QUINLAN v. GREEN COUNTY, KY., 157 F. 33

SEVERENS, Circuit Judge (after stating the facts as above).

The questions to be decided upon the facts found, the substance of which has been stated, and the proper inferences to be drawn therefrom, are these: First, whether it should be held that the county of Green had been exonerated from the payment of the subscription for the capital stock of the Elizabethtown & Tennessee Railroad Company; and, second, whether these bonds are invalid in the hands of the plaintiff by reason of the fact that only $150,000 of the proceeds of the bonds have been expended in the construction of the road in Green county, or by reason of the fact that the same has not been built through the county.

These questions turn largely upon the proper

interpretation of the so-called conditions upon which the county authorized these bonds to be issued. Upon our conference after the original argument in this court, we were in doubt upon some of the questions presented for decision, and certified them to the Supreme Court for its opinion. One — the first of the questions — as that court thought, involved too many points.

But we requested that if that question should be deemed too broad, then that the court should advise us whether, “Assuming the facts to be as found, was a bona fide purchaser, before maturity of these bonds and coupons for value, entitled to assume in his purchase that Green county had, before their issuance, been fully and completely exonerated from the payment of the capital stock subscribed for by the county court of said county for and in behalf of said county to the Elizabethtown & Tennessee Railroad Company?” The Supreme Court answered this question as follows: “Construing the second question to inquire not whether there is conclusive presumption, but whether on the facts found there is any presumption at all that the county had been exonerated from its former subscription to another railroad, we answer, Yes.” Quinlan v.

Green County, 205 U. S. 410, 27 Sup. Ct. 505, 51 L. Ed. 860. On receiving this answer, we heard further argument upon the consequences of the opinion given by the Supreme Court as well as upon the question of the character of the other so-called conditions, about which the Supreme Court expressed no opinion. We agree that the exoneration of Green county from any liability on account of its former subscription to another railroad was a condition precedent to the issuance of the bonds, and that without the accomplishment of this condition the plaintiff cannot recover.

We concede this, although we cannot help thinking that there is room for the belief that the Legislature of Kentucky intended that the county judge should determine when and whether the condition had been accomplished, and that to hold otherwise is to suppose that these' bonds, although they were by the terms of the statute to be negotiable coupon bonds, would, although issued and put upon the market, yet be clogged with doubt of their validity, • a doubt which even now might be and still is urged against them. Such bonds would not be marketable, and their purpose would be utterly defeated.

For this reason it has sometimes been held that, although the statute does not expressly nominate any officer who is to pass upon the execution of the condition precedent to the issue of such bonds, yet that, in view of the consequences, an implication might arise that the Legislature intended that the officer of the municipality in whose behalf he was acting, and who was charged with the custody and the issuance of the bonds, should, before delivering them, ascertain and determine whether the condition had been complied with.

Especially would this be so when the question whether there had been a compliance is one which calls for the exercise of judgment upon facts with which he would be most conversant. It is true that in most of these cases, perhaps in all, there were recitals in the bonds of the regularity of the anterior proceedings or the fulfillment of conditions precedent; but it would seem that for other reasons, if it is intended by the statute that the determination of the fact is committed to the official who issues the bonds, such determination ought to settle the fact.

If in such conditions the bonds should be issued without such determination, the question would be open. But here the county judge acted advisedly. In the order that the bonds be issued, he recites that he was sufficiently advised — borrowing an expression from legal procedure — to denote that he had taken notice of and considered the question whether the conditions existed which authorized the issuance of the bonds; in other words, that he had exercised the function devolved upon him.

Granting, what must be regarded as settled by authority, that when the condition consists of a distinct and indubitable fact, and nothing is left to the judgment of the official charged with the delivery of the bonds, his delivery of them without the occurrence of the condition would be unauthorized and the bonds be void, yet it would seem upon principle, that if the question whether tire condition has been accomplished is one of doubt and uncertainty, and it is apparent that the officer who has charge of the issuance of the bonds is to determine the fact of compliance with the condition, his determination would conclude the question, and, if in the affirmative, bind the county.

