The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
~
~;
'
{
FEDERAL RESERVE BOARD
WASHINGTON
X-3137
June 9.. 1921.
SUBJECT:
Opinion of the Supreme Court of Missouri with re§ard
to negotiability of 3~% Liberty Loan Interim Certificates.
Dear Sir:
For your information~ there is enclosed herewith
a copy of an opinion recently rendered by the Supreme Court
of Missouri in the case of the Security National Bank of
Oklahon:;a City vs Peoples Bank of Sullivan) Missouri 1 to the
effect that 3~% Liberty l,oan Full pa,jd Interim Certificates,
issued under the First Liberty Bond Act of April 24, 1917,
and Treasury Department Circular ~o. 78, dated May 14, 1917,
are negotiable instruments transierrable upon delivery.
Very truly yours,
Enclosure.
TO CHAIRMEN AND GOVERNORS.
Vice Governor.
.,....~
,..,
J; .J
Cp'PY
l-3137a
!. B _T_H I
§
U f R I MI . ~ Q !l B ! .. Q l
SECURI!Y NA 'liONAL BANK OF
OKLAHOMA CITY, a
Ml
OCTOBER TERM, 1920 - DIVISION #1.
Corpo~tion1
Appellant
va.
)
)
)
)
)
.)
)
)
)
)
PEOPLES' BANK OF .SULLIVAN]
MISSOURI, a Corporation,
Appellee.
§ § Q UB!
No. 22c67
1.
This is an appeal from the Circuit Cou.rt of the City of
St. l.ouia.
The aui t was in 84Ui ty aif!L~nst the Federal Reserve Bank of
St .. Louis,. and the Peoples Bank of Sullivan, .Missouri to onj oin the
Federal Bank from delivering to the Sullivan Bank certain Liberty
Bonds call eel for by twenty Interim Certif ica.tes for such bonds ·
which plaintiff claimGd to own aa an innocent purchaser for w.alue.
Eight of said eertifica.,es were for $50.00 eaeh, eleven for $100.00
each and one for $500.00. Each certificate called for a Liberty
Bond for the amount of su.ch ;ertificate. All the certificates were
in the aame form and alike, excep'\ as to amounts and were all
executed by the Federal Reserve Bank of St. Louis on the lst of
September, 1917. Said form was as follows:
America 15-30 Year · Gold Bonds
Ml-paid Interim Certificates.
($50.00) lOa% paid.
U~ited States of
"3~ Liberty Loan
lltfhe
"Fifty Dolla~s
i._
"This is to certify that in accorcla.nce with the terms of
Treasury Department Circu.lar No~ 78~ dated May 14, 1917, payment in
full has been mae f.or fifty dollars face amount United States 1530 year 3 1/2 per cent gold bonds of the ·Liberty Loan authorized
by Act of Congress approved April 24, 1917.. Upon surrender of this
Interim CertiU.cate to .the undersigned bank, the bearer hereof will
be entitled to recei ~, when prepared, definite bonds in the face
amount of fifty dollars bearing interest from June 15, 1917. This
certificate and all rights under and by virtue hereof shall pass by
delivery bereo~. this certifie&te shall not be valid unless executed
in the name of a federal Reserve Bank (as Fiscal Agent of the United
States) by the ca.ehier or an assistant cashier of such bank ..
,...
-~-,""'
\,.__,1 ·~_,)
X-3137a
-2.-
W. G. McAdoo,
Secre~ary
of
~he
Treasury
Da tesw ........•. · · ·. · · · • •
"Federal Reserve Bank of ·
St .. Louis,
Fl.sca.l Agents of the United
States
By • • ..................... .
Assistant Cashier.
lfThere must be no writing in this certificate until i ~
is presented for exchange for bonds~
"Upon presentation hereof for exchange f~r bonds~ when
prepared_. the following mu~t be filled out and signed by
the owner of this certificate:
"The undersigned owner of the within Interim Ce.rti,f icate.
q,esires:
"One Bonds of the Denomination of $ ........ , ........... .
