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ants Barnes Brothers, in their capacity of Sherman v. Port Huron Engine & Thresher investors, have established an agency any Co. 8 S. D. 343, 66 N. W. 1077, 13 S. D. where, but they stand ready to buy and 95, 82 N. W. 413; Fanset v. Garden City sell such securities as are sent to them | State Bank, 24 S. D. 248, 123 N. W. 686. with satisfactory evidence of the value of Although a mortgage recites a loan of the security.
money as its consideration, and although Pepper v. Cairns, 133 Pa. 114, 7 L.R.A. | the money was actually paid out by the 750, 19 Am. St. Rep. 625, 19 Atl. 336; 27 mortgagee, yet if it never reached the hands Enc. Pl. & Pr. 150 B.
of the mortgagor, the mortgage is without The application for the loan being one consideration and cannot be enforced. made directly to John Hayes, defendant 27 Cyc. 1054; Security Co. v. Kent, 83 Barnes had a right to presume that he had Iowa, 30, 48 N. W. 1047; Mizner v. Kussell, carried out the terms of his obligations be- 29 Mich. 228. fore surrendering the papers.
The holder must be a bona fide holder Dart v. Minnesota Loan & T. Co. 74 Minn. without notice. 426, 77 N. W. 288; Boyd v. Boyd, 128 Iowa, Fisher v. Meister, 24 Mich. 447; Terry 699, 111 Am. St. Rep. 215, 104 N. W. 798. v. Tuttle, 24 Mich. 206; Bishop v. Felch, 7
Plaintiff having given Mr. Sanders full Mich. 371. scope to negotiate the loan, any arrange- Plaintiff never having received any conments which he made with the Citizens' sideration for the note and mortgage, if State Bank or John Hayes must be deemed defendants Barnes Brothers make the claim to be authorized by her.
that they are bona fide holders for value 1 Clark & S. Agency, § 45; Equitable without notice, the burden of proving such Mortg. Co. v. Thorn, Tex. Civ. App. is upon them.
26 S. W. 276; Loan, Mortg. Invest. & 35 Cyc. 364; Whitaker Iron Co. v. PresAgency Co. v. Vinson, 105 Ala. 389, 17 So. ton Nat. Bank, 101 Mich. 146, 59 N. W. 23; Cooper v. Headley, 12 N. J. Eq. 48; 395; Letson v. Reed, 45 Mich. 27, 7 N. W. Lantry v. Sutton, 22 N. Y. S. R. 244, 5 231; Berry v. Whitney, 40 Mich. 65; CarN. Y. Supp. 14; Henken v. Schwicker, 67 rier v. Cameron, 31 Mich. 379, 18 Am. Rep. App. Div. 196, 73 N. Y. Supp. 656, affirmed 192; 2. Schouler, Pers. Prop. § 609; Devoe in 174 N. Y. 298, 66 N. E. 971; Englemann v. Brandt, 53 N. Y. 462; Lynch v, Beecher, v. Reuse, 61 Mich. 395, 28 N. W. 149; Lip 38 Conn. 490; Cappon & B. Leather Co. v. man v. Noblit, 194 Pa. 416, 45 Atl. 377; Preston Nat. Bank, 114 Mich. 263, 72 N. Barksdale v. Security Invest. Co. 120 Ga. W. 180; Kilpatrick-Koch Dry Goods Co. v. 388, 47 S. E. 943; Thomas v. Desney, 57 Kahn, 53 Kan, 274, 36 Pac, 327. Iowa, 58, 10 N. W. 315; Massachusetts Mut. L. Ins. Co. v. Boggs, 121 Ill. 119, 13 N. E. Gates, J., delivered the opinion of the 550; Cox v. Massachusetts Mut. L. Ins. Co. court: 113 Ill. 382; Merck v. American Freehold On or about April 1, 1913, respondent Land Mortg. Co. 79 Ga. 213, 7 S. E. 265. applied to S. E. Sanders of Wall, South
Messrs. T. H. Conniff and Harry P. Dakota, for a loan upon 160 acres of land Atwater, for respondent:
owned by her. She caused a formal applicaSanders, as plaintiff's agent, had no au- tion to be executed, which contained, among thority to appoint any subagent, or to re other things, the following: "The stateceive anything but money; and any money ments made in this application are made by deposited by Barnes Brothers in the bank me for the purpose of obtaining a loan of was not in accordance with the authority, money from John Hayes of Fort Pierre, and would, therefore, not be binding upon South Dakota, and are true to the best of the plaintiff.