This is, as we understand, the doctrine on which the judgment of the Supreme Court in Provident Trust Co. v. Mercer County, 170 U. S. 593, 604, 18 Sup. Ct. 788, 42 L. Ed. 1156, was finally rested. But without pursuing that subject further, we are of opinion that, upon other grounds, the question whether Green county was exonerated from the obligations of the former vote should be determined in the affirmative. We may say in passing that there seems to be grave reasons for doubting whether Green county ever came under an obligation to the Elizabethtown & Tennessee Railroad Company.

The subscription was voted, and the county court ordered its clerk to subscribe for the stock. But that was all. The clerk did not subscribe. No bonds were ever issued, and no stock was ever delivered or tendered to the county. In Bates County v. Winters, 112 U. S. 325, 5 Sup. Ct. 157, 28 L. Ed. 744, Chief Justice Waite, after referring to previous cases, summed up the rule as follows: “The rule may be stated thus: An actual manual subscription on the books of a railroad company is not indispensably necessary to bind a municipality as a subscriber to the capital stock.

If the body or agency having authority to make such a subscription passes an ordinance or resolution to the effect that it does thereby, in the name and behalf of the municipality, subscribe a specified amount of stock, and presents a copy of that resolution to the company for acceptance as a subscription, and the company does, in fact, accept, and notifies the municipality, or its proper agent, to that effect, the contract of subscription is complete, and binds the parties according to its terms.” This is a careful and undoubtedly correct statement of the law upon the subject.

See, also, Morawetz on Corp. §§ 61, 134; Greene v. Sigua Iron Co., 88 Fed. 203, 31 C. C. A. 458. The county judge might well have thought that as there had been no complete subscription by an actual subscription, and by the acceptance and notification of the railroad company, the county was exonerated from its vote to authorize the proposed subscription.

The language of the condition is that the county shall be “exonerated from the payment of the capital stock voted by said county and authorized to be subscribed by said Green county court to the Elizabethtown & Tennessee Railroad.” This does not import that a completed subscription had been made, but only that a subscription had been authorized by the former vote; and the county would be exonerated if the subscription which it had authorized was not completed so as to bind the county.

These bonds were not issued until four years after the vote of the county authorizing the subscription for stock of the Elizabethtown & Tennessee Railroad Company had been taken and recorded. Meantime, this latter company had given no token of its acceptance, and the county had taken no further step after the direction of the county court to its clerk to make the subscription upon the terms specified in the order submitting the question to a vote. And the subscription was never completed. What more complete exoneration from its former vote could the county of Green have?

But, to return to the line of reasoning which we were intending to pursue, we are advised by the answer of the Supreme Court that there was, upon the facts found, a presumption in favor of the bonds that the county had been exonerated from the vote to subscribe to the other railroad stock; not a conclusive presumption, but one that might be controverted. But there is nothing in the facts found which controvert it. On the contrary, the facts confirm the presumption.

A long time has elapsed since the vote of the county authorized a subscription to the Elizabethtown & Tennessee Railroad Company’s stock, several times the length of time required by any statute of limitations, even supposing there had been a complete agreement for the subscription — and no step had been taken.

If it be said that the condition must have existed when the bonds were issued in order to make them valid, and that the lapse of time since is immaterial, the answer is that though in one sense this is true, yet in another sense it is important, for the fact that nothing had since been done by either party upon the footing of the vote is pregnant evidence to show that, when these bonds were issued, neither the county nor the Elizabethtown & Tennessee Railroad Company regarded itself as under any contract relations with the other.

It may be that if a formal release was necessary there might be some weight in the suggestion that the trial court has found that no Such release was ever given, and that this would controvert the presumption that the county had been exonerated.