In Bearer form with Coupons attached . .
Bonds
of
the Denomination of$ ••••.•..•..•......••.
Registered as to Principal and
interest~
(Strike out the description of the form of bond not
described • .)
Pirections for Delivery of bonds.
11
Nlme:
Address:
l'f registered bonds are desired, state in whose r..ame they
.are to be registered and the address of the registered owner:
Name ........ ~ ............................... .
Address ............................ · . ·
Signati.lre'of Owner: ..............•..••
ta.te ... .............. ~ ., .......
·.~
. "~ ............. .
i
'.•
r"'"''O
U...._)(:J
-3-
X-3137a. · · ·
"In the absence of written request on the foregoing blank for
bonds of specific denominations and form, there will be delivered
in exchange for this certificate, coupon bonds of the largest denomimtion or denom~nations in which coupon bonds a.re issued and contained
in the a.mount·of bonds called for by this certificate.
"~rer bonds with interest coupons attached, will be issued in
denomimtions of $50, $100, $5()0, a.nd $1 1 000. Bonds registered as
to principal and interest will be issued in denominations of $1001
$500, $1., 000, $5,000, $101 000, $50, OCO., and $100., 000. Provision will
be for the interchange of bonds of different denominations and of
coupon and registered bonds, -- upon payment, if the Secretary of the
Treasury aball require, of a. charge not exceeding $1 for aach new
bond issued upon such exchange. Transfer of registered bonds and exchanges of registered and coupon bonds and of bonds of different
denominations will not be made Wltil October l~ 19171 or such later
ate as my be designated by the Secretary of the Treasury.
- -- - - - - - -- - - - "There must be no writing on this Certificate Until
It is Presented for Exchange for Bonds.•
The petition further 'stated, that said certificates were
negotiable, that the Liberty Bonds called for by said certifi~tes
had })een prepared and were held by defendant, Federal· Reserve B&nk
ready to b.e exchanged for such certifi-e.tes, wh:i.ch plaintiff had
deposited wit~ said Reserve Bank. But it refused to deliver said ·
Liberty ·Bonds to the plaintiff,· because it claimed said certificates
ha.d been stolen from the defendant, Sulliva.n Ba.nlr, whiC'h r.laimed
so.me right therein, and in the bonds called for there·by.
Tbe $aid bonds, being deposited in court by the Federal Reserve ~, tbe suit was dismissed as to it, a.nd t~ied as between
plaintiff and. defendant, Sullivan Bank.
..
The: answer of the Sullivan Bank admitted, the is.sue of the
Interim Certificates, the holding of the Liberty Bonds called for
therein by the dafenda.nt, Federal Bank, the surrender of such certificates by the Plaintiff. to the Federal Bank, and its refusal to
fteliver the bonds thereon to the plaintiff. Den:i.ed that plaintiff
purchased the certificates in.good faith or paid value therefor.
~
By way of cross-bill and interpleader, the Sullivan Bank,
that it was the owner of said oertificatee; having purchased
the ea.me from the said Federal Reserve Bank. That it placed said
certificates in its safe at Sullivan, Missouri, from which they were
stolen by unknown persons, who broke open the safe and carried away
said certificates. That said certificates are and were not negotiable. That said defendant is still the owner thereof. That
pla.\DtiU knew at the time it purchased said certificate, that the
allE:~ged
-4-
X-3137a
persons from whom it obtained them had no..title thereto. Wherefore,
said Sullivan Bank asked the Court to declare that it was the owner
of said certificates and bonds deposited in court 1 and for general
relief
A
Plaintiff 1 s reply put
cross-bill in issue.
the
new natter in the answer and
'"
There was an agreed statement of facts, which admitted the
form and issue of the certificates as set out by the plaintiff in
its petition, and the facts admitted by the pleadings~ That said
certificates were originally purchased from said Federal Bank by
the Sullivan Bank, and ,t.fterwards stolen from it, as alleged in its
answer and cross-bill. Touching the acquisition thereof by the
plaintiff, the agreed statem~nt recites:
"During October and November, 1917, the Security National
Bank of Oklahoma City purchased all of the certificates above
mentioned under the situation set out in the depositions of J. C.