my knowledge and belief.
. . I hereby 31 Cyc. 1425, 1428; Bleecker v. Satsop appoint and constitute S. E. Sanders, my R. Co. 3 Wash. 77, 27 Pac. 1073; Topliff v. agent, for the purpose of procuring said Shadwell, 64 Kan. 884, 67 Pac. 545; Korne- loan, and to whom I do hereby grant full mann v. Monaghan, 24 Mich. 36; Hirsh authority to receive the funds herein apfield v. Waldron, 54 Mich. 649, 20 N. W. plied for. Payment to my said agent of the 628; King v. Hawkins, 2 Ariz. 358, 16 Pac. amount due me under this loan shall be 434; Emerson v. Providence Hat Mfg. Co. construed and held to be sufficient consider12 Mass. 237, 7 Am. Dec. 70; Harris v. Sanation for the execution and delivery to the Diego Flume Co. 87 Cal. 526, 25 Pac. 758; mortgagee of the papers given for said Lyon v. Jerome, 26 Wend. 485, 37 Am. Dec. loan.” 271; Newton v. Bronson, 13 N. Y. 587, 67 This application was forwarded to John Am. Dec. 89; White v. Davidson, 8 Md. 169, Hayes of Ft. Pierre. Mr. Hayes procured 63 Am. Dec. 699; Merrill v. Farmers' Loan an abstract of title, approved the loan, and & T. Co. 24 Hun, 300; Barnard v. Coffin, 141 sent to respondent two mortgages for exeMass. 37, 55 Am. Rep. 444, 6 N. E. 364; 1 cution, 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 opointment 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 res ondent 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 mortgages were invalid, the first mortgage therein. Trial was had by the court, which of $350 was assigned to Schmit, a bona made findings of fact and conclusions of fide holder in due course before maturity, law for the plaintiff, and entered judgment and that, when Schmit resold and assigned canceling the said mortgages of record. | the same to the corporation Barnes BrothFrom the judgment and order denying a ers, it took the mortgage freed from any new trial, defendants appeal.
defense that may have existed when it first As we view this case, there are only held the paper. Some of the sections of the two questions of importance to decide. The negotiable instruments act of 1913 (Laws first relates to the authority of the mo 1913, chap. 279) are cit in support of gagee to pay the proceeds of the loan to this contention. That act was not in force any person other than the plaintiff or the when this transaction was had. We are of agent Sanders. Our attention has been the opinion that, in repurchasing the paper, called to a number of decisions, where the Barnes Brothers took it subject to the same actual custodian of the money failed to defenses that existed when it first held it. account to the borrower, and to decisions We approve the reasoning of Mr. Justice where the question of usury was involved, Cooley on this subject in Kost v. Bender, and to decisions where the question of 25 Mich. 515, viz.: “It is perfectly true, knowledge of an encumbrance by the loan as a general rule, that the bona fide holder agent was involved, all of which we have of negotiable paper has a right to sell the carefully examined. But the principle in- same, with all the rights and equities atvolved in this case was absent from those taching to it in his own hands, to whoever
Here the question is: To whom may see fit to buy of him, whether such should Barnes Brothers have paid the purchaser was aware of the original inmoney? The claim of appellants that the firmity or not. Without this right he would corporation, Barnes Brothers, was an in- not have the full protection which the law nocent purchaser for value from Hayes, is merchant designs to afford him, and negonot sustained by the proof. It was the tiable paper would cease to be a safe and original mortgagee. Hayes was simply an | reliable medium for the exchanges of comagent. Whether he was agent for it or for merce. For, if one can stop the negotiabilithe borrower in procuring the loan is im ty of paper against which there is no dematerial in this case. If he was agent for fense, by giving notice that a defense once the borrower, payment to him might, under existed while it was held by another, it is certain circumstances, be held to be pay- obvious that an important element in its ment to the borrower. In the absence of 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