But, as the Supreme Court said in its opinion, no formal release was necessary. “It [the condition] was completely fulfilled, if from any circumstance it should appear that the county had been effectively relieved from-any liability on account of the vote in aid of the Elizabethtown Railroad.” We come then to the question whether the other provisions of the vote on which the bonds in suit were issued, namely, “that said company shall locate and construct said railroad through said county of Green, * * * and shall expend the amount so subscribed within the limits of Green county,” were conditions precedent to the issue of the bonds, or were stipulations imposed upon the Cumberland & Ohio Railroad Company by its acceptance of the subscription.

The acceptance of a contract or an obligation which also in terms imposes obligations upon the obligee, and whereupon the latter seeks and obtains the benefit of the contract, binds the latter for their performance, although he may not have expressly undertaken to be bound. Bishop on Contracts (2d Ed.) § 203; 1 Parsons on Contracts (9th Ed.) § 13, n. 1; Storm v. U. S., 94 U. S. 76, 24 L. Ed. 42.

The question whether the performance of a stipulation in a contract is a condition precedent to the performance of other stipulations in it depends upon the order in which the parties intend the several stipulations to be performed. The calling of a provision or stipulation a condition is not conclusive, and if from the contract or other circumstances it is seen that it was not the intention of the parties that its performance should be a condition precedent it will not be held to be such. Stanley v. Colt, 5 Wall. 119, 18 L. Ed. 502; Union Stockyards Co. v. Nashville Packing Co., 140 Fed. 701, 704, 72 C. C.

A. 195; Sohier v. Trinity Church, 109 Mass. 1; Greene v. O’Connor, 18 R. I. 56, 25 Atl. 692, 19 L. R. A. 262; Scovill v. McMahon, 62 Conn. 378, 26 Atl. 479, 21 L. R. A. 58, 36 Am. St. Rep. 350; Hartung v. Witte, 59 Wis. 285, 18 N. W. 175. “Conditions have no idiom,” said Virgin, Judge, in Bucksport, etc., R. Co. v.

Brewer, 67 Me. 295. “Whether they are precedent or subsequent is a question purely of intent, and the intention must be determined by considering not only the words of the particular clause, but also the language of the whole contract, as well as the nature of the act required and the subject-matter to which it relates.” Conditions are not favored, and a provision will not be construed as such unless the intention is clear. 6 Am. & Eng. Ency. of L. 502; Clapham v. Moyle, 1 Lev. 155; Shep. Touch. 122; Huff v.

Nickerson, 27 Me. 106. “Where the language of an agreement can be resolved into a covenant,” said Bell, Judge, in Paschall v. Passmore, 15 Pa. 295, 307, “the judicial inclination is to so construe it; and hence it has resulted that certain features have ever been held essential to the constitution of a condition. In the absence of any of these, it is not permitted to work the destructive effect the law otherwise attributes to it.” The question we are now considering was mentioned, but not passed upon, by the Supreme Court, because it was not included in our request for its opinion.

But we think it apparent, for many reasons, that the performance of these conditions, so called, was not intended to be required before the delivery of the bonds. The subscription for the stock of a railroad company by a municipality, and the issue of negotiable bonds in payment therefor for the purpose of providing means to assist in the construction of a railroad within its limits, is a transaction familiar to every one.

It is not a transaction whereby the municipality contracts with the company to build a road, but is intended to provide means to assist the company in building it, in consideration of acquiring a part of its stock, and of the expected advantages of the road to the community. The statute of Kentucky under which these bonds were issued indicates very clearly, as we think, that the bonds authorized were expected to be negotiated for the means to use in the construction of the road.

It is provided that they shall be payable to the bearer, that they shall have interest coupons attached payable semiannually in the city of New York, and that the bonds shall be payable at a designated time which may be as long as 30 years after their date. They were thus required to possess the attributes of commercial paper adapted to sale in public markets. And the proposition on which the electors of Green county voted followed in all particulars the provisions of the statute.

And when it was provided that the company “shall expend the amount so subscribed within Green county,” we cannot doubt that what was meant was that the proceeds of those bonds should be so used, and not, as has been suggested, that the company should have expended some other money equal in amount to the bonds. Such a construction as would lead to the result suggested would leave the company without the ready means to build the road which it was the purpose to provide for. Moreover, there is a plain distinction made in the proposition voted in the very terms employed.