Eagsn and G. L. Kellog heretofore filed in this case. It is stipulated and agreed that said depositions shall be considered a part
of this Agreed Statement of Facts, and that sach evidence is all
the evid~nce touching the manner in which the Security National Bank
of Oklahoma City acquired said Interim Certificates."
J. C. Eagen, testified, for plaintiff, in his deposition,
as follows: That in October and No~ember~ 1917, he
was an employe of the plaintiff bank~ Remembered some of the cer.
tificates were purchaaed from the Kelley Jewelry Company, and an
individual named John Garrett 1 in Oklahoma City, where plaintiff
bank waa located; each were customers of the ~nk~ and carried
deposits with it. He advised the receiving teller to give said
jewelry company cred;J.t for the face amount of one or more of these
certificatee. "Q~ Did the Security National Bank give credit for
the face of ~ch of the certificates you have referred to? (Objected to on taking of the deposition by defendant, because the
books are the best evidence, but no objection was made at the
trial, nor ruled on by the Court}. A. I do. I have looked it up
on the books of the bank. and find that credit was given or each
paid for the. fW.l face value of a.ll the certificates."
substantially~
Continu~g, the w~tness said: 1 am under the impression I
advised the receiving teller to give the Kelley Jewelry Company
credit for the certificates. I also advised him to cash other
certificates, which he had at the same time. The bank received
other certificates~ besides those in this liti~tion at that time.
It received these certificates in the ordinary course of business~
I know of no defect in the title to any of the certificates, and
had notice of none. The Kelley Jewelry Company checked out its
credit involved in this transaction.
I know of no fact that would
r
...5-
X-3137a
lead me to beliete that the title to these certificates were defective. The plaintiff bank gave credit or cas~ for full face amount
of the certificates in each case.
On cross examin~tion, witness said: Could not recall any conversation with either said Jewelry Company or Garrett 1 prior to
purchase of certificates. Could not recall the particular certificates bought from eitherl nor which witness handled personally.
The particular instances he had in mind were two one-hundred dollar
certificates, and same others1 fifties and hundreds, could not give
their numbers 1 nor how many were bought from Garrett 1 nor how many
from the Jewelry Company. Had no talk with either of said pa.rties,
lfhe Kelley Company informed him1 that they had given merchandise for
some of the certificates-- referred to H. M. Kelley, Witness personally purchased none from Garrett. Garrett still lives in Oklanoma
City. He is a trader - trades anything. Kelley is still in the jewalry
business within two blocks of the bank.
L. G. Kellog1 in his deposition, testified for plaintiff 1 substantially as follows: Was Assistant Cashier of plaintiff bank in
September~ October and November} 1917~ Handled the transaction by
which there was purchased from John Garrett cert~in interim Certificates, which are the subject of this litigation. He br:ought in some
of the certificates, not certain as to the amount, and asked if tile
bank would t:1ke one or more of them, and witness said it would ..
"He asked me if they were worth their face value, and I said they
were, and paid him the cash on them. n To the best of his knowledge,
Mr. Kelley•·s employe, a Mr. Milton, came in with a deposit including
one or more of these certificates and asked if the bar"k would take
them, and witness told him it would. In any transaction handled by
the witness, "it was either pa)d in cash1 or deposited to the credit
of the parties, the full face amount of the certific'l.te . . r. Witness
had no knowledge or notice at the time of any fact which would indic3.te
to him, that the title was not good. The bank at that time was paying
cash or giving credit for the fW.l face amount of Interim CertHic:l tes
of the sam& series as those involved in this litigation to otner
persons.