(December 12, 1914.). should be. It cannot be very important to him that there is one person incapable of A
PPEAL by defendants from a decree of
the Chancery Court for Hamilton Counsucceeding to his equities, and who conse
ty in complainant’s favor in a mandamus quently would not be likely to become a purchaser. If he may sell to all the rest of proceeding to compel defendants to proceed
with the construction of a system of highthe community, the market value of his security is not likely to be affected by the ways substituted for that for which bonds
had been issued. Affirmed. circumstance that a single individual can
The facts are stated in the opinion. not compete for its purchase, especially
Mr. S. H. Ford for appellants. when we consider that the nature of negotiable securities is such that their market
Messrs. Cooke, Swaney, & Hope and T.
S. Myers for the State. value is very little influenced by competition. Nor do I perceive that any rule or
Williams, J., delivered the opinion of principle of law would be violated by per- the court: mitting the maker to set up this defense
In 1909 the general assembly passed an against the payee, when he becomes indorsee, with the same effect as be might bonds to an amount not exceeding $65,000,
act authorizing Hamilton county to issue have done before it had been sold at all, or that there is any valid reason against it. Lookout mountain, in that county. Acts
for the purpose of building a road across . . If the defendant had a legal and just defense to the note, either in whole or thereafter voted and sold, realizing $65,000.
1909, chap. 417. The bonds were shortly in part, arising from the conduct of the
A commission was appointed to supervise plaintiff, it was the duty of the latter to the construction of that road, but for some recognize and allow it, and he had no moral
reason the fund was allowed to remain in right to cut it off, or to attempt so to do, bank almost wholly unused. by any transfer. But having done so, and afterwards acquired the note a second time, passed an act amending the above act of
The general assembly at its 1913 session the law, we think, will not permit him to 1909 so as “to provide for the diversion of take advantage of this wrong, but will remit the defendant to his original rights. to other roads in said county, and to pro
the fund arising from the sale of said bonds Such, we think, should be the rule, because vide for the manner in which said funds it avoids circuity of action, expense to the
shall be expended." Private Acts 1913, parties, and inconvenience to the courts,
chap. 272. without, at the same time, endangering any substantial rights.”
The bill of complaint alleged these facts,
in substance, and the further facts that See also note in 54 L.R.A. 673.
Considerable evidence was received, both Cummings, county judge and financial agent oral and documentary, that was not ad. of the county, and the other defendants, who missible.
are the public road commissioners of the But there was sufficient competent evidence to sustain the findings and county, refused to recognize the act of 1913
as constitutional or in operation, and redecision of the trial court. Finding no prejudicial error, the judg. the construction of the substituted system
fused to proceed, after due demand, with ment and order appealed from are affirmed. 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, TENNESSEE SUPREME COURT.
Note.- Right of state to authorize or
direct diversion of county funds to STATE OF TENNESSEE EX REL. BELL purpose other than that for which
collected. WILL CUMMINGS et al.