In regard to the requirements we have been last considering, the question was whether the county would subscribe for the stock and pay for it in county bonds, upon condition that the company should construct its road as mentioned, but where the proposition comes to the matter of the exoneration from the vote to the other railroad, that was expressly made a condition to the issuance of the bonds or the payment of any-part of them.

The failure to append this condition to the preceding provisions, and the introduction of the positive inhibition here employed, are persuasive evidence that a distinction was contemplated in the vote. To bear the construction that the former were intended to be conditions precedent, we should need to have the inhibition located in those clauses also. The abrupt change is significant of a difference in purpose.

Other reasons are also suggested by counsel; but we cannot doubt that, for those we have mentioned, the proper construction to be given to the proposition submitted to, and authorized by, the electors of Green county is that the railroad company should, upon its acceptance of the subscription, and the delivery of the stock by one, and of the bonds of the other, come under an obligation to comply with those terms of the proposition voted. And we reach this conclusion without regard to the question of an estoppel arising upon the fact that the county accepted the stock, and has continued to retain it.

If the question of the intention were in doubt, the

interpretation given by the county to its vote by paying the interest would be persuasive of its understanding at the time of the transaction. We think the bonds were lawfully issued, and that the fact that the company has not performed the stipulations of the agreement which it made as a consideration for the bonds does not invalidate them, when, as appears, the delivery of the bonds was final, and they have passed into the hands of other parties for value, as it was the evident intention of the statute that they would do.

We need not inquire whether the county could have made a partial defense against these bonds upon the ground that there had been a partial failure of consideration if the railroad company had held them and were now bringing suit upon them. The holder of negotiable paper is entitled to the benefit of the presumption prima facie that he or some previous holder whose title he has acquired is a purchaser in good faith and for value before maturity, in the usual course of business, and without notice of any circumstances impeaching its validity; and that he is the owner thereof, if it is payable to bearer.

Daniel on Neg. Inst. § 812. Nothing is here shown to contravene these presumptions. Of course it must always appear that the obligor was competent in law to incur the obligation, and had in fact attempted to incur it. We do not understand that the absence of a recital in municipal bonds that the conditions to their issue have been complied with deprives them of their character of negotiable instruments or of the ordinary presumptions which attend such instruments.

Recitals of that character relate to the regularity of the proceedings precedent to their issue, and, if the recitals cover the necessary facts, conclusively establish it.

But when, in a case where there are no such recitals, proof is made that the proceedings were in fact regular, the bonds are entitled to the same presumptions in their subsequent negotiation as if they had contained such recitals. ' It is suggested that the finding of the court “that the plaintiff is a citizen of the state of New York, and was so when this action was instituted on the 28th day of March}- 1899, and that the plaintiff was the bona fide holder for value of the bonds and coupons sued on, and fully entitled to sue the defendant thereon in this court,” was intended only to say that the citizenship of the plaintiff was such as to entitle him to sue in the federal court.

But this court, in its question to the Supreme Court, construed this finding to be also a finding that the plaintiff was a bona fide holder for value, and the Supreme Court certainly so construed it as is shown in the statement of facts, and, we have no doubt, correctly. That part of the finding of facts had no relevancy to the question of jurisdiction. If she was a citizen of New York, and was the holder of the bonds, she was entitled to sue. The question of whether she was a bona fide holder for value was a question upon the merits of the case.

The phrase which the court below employed was one peculiar to the law of negotiable instruments, and ought to be construed in the sense in which it is there employed. But it really is not material. If, as we hold, the bonds were lawfully issued, the presumptions of law would clothe the plaintiff, if she was the holder, with the character of a bona fide holder for value.

The judgment of the Circuit Court must be reversed, with directions to enter a judgment in favor of the plaintiff for the amount of the bonds and coupons, with interest on the coupons from the time they severally fell due, and interest on the principal of the bonds from the date when the latest coupons thereon severally fell due.