Could not say whether there was anyone other than Mr. Eagen
and himself, who had anything to do with these certificates. toes
not remember of giving any instructions to others to pay cash or
give credit for full amount of Inter:lm Certif.i.cates. There were about
35 employees in the bank at that time. Cross-examination: Witness
had no conversation with Kelley or Garrett as to puz-chasing certH i·cates, prior to purchase. Nor as to from whom or under what circum~tances they purchased the certificates.
Could not identify any
~articular certificates purchased from Kelley or from Garrett.
At the close of the evidence, the plaintiff asked several
declarations of law, one to the effect, that under the Act of Congress
and the regulations of the Secr·etary of Treasury thereunder, the certificates were negotiable instruments and passed by delivery and that
r
• •
...6-
X-3137a
a bona fide holder for value acquired a perfect title by purchase
thereof. This declaration the court refused. The plaintiff also
asked the court to find, as a matter of fact, that the plaintiff
acquired the certificates claimed by it, for value in the ord~nary
course of business, without notice of the fact that they had been
theretofore stolen. This request was refused.
The Court entered a decree confirming the agreed statement of facts, but there is no finding in the decree, as to
whether plaintiff was a bona fide purcraser for value. There was 1
however, a finding in said decree 1 that said certificates were
not negotiable, The decree further adjudged that the Sullivan
B~k was the owner of the certificates, and the bonds called for
thereby and that plaintiff ~d no interest therein.
Plaintiff's motion for new trial being overruled, it
appealed to this Court.
II.
It is no longer a debatable question, tnat eithQr in time
of war, or in time of peace, if the exigencies of t11e Federal Gove~ant in the judgment of Congress require the borrowing of money
and iss~ing of bills of credit therefor, Congress has full power
so to do1 and to issue such bonds, notes or other obligations of
the Government, which shall pass from hand to hand, and be negotiable, and have even the quality of legal tender for tne payment of
debts, as the Act of Congress may prescribe. Legal Tender Case~
110 U. S. 491. In that case, as to the form of such obligltions,
the court says, page 444; "Congress has authority to issue those
obli~tions in a form adapted to circulation from hand to hand,
in the orginary tral}eactions of commerce and business. In order
to promote and facilitate s~ch circulation, to adapt them to ~se
as currency, and make them more current in the market 1 it may provide for their redemption in coin or bonds and make them receivable in payment of debts tQ the Government." So th:1t 1 Congress,
i tself 1 by an Act of Congress, could have made these Interim Certificates pass current as negotiable instruments from hand to hand~
cannot be doubted. Indeed, learned counsel for respondent makes
no contrary contention.
III.
But learned counsel does contend; lst: That the power to
make such certificates negotiable is a legislative power or
function, which Congress could not dele~te to the Secretary of
~!•"')..!$~
·..._,; fj'
-7-
X-3137a
the Treasury; 2nd: If it could and did del~~te such power,
the Secretary did not so exercise such power by the terms he
used in such Interim Certiricates as to make them negotiable.
IV.
As to the power of Congress to dele~te such power to
the Secretary of the Treasury. Whether such Interim Certificates should be issued and the character thereof, as to
being-negotiable or otherwise, we hold, was an administrative
matter proper to be vested in tne discretion of the Secretary
of the Treasury. The purpose of Congress was to raise ~oney
to prosecute the ~orld War and to raise it as expeditiously
as possible. Tne issue of such Interim Certificates or
Interim Bonds was a mere detail incident and appropriate to
the main purpose for issuing the permanent bonds ·themselves
and might properly be left to the discretion of the Secretary
of the Treasury, who was charged with the duty of carrying
out the great purpose and undertaking of the Government. It
was a proper means to that end and was not prohibited by the
Constitution •
..
