improved according to his best skill and judgment, it is his duty to invest it in safe securities, and his discretion, in the selection of investments, is not enlarged by the words "according to his best skill and judgment." 2. If a trustee's authority enables him to invest in stocks, they should appear to have been at the time, productive, and to have had a market value, depending upon their income, and not upon contingencies. 3. Shares in a contemplated railway are not such. *SECTION VI. Bona Fide holder of Railway Bonds, with Coupons, may enforce them. 1. Railway bonds payable to bearer, with coupons, negotiable securities. 2. This rule extends both to the bonds and coupons for interest. 3. Same rule extended to bonds issued by municipal corporations. 4. In this country, railway bonds issued in blank may be filled up with name of last holder. 6. Sometimes held that no action will lie on 7. Rights of transferee in England. 9. Where company is allowed to mortgage, 5. In England, the money must be obtained but prohibited from issuing bills of exchange, a mortgage given to secure a debt evidenced by bills of exchange, held good. Lands mortgaged without authority equally divided among all the creditors standing in the same right. § 239. 1. In a late case in New Jersey,1 it was decided by the Court of Appeals, that bonds with coupons payable to bearer, issued by the plaintiffs, passed by delivery from hand to hand the same as bank-notes, and that a bona fide purchaser for value, without notice of any prior defect in the title from the company, might enforce them, independent of all equities between the company and the first holder. This decision is approved in the late case of Mechanics' Bank v. New York & New 1 Morris Canal & Banking Company v. Fisher, 1 Stockton, Ch. 667. Professor Parsons, in his work on Contracts, vol. 1, 240, says: "It may, however, be here said, that we regard the English authorities as making all instruments negotiable which are payable to bearer, and which are also customarily transfer Haven Railway.2 The same principle has been extended to certificates of deposit, and to state bonds. The English courts have adopted the same rule in regard to bonds of the King of Prussia; to Exchequer bills, and bonds of the government of Naples, when put in a condition to be negotiable in that country.7 5 6 2. We think there can be no reasonable doubt of the soundness of the principle as applied to railway bonds, made payable to bearer, with coupons attached, for the payment of interest. And we are confident this is the view taken of this question generally, by commercial men and companies, both as to the bonds, and the coupons.8 able by delivery, within which definition we suppose the common bonds of railroad companies would fall." The same principle is laid down in Eaton & Hamilton Railw. v. Hunt, 20 Ind. R. 457; Conn. Mutual Life Ins. Co. v. C., C. & C. Railw., 41 Barb. 9; Maddox v. Graham, 2 Met. (Ky.) 56; Commonwealth v. Perkins, 43 Penn. St. 400. 2 3 Kernan, 599. And in the late case of Brainerd v. New York and Harlem Railw., 25 N. Y. R. 496, it was held that the bond of a railroad corporation payable to A. B. "or his assigns," was in the nature of commercial paper, negotiable by delivery under an assignment in blank, and not a specialty, subject to equities between the corporation and the person named in the bond as the primary payee. 8 Carr v. LeFevre, 27 Penn. St. 413, where the court held such bonds may be sued in the name of the holder, and that possession is primâ facie evidence of ownership. And where a suit is brought for the collection of the interest due on such bonds, evidenced by coupons, the court will not allow the payee of the bond to take judgment for the interest due, until the coupons are produced. Williamson, Trustee, v. The New Albany & Salem Railw., in the Circuit Court of the U. S. before Mr. Justice McLean, ante, § 235; Morris Banking & Canal Co. v. Lewis, 1 Beasley, 323, where it is held that coupon bonds of an incorporated company are transferable by delivery solely. And see Brookman v. Metcalf, 32 N. Y. R. 591. But in Jackson v. York & Cumberland Railw., 48 Maine R. 147, the court say that no action can be maintained in the name of the assignee of such coupons, where they contain no negotiable words, nor language from which it can be inferred that it was the design of the corporation issuing them to treat them as negotiable paper, or as creating an obligation distinct from and independent *3. And in a very late case in the state of Mississippi, the question has been considered by their court of errors, in regard to the bonds issued by the city of Vicksburg,9 and the concluof the bonds to which they were severally attached when issued; that proof of custom, as to the negotiability of such coupons, is inadmissible. See Augusta Bank v. Augusta, 49 Maine R. 507. This rule is contrary to the great majority of the cases. See County of Beaver v. Armstrong, 44 Penn. St. 63; Morris Canal & Boating Co. v. Fisher, 1 Stockton, Ch. 667; White v. Vermont and Massachusetts Railw., 21 Howard (U. S.), 575; Chapin v. Vermont & Massachusetts Railw., 8 Gray, 575. But in England railway bonds or debentures have not been considered as strictly negotiable. Athenæum Life Ins. Co. v. Pooley, 5 Jur. N. S. 129; s. c. 3 De G. & J. 294; Balfour v. Ernest, 5 Jur. N. S. 439. A distinction has been sometimes attempted between the right to bring an action upon the coupons and upon the bonds themselves. See Crosby v. New London, W. & P. Railw., 26 Conn. R. 121; Williamson v. New Albany & Salem Railw., 9 Am. Railw. Times, March 12, 1857, per McLean, J. But the principle of White v. Vermont & Massachusetts Railw., supra, makes any such distinction needless. Where bonds issued by a municipality in aid of a railway were declared by a statute to be negotiable, and were made payable to the company, "its assignee or bearer,” it was held, that they were good in the hands of an innocent holder, though they might not be valid between the original parties. Maddox v. Graham, 2 Met. (Ky.) 56. Where bonds were allowed to be issued after certain notice, it was held that issue imported compliance with all prerequisites to such issue, and that the purchaser was not bound to any further investigation. Pearce v. Madison, &c. Railw., 24 Howard (U. S.), 442. And in Junction Railw. v. Cleneay, 13 Ind. R. 161, it was held that suit could be maintained upon coupons without