the county are not strictly private property. They certainly do not belong to the citizens who may have contributed them. They are rather public property, the property of the state acquired from the people and the property in the county, and to be used and expended for the benefit of the same people and property. The general assembly, having the legislative power of the state, determines to what local uses the county funds shall be applied. No vested right is taken away or impaired by the act, nor does it impair the obligation of any contract. It simply directs the application, to a particular purpose, of funds collected by the authority of the legislature, and over which the legislature could exercise a power to direct their application within certain limits, which include the object of this act. The previous acts of the legislature which provided the object for which county funds could be expended were at all times subject to repeal or alteration

sion respecting and to direct the expenditure of the funds of a county raised and held by it under or based upon the taxing power delegated to it.

the legislature to take private property from its grantee and restore it to its grantor would be in conflict with the constitutional inhibition against impairing the obligation of contracts. But between the state and municipal corporations, such as cities, counties, and towns, the relation is different from that between the state and the individual. Municipal corporations are mere instrumentalities of the state, for the convenient administration of government; and their powers may be qualified, enlarged, or withdrawn at the pleasure of the legislature. Their tenure of property, derived from the

In the case of Tippecanoe County v. Lucas, 93 U. S. 108, 23 L. ed. 822, it appeared that the legislature of Indiana had by an act (1872) directed the restoration to taxpayers of a county of property that had been exacted from them by taxation, under a previous statute, so long as it remained in the possession of the county. Mr. Justice Field, holding that this exercise of power on the part of the legislature infringed no provision of the Federal Consti-state for specific public purposes, or obtution said: "In this court also the validity of the act of 1872 is the sole question presented. The act is assailed here, as in the court below, as authorizing an invasion of the right of private property, and as impairing the obligation of an executed contract. Were the transaction one between the state and a private individual the invalidity of the act would not be a matter of serious doubt. Private property cannot be taken from individuals by the state, except for public purposes, and then only upon compensation, or by way of taxation; and any enactments to that end would be regarded as an illegitimate and unwarranted exercise of legislative power. And any attempt by so as to appropriate the funds in a manner or to objects different from those before provided. No rights have been vested under the previous acts which can be disturbed by this act."

It would seem from this decision that the only limitation placed upon the power of the legislature to divert the county fund is that it could not be diverted where a vested right had obtained to the fund, and this would seem to be the position of the Nevada court, as in Youngs v. Hall, 9 Nev. 212, it was said that while the revenue of a county is controlled by the legislature, such control does not extend to depriving a creditor of funds raised for the payment of his demand, to which he has a vested right.

But an act directing that license fees levied and collected by the parish in towns of the parish be held for the benefit of such towns, and any unexpended balance paid over to them, was held in State ex rel. Mansfield v. Police Jury, 47 La. Ann. 1244, 17 So. 792, to be in conflict with article 202 of the Constitution, which declares that the taxing power may be exercised by the general assembly for state purposes and by parishes and municipal corporations under authority granted to them by the general assembly for parish and municipal purposes.

The court stated: "We agree in opinion with the district judge, that the framers of the Constitution intended to keep separate and distinct the taxing power of the state,

tained for such purposes through means which the state alone can authorize that is, taxation-is so far subject to the control of the legislature that the property may be applied to other public uses of the municipality than those originally designated. This follows from the nature of such bodies and the dependent character of their existence. But property, derived by them from other sources, is often held, by the terms of its grant, for special uses, from which it cannot be diverted by the legislature. In such cases, the property is protected by all the guards against legislative interference possessed by individuals and private corporations for their property." that of the parishes, and that of the mu nicipal corporations; that they never intended, in declaring that this power should be exercised by the parishes and municipal corporations under authority granted to them by the general assembly,' that this authority should extend to empowering either of them to do so for purposes other than those in which each were directly concerned. It is easy to see that through this act the taxing power of the towns could be supplemented by that of the parishes for town purposes."

The court further said: "But we fail to see the authority under and by which the general assembly can, after the parishes, in the exercise within constitutional limits of their taxing power, have acted for parish purposes, step in and apply the moneys arising from this legal exercise of their rights to purposes other than those which, in the opinion of the parish authorities, made the levy of the taxes and the imposition of the licenses necessary,-taxes and licenses which they never would have levied or imposed,-if they were to be forcedly taken away from them under orders of the general assembly. When the police jury exercises its authority to impose licenses through the parish, it necessarily does so by ordinances general in their character, necessarily taking in people within as well as without the towns,-its purpose is to utilize the moneys for general parish purposes, and it is difficult to see by what authority it can be prevented from doing

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