,<~
x.;;.3137-a
..
r
~!"In
,._,; ;ftj
In that landmark of the law, Me Culloch v~ 'Maryland, 4 Wheaton 1421,
of Congress to create a banking corporation to~earry on the
affairs of the Government, was determined and Chief Justice Ma.l'sh~:tll, in affirming such poW-er, said "We ad.mi~, as all must admit, that
th' powers of the Govemment are limited, and that its limits are not to
be transcended, but we think the sound construction of the Constitution
rrust allow to the National Legblature, that discretion, with respect to
the means by which the powers it confers are·to be carried into execution,
which will enable that body to perform the high duties assigned to it, in
the manner most beneficial to the people. Let the end be legitiuate, let
it be within the scope of the Constitution, end all means which are appropriate, which are plainly adapted to that end, and which are not prohibitit, but consist with the letter and spirit of the Constitution, are constitutional."
th~ power
fi~aneial
If Congress can create a banking corporation, and give and delegate
to it power appropriate or necessar.r to facilitate and carry on the fiscal
operations of the Government, as held 1n this celebrated case, supra, it
would seem incontestible, that Congress would give th8 head of the Treasury
Department .of the Government, itself, authority in his discretion, to determine wbetber the securities, ultimate or preliminary, to be issued to
raise money under the Act of Congress, in the case before us, sh~ld be negotiable.
·
Did Congress vest the power in the Secretary of the Treasur.y to make
such Interim Certificates, am to make them negotiable? The Act of Congress of .A1:1rll 24th, 1917, providing for the issue of the Liberty Bonds
in question, provided that sueh bonds should be "in such form SDi subject
to such tenns and conditions of issue, conversion, redemption, maturities,
pavment and rate and time of pa.JID8nt of interest, not ex:ceeding three and
one half per centum per annum, a.s the Secretary of the Treasury may prescribe."
We hold, this provision gave the Secretary of the Treasury power as
one of the terDS and conditions subject to which he might issu~ said bonds
to first issue negotiable Interim Certificates therefor~ They were appropriate and adapted to expedite t~ raising of the funds by the sale of the
bonds for cash 1n advance, and the subsequent delivery_ of the bon-is, when
prepared. The bondS themselves were to be negotiable and to give the subscribers of such bonds negotiable certificates therefor. would,
without
doubt dii, greatll' facilitate subscriptions for the bonds, in that the subscribers would receive, when they paid their money to the Government,. a negotiable obligation of the Government, which would pass current and be as
valuable as the bonds they subscribed and paid for, and Which they could use
in pllee of and with equal facility as the bonds, until they received such
bonds.
and
vt.
But, it is said, ~Y letm~ counsel, that in order to ualte such certificates negotiable, the termsf~erein should conform to the ·comnon law or to
the statute law of the State where issued, which. in this State. required an
.
-~-
X-3137-a
r~-~.~~
U3"±
..
instrument to be payable at a certain time, and in money, in order to be
Wl.\.ereas, these certificates called for the delivery of other
obligations of the Government, to-wit, Liberty Bonds, at an uncertain
time, to-wit when said bonds were prepared, and the certificates therefor
surrendered.
negotiable~
But, we hold, that it is not necessary to inquire of the statute of
this State or the comnon taw of England as to making such securities negotiable.
Not since the decision of the Supreme Court of the United States in the
great case hereinbefore referred to. has it ever been suggested that any
other law, save the acts of Congress, has any bearing upon the authority
or functions of any department or instrumentality of the Federal Government
with reference to its financial operations, or any of its >Operations • .r Concerning this question, the illustrious Chief Justit!e said in th~ Me Culloch
ease, pages 42h..7~ "This great princi.:ple is, the Constitution and laws made
in pursuance thereof are su:preme7· th~.t they control the ••.•• law.s of the
respective states, and cannot be controlled by them. It is of the very essence of supremacy to remove all obstacles to its action within its own
sphere and so to modify every power vested in subordinate govenruments, as to ·
exetr:!Pt its own operations from. their own influence. 11 And again, on page 436:
"The result is a conviction, that the States have no power, by taxation, or
otherwise, to retard. impede, burden, or in any manner control the operatiOn
of the constitutional laws enacted by Congress to carry into execution the
powers vested in the general government."