the production of the bonds to which they had been attached. And see Brainerd v. N. Y. & Harlem Railw., 25 N. Y. R. 496; Conn. Mutual Life Ins. Co. v. C., C. & C. Railw., 41 Barb. 9. Craig v. The City of Vicksburg, 31 Mississippi R. 216. But it is said that a decision was made in Alabama, many years since, by a divided court, against the rule here adopted, but that it had been overruled. But see ante, § 35, pl 4 and n. But see Athenæum Assurance Co. v. Pooley, 31 Law Times, 70; ante, § 234, n. 10. The case of Zabriskie v. The Cleveland, Columbus & Cincinnati Railw. before the Circuit Court of the United States for the Northern District of Ohio, 10 Am. Railw. Times, No. 15, is justly regarded as an important one. The opinion of Mr. Justice McLean discusses many points incidentally connected with the subject. But the decision seems to be placed mainly upon the ground, that the bonds having gone into the market, in the form of negotiable securities, payable to bearer, and the company having at a meeting (although defectively called) ratified the issue, and this being known, for more than two years, to the agent of the complainant, residing abroad, before any movement was made by any party to enjoin them, the acquiescence was such as to conclude the plaintiff, who sued for an injunction, as a stockholder, on the ground that the indorsement sion arrived at, that such bonds, payable to bearer, pass from hand to hand, by delivery, like bank-notes, and that the holder's title depends upon the fact of his being the bearer bona fide, and that, as such, he may recover of the maker without giving further proof of title.10 And that the maker can only defend an action so brought by the bearer by proving that the holder had knowledge of the defence at the time, or before he received the bond.11 4. In a recent case 12 in the United States Supreme Court, this subject was examined, and the authorities, both in this country and in England, extensively reviewed, and the concluand payment of these bonds by the defendants would tend to diminish their profits. This ground seems to us entirely satisfactory. It is questionable, whether the guaranty of the bonds by defendant is not, under the statutes in force in Ohio, allowing railway companies to aid in the construction of other connecting railways, "by subscription to their capital stock or otherwise,” primâ facie to be regarded as a legitimate commercial contract; and if so, it is not such an act as is calculated to put the purchaser on his guard, and thereby affect him with constructive notice of any latent infirmity in the prior proceedings of the company in making the guaranty. This is the pervading view maintained in the opinion. But it is here conceded, that, if the charter of the company or the general laws prohibit such a contract being entered into by such a corporation, the contract, although made in the form of a negotiable security, is void in the hands of a bonâ fide holder for value. Root v. Goddard, 3 McLean, 102; Root v. Wallace, 4 Id. 8. And it seems to be conceded, as a general rule, that in regard to the requisite formalities, either of the charter or the general laws of the state, one who takes negotiable securities in the market in the due course of business, is not obliged to make inquiries beyond the point of the capacity of the parties to contract, in the particular form presented upon the face of the paper. And where the records of the company show the requisite formalities to have been complied with, this, as between the company and third parties, will be held conclusive against them. And this case was affirmed in the Supreme Court of the United States. Zabriskie v. C., C. & C. Railw., 23 How. (U. S.) 381. Ante, § 23. And see Madison, &c. Plank-Road Co. v. Watertown & Portland Plank-Road Co., 7 Wisconsin R. 59; Madison & Indiana Railw. v. Norwich Savings Society, 24 Ind. R. 457. 10 And coupons on such bonds cannot be attached on trustee process. Smith v. Ken. & Portland Railw., 45 Maine R. 547. 11 Morris Banking & Canal Co. v. Lewis, 1 Beasley, 323. 12 White v. Vermont and Massachusetts Railw. Co., 21 How. (U. S.) 575. See also Chapin v. Same, 8 Gray, 575. sion reached, that railway bonds issued in blank, no payee being named, but delivered to a citizen of Massachusetts for value, and having passed through many hands, might be filled up payable to the last holder for value, and a suit maintained in his name. in the circuit courts of the United States. It is there said by Mr. Justice Nelson, in giving judgment, that "the usage and practice of railway companies and of the capitalists and business men of the country, and decisions of courts, have made this class of securities negotiable instruments." The late English cases, wherein it was held that instruments issued in blank were void, were considered and overruled 13 by the court in the case last cited. 5. But the English court of Common Pleas held, in a recent case,14 that a bill of exchange drawn on behalf of a joint-stock company, in the form prescribed by statute, does not bind the company, even in the hands of a bona fide holder, if the bill be drawn for any purpose not within the scope of the business of the company or the power of the directors.14 6. But it has been held that no action will lie upon the interest warrants or coupons, independent of the bonds upon which the interest accrued, but that the action must be upon the bonds.15 7. And where the debentures or mortgage securities of a railway company had been issued by the company to a party under a contract, which amounted to a fraud upon the shareholders, and they were transferred by such party in the market to bona fide purchasers, it was held that such purchasers took the securities subject to all equities existing between the prior parties.16 And where it appeared that the purchasers had procured the entry of a transfer of the debentures to them to be made in the books of the company, and had also received from the company interest or dividends upon the debentures, such entry and dividends not having been communicated to the shareholders, it was held that they were not bound thereby, and that the debentures could not be enforced against the company. 16 13 See ante, § 35. 14 Balfour v. Ernest, 5 Jur. N. S. 439. 15 Crosby v. New L. W. & P. Railw. Co., 26 Conn. R. 121. See also Shoemaker v. Goshen, 14 Ohio St. 569. 16 Athenæum Life Ins. Co. v. Pooley, 5 Jur. N. S. 120. Ante, § 234. |