This note is confined to the consideration
of the question of the power of a state (130 Tenn. 566, 172 S. W. 290.)
legislature to change the purpose for which a county fund was raised. The question of
the right of the legislature to apportion a County control by legislature over county fund among different localities withfunds.
in 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
but the chancellor decreed against them and delegates the power of taxation, but it may in favor of complainants. This appeal re- withdraw such power, and itself assess taxes sulted. Only one phase of defendants' case for municipal purposes.” on appeal will be dealt with in this opinion, In the absence of constitutional restraints, the others being disposed of orally and in and our Constitution contains none, it was the decree of this court.
declared in Luehrman v. Taxing Dist. 2 Lea, The chief contention of the appellants is 425, 438, the maxim of republican governthat, after the bonds were voted, issued, and ment that local affairs should be managed in sold for a specific purpose, that of construct the local district is subject to such exceping a highway over Lookout mountain, it tions as the legislative power shall see fit was not in the power of the legislature to to make. divert the fund, in whole or in part, to “The legislature has the power to do whatthe construction of different roads, as was ever is not expressly, or by necessary impliattempted by the act of 1913.
cation, forbidden by the Constitution.” This involves a consideration of the rela. Ibid. Meriwether v. Garrett, 102 U. S. 511, tion sustained by a county as a public cor- 26 L. ed. 204; Redistricting Cases, 111 poration to the state. In Demoville v. Tenn. 234, 290, 80 S. W. 750. 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 proviv. Jacksonville, 36 Fla. 196, 29 L.R.A. 416, specific purposes for which the money was 18 So. 339; Hannibal v. Marion County, collected were those heretofore directed by 69 Mo. 571.
the legislature, and this act, being a later The opinion expressed by Justice Field expression of the will of the legislature, conin Tippecanoe County v. Lucas, 93 U. S. trols the subject, and, so far as it con108, 23 L. ed. 822, set out in STATE EX REL. flicts with previous acts, repeals them. BELL V. CUMMINGS, that a county's tenure The court said further, in the course of of property derived from the state for spe- its opinion, that it is immaterial “in concific public purposes, or obtained for such sidering the constitutional authority of the purposes through means which the state general assembly to pass the act in quesalone can authorize, that is, taxation, is tion, to inquire how the county has acso far subject to the control of the legis- quired or may acquire the money neceslature that the property may be applied to sary to make the payments required by other public uses than those originally des- the act. The money belongs to the county ignated,-is sustained by the other cases by virtue of acts of the general assembly, in point, except so far as the power of the and is expended under the direction of the legislature in the premises has been limited same authority. Counties are subdivisions by specific constitutional provisions.
of the state in which some of the powers The extent of the decision in STATE EX of the state government are exercised by BEL. BELL V. CUMMINGS would seem to be local functionaries for local purposes; in that the legislature may direct or author- this instance, and generally, the functionary ize the diversion of a county fund so long being the county court. The funds of the as it is not to the purpose of another munic- county are not strictly private property. ipality. The decision finds support in Cage They certainly do not belong to the citi5. Hogg, 1 Humph. 49, where it was held zens who may have contributed them. They that the legislature had power to convert a are rather public property, the property of county internal improvement fund, which the state acquired from the people and the had been donated to the county by the state, property in the county, and to be used and into a common-school fund of the county, expended for the benefit of the same people the court stating that the fact that the and property. The general assembly, havlegislature has power to change direction ing the legislative power of the state, deof a donation to a county before it has been termines to what local uses the county appropriated or a right acquired under it funds shall be applied.
No vested is too plain a proposition to require argu- right is taken away or impaired by the act, ment.
nor does it impair the obligation of any That none of the principles of taxation contract. It simply directs the applicalaid down in the Missouri Constitution were tion, to a particular purpose, of funds colviolated by an act directing a county to ap- lected by the authority of the legislature, propriate part of its funds to pay a por- and over which the legislature could exertion of the police expenses of a city situated cise a power to direct their application within the county was held in State ex rel. within certain limits, which include the Police Comrs. v. County Ct. 34 Mo. 546, object of this act. The previous acts of the although the act directed the appropriation legislature which provided the object for of county money already collected for a which county funds could be expended were specific purpose. The court stated that the l at all times subject to repeal or alteration sion respecting and to direct the expendi- , the legislature to take private property ture of the funds of a county raised and held from its grantee and restore it to its grantor by it under or based upon the taxing power would be in conflict with the constitutional delegated to it.