'What the statutes of this State or the English Common law provided
or required is. therefore, not relevant or gerrrane to the ~uestion whether
by their terms • said Interim Certificates were negotiable. The only pertinent inquiry is, did the Government of the United Statest through the language used by its Secretary of the Treasury, intend to make them. negotiable pass current from hand to hand- from bearer to bearer - without endorsement to be "couriers without luggage," as has been somewhere said by this court.
In order to be Interim Certificates, at all, it was necessary that they
should be exchangeable for bonds at sometime eert~in or uncertain. There
was no law of the United States prohibiting the provisions for such exchange
being contained therein, or in ar.cr manner J>rescribing or limiting the contents of such certificates or any negotiable seeuri ties to be issued by the
United States. Being authorized by the .Act of Congress to make such certificates negotiable, in his discretion, if the §eeretary of the Treasuey
used language intended to convey the idea, that they were to "be negotiable,
that is the end of the injury and the end of the discussion.
vn.
We hold, that the Secretary did so intend. and that such certificates were made negotiable by their te~s, Such certificates expressly
providet that ftUpon surrender of tnis Interim Certificate, the Bearer hereof will be entitled to receive, when prepared, definite bonds in the amount
of
dollars. bearing interest from June 15, 1917. This certificate
and all rights under and by virtue hereof, shall pass by delivery." Also, that
"There must be no writing on this certificate, until it is :presented for exchange for bonds .. • So that, clearly tbe certificates, with the title to the
bonds called fort were intended to pass by delivery without endorsement, the
same a.s a bond or note pl',tyable to bearer. It was, indeed, expresslj. :provided that the "bearer" of the certificate should on its surrender be entitled
to receive the Liberty 13onds mentioned therein ... Nothing could be clearer .
..
-10..
X-3137-e.
than that they were intended to be and, therefore, they were negotiable
instruments.
VIII·
We also hold, that under the evidence, the plaintiff was the purchaser for value in due course, without notice of any defect in the title of its vendors, and, therefore. the bona fide owner of the certificates in suit. While the lower court refused to so find, as a fact, When
thereto requested by the plaintiff, there was no finding at all on the
subject in the decree. In said decree, the court based its judgment against
the plaintiff, on the ground, that said certificates were not negotiable.
This being a suit in equity, the lower court may have disregarded the req,uest of plaintiff to find the fact of its ownership. as unnecessary, and
not because it found plaintiff was not such bona fide purchaser for value.
Otherwise, it seems to ~~, th~ court would have expressly so stated in
its findings of facts in the decree, which it rendered. In any event. the
t~stimony, not being oral, but by deposition, this court may consider it
de -~' entirely .uninfluenced by the finding of the lower court. When
so considered, we are satisfied that the plaintiff was a bona fide purchaser for value of said certificates, and has sustained the burden, which
is upon it, to so prove, in view of the fact that said certificates were
previously owned by, but feloniously taken from, the defendant, Sullivan
'Bank.
The result is, the decree of the lower court is reversed, with
directions to said court to set aside its judgment heretofore rendered here•
in, and to enter judgm'lnt for plaintiff as prayed, declaring it the owner
of said certificates, and the bonds called for thereby, in possession of the
court, and that they be delivered to the plaintiff, and tbat the defendant,
Sullivan 13a.nk, has no interGst therein.
Charles E. Small. Commissioner.
Ragland,
'Brown, C.
c.
(concurs)
(concurs)
Per curiam:- The foregoing opinion by
Small, c. • is adopted as the opinion of
t~ court.
All the judges concur except
Woodson, F. J. not sitting.
l(.
i
t
.
@FedFRASER