inhibition against impairing the obligation In the case of Tippecanoe County v. Lu- of contracts. But between the state and cas, 93 U. S. 108, 23 L. ed. 822, it appeared municipal corporations, such as cities, counthat the legislature of Indiana had by an ties, and towns, the relation is different from act (1872) directed the restoration to tax. that between the state and the individual. payers of a county of property that had Municipal corporations are mere instrumenbeen exacted from them by taxation, under talities of the state, for the convenient ada previous statute, so long as it remained ministration of government; and their in the possession of the county. Mr. Jus- powers may be qualified, enlarged, or withtice Field, holding that this exercise of drawn at the pleasure of the legislature. power on the part of the legislature in. Their tenure of property, derived from the fringed no provision of the Federal Consti- state for specific public purposes, or obtution said: "In this court also the validity tained for such purposes through means of the act of 1872 is the sole question pre- which the state alone can authorizethat sented. The act is assailed here, as in the is, taxation-is so far subject to the control court below, as authorizing an invasion of of the legislature that the property may be the right of private property, and as impair- applied to other public uses of the municiing the obligation of an executed contract. pality than those originally designated. Were the transaction one between the state This follows from the nature of such bodies and a private individual the invalidity of and the dependent character of their exthe act would not be a matter of serious istence. But property, derived by them doubt. Private property cannot be taken from other sources, is often held, by the from individuals by the state, except for terms of its grant, for special uses, from public purposes, and then only upon com- which it cannot be diverted by the legislapensation, or by way of taxation; and any ture. In such cases, the property is proenactments to that end would be regarded tected by all the guards against legislative as an illegitimate and unwarranted exercise interference possessed by individuals and of legislative power. And any attempt by 'private corporations for their property.” so as to appropriate the funds in a manner that of the parishes, and that of the muor to objects different from those before nicipal corporations; that they never inprovided. No rights have been vested un- tended, in declaring that this power should der the previous acts which can be dis- be exercised by the parishes and municipal turbed by this act.”.
corporations under authority granted to It would seem from this decision that the them by the general assembly, that this only limitation placed upon the power of authority should extend to empowering the legislature to divert the county fund either of them to do so for purposes other is that it could not be diverted where a | than those in which each were directly convested right had obtained to the fund, and i cerned. It is easy to see that through this this would seem to be the position of the act the taxing power of the towns could Nevada court, as in Youngs v. Hall, 9 Nev. be supplemented by that of the parishes for 212, it was said that while the revenue of town purposes.” a county is controlled by the legislature, The court further said: “But we fail to such control does not extend to depriving see the authority under and by which the a creditor of funds raised for the payment general assembly can, after the parishes, of his demand, to which he has a vested in the exercise within constitutional limits right.
of their taxing power, have acted for parish But an act directing that license fees purposes, step in and apply the moneys levied and collected by the parish in towns arising from this legal exercise of their of the parish be held for the benefit of such rights to purposes other than those which, towns, and any unexpended balance paid in the opinion of the parish authorities, over to them, was held in State ex rel. made the levy of the taxes and the imposiMansfield v. Police Jury, 47 La. Ann. 1244, tion of the licenses necessary,-taxes and 17 So. 792, to be in conflict with article licenses which they never would have levied 202 of the Constitution, which declares that or imposed, --if they were to be forcedly the taxing power may be exercised by the taken away from them under orders of the general assembly for state purposes and general assembly. When the police jury by parishes and municipal corporations un exercises its authority to impose licenses der authority granted to them by the gen- through the parish, it necessarily does so eral assembly for parish and municipal pur- by ordinances general in their character, poses.
necessarily taking in people within as well The court stated: “We agree in opinion as without the towns,-its purpose is to with the district judge, that the framers of utilize the moneys for general parish purthe Constitution intended to keep separate poses,—and it is difficult to see by what and distinct the taxing power of the state, authority it can be prevented from doing