Morgan v. United States (113 U.S. 476)/Opinion of the Court

by Stanley Matthews

United States Supreme Court

113 U.S. 476

Morgan  v.  United States

'We would submit that this course is in entire contradiction to the practice of the department hitherto, and in violation of the agreement upon the face of the bonds to pay them to bearer. The government has hitherto always paid its bearer obligations, as every other state, company, or individual does, to any innocent holders who had paid full value for them. This we have done for all these bonds, having purchased them in the regular way of business in the market, and even paying a small premium for them to avoid the transmission of gold to settle our accounts with the treasury in America. They had no fixed maturity; they were arbitrarily drawn by the government for payment at the present time; they carried no notice on their face that they were not payable in accordance with their tenor, and the only penalty for not presenting them was the cessation of interest. The analogy drawn from the equities attaching to an overdue note, as carrying notice on the face of non-payment, has consequently no bearing on the case. These bonds are scattered all over Europe, and the notice that they are due, frequently does not reach the holder for months, and sometimes years. We buy them in the regular course of our business, nor could we do otherwise. If the government were to decide not to pay bonds to bearer of which the ownership is disputed, except after decision of courts, they would do what neither they nor any other government has ever done before. It would prevent dealing in their securities, be a distinct injury to their negotiability, and a loss to the public credit.'

The 16 bonds claimed by L. Von Hoffman & Co. were transmitted by them directly to the treasury department at Washington for redemption. It was from letters from the department, written in answer to their letters of transmittal, that they received first the information that the bonds had been stolen and some of them altered, and learned of the claim of the Manhattan Savings Institution, as owners, to await the decision of which the bonds were retained by the secretary in the custody of the treasury department.

In addition to the foregoing facts, found by the court of claims, it also found that 'during the period of the refunding transactions under the act of July 14, 1870, many five-twenty bonds of every call were not sent in promptly for redemption, but were held, in this country and Europe, through want of information, or otherwise, until long after the maturity of the call,' and that 'during the period of the refunding transactions of the government under the act of July 14, 1870, large numbers of the European holders of the five-twenty bonds, of the act of March 3, 1865, called for redemption, from want of facility for sending their bonds to the United States, or to avoid the risk and expense of transmission, or various other reasons, were obliged to and did sell and dispose of their bonds, in the market, in London, to money-changers, bankers, and merchants, as the only means of obtaining the money for them. Many millions of the said called bonds were thus sold and disposed of in the London market, and dealt in by money-dealers during that period, long after the maturity of the various calls;' and also that, 'according to the custom and practice in London, the said called bonds of the United States were commonly dealt in by buying and selling after the time fixed for their redemption, in the same way and just as freely as the bonds not called for redemption.'

J. Hubley Ashton, for Morgan & Co. and Von Hoffman & Co. H. C. Cady, for Manhattan Savings Institution.

No brief filed for United States.

[Argument of Counsel from pages 485-490 intentionally omitted]

Mr. Justice Matthews deliverd the opinion of the court. He recited the facts, as above stated, continued:

The conclusions of law reached by the court of claims, on which its judgments are founded, and which are stated and supported in its opinion by the late learned chief justice of that court, are comprised in these propositions: That if the claimants, J. S. Morgan & Co. and L. Von Hoffman & Co., or any other party from whom they are shown to have bought, had purchased the bonds in good faith for value before maturity, their title would prevail against that of the Manhattan Savings Institution, from whom they had been stolen; that, on the face of these bonds, the United States, while fixing a day of ultimate payment, after which they would certainly be overdue, had also reserved the right of redemption at an earlier time, at its pleasure after five years from date; that, as this option could be exercised only by the United States, and not by any officer or department of the government of its mere motion, it could be declared only by law, as was done in the act of congress of July 14, 1870; that this right of redemption being expressly reserved on the face of the bonds, was part of the contract, of which every holder had notice by its terms, and, as it could be exercised only by a public law, every holder subsequent to the passage of such a law must be held to know that it might be and when it had been exercised; that, consequently, the contract is to be read, after the passage of the act of July 14, 1870, as though the time of redemption fixed and declared in pursuance of it by the call of the secretary of the treasury had been originally written in it as the final day of payment; and, that by way of conclusion, it must therefore be adjudged that the claimants, against whom the judgment was passed, were purchasers of overdue paper, and not entitled to the protection of the rule which otherwise would shield their title against impeachment. And it is insisted in argument that this conclusion is anticipated and required by the decisions of this court in the cases of Texas v. White, 7 Wall. 700, and Vermilye v. Adams Exp. Co. 21 Wall. 142. It becomes necessary, therefore, at the outset, to examine those cases with particularity.

The bonds in controversy in the first of them were United States coupon bonds, dated January 1, 1851, payable, by their terms, to the state of Texas or bearer, with interest at 5 per cent., payable semi-annually, and 'redeemable after the thirty-first day of December, 1864.' Each bond contained a statement on its face that the debt was authorized by act of congress, and was 'transferable on delivery,' and to each were attached six-month coupons, extending to December 31, 1864. White and Chiles acquired their title on March 15, 1865.

The rules established in Murray v. Lardner, 2 Wall. 118-'that the purchaser of coupon bonds, before due, without notice and in good faith, is unaffected by want of title in the seller, and that the burden of proof in respect to notice and want of good faith is on the claimant of the bonds as against the purchaser'-were repeated and reaffirmed; but it was added: 'These rules have never been applied to atured obligations. Purchasers of notes or bonds past due take nothing but the actual right and title of the vendors. The bonds in question were dated January 1, 1851, and were redeemable after the thirty-first of December, 1864. In strictness, it is true, they were not payable on the day when they became redeemable, but the known usage of the United States to pay all bonds as soon as the right of payment accrues, except when a distinction between redeemability and payability is made by law and shown on the face of the bonds, requires the application of the rule respecting overdue obligations to bonds of the United States, which have become redeemable, and in respect to which no such distinction has been made.'

It appeared in the case that the bonds were the property of the state of Texas on January 11, 1862, having come into her possession and ownership-so the court declares-'through public acts of the general government and of the state, which gave notice to all the world of the transaction consummated by them;' and the state, while thus their owner, in 1851, passed a legislative act declaring that the bonds should be disposed of 'as may be provided by law,' but that no bond should be 'available in the hands of any holder until the same shall have been indorsed, in the city of Austin, by the governor of the state of Texas.' It was in reference to this legislation that the court said: 'And we think it clear that if a state, by a public act of her legislature, imposes restrictions upon the alienation of her property, that every person who takes a transfer of such property must be held affected by notice of them. Alienation in disregard of such restrictions can convey no title to the alienee.' In 1862 the legislature of Texas repealed this act of 1851, but the repealing act was held to be void, as an act of the state government established in hostility to the constitution of the United States, and 'intended to aid rebellion by facilitating the transfer of these bonds.'

It further appeared that all the bonds which had been put in circulation with the indorsement of the governor had been paid in coin on presentation at the treasury department; 'while, on the contrary, applications for the payment of bonds without the required indorsement, and of coupons detached from such bonds, made to that department, had been denied. As a necessary consequence, the negotiation of these bonds became difficult. They sold much below the rates they would have commanded had the title to them been unquestioned. They were bought in fact, and, under the circumstances, could only have been bought, upon speculation. The purchasers took the risk of a bad title, hoping, doubtless, that through the action of the national government, or of the government of Texas, it might be converted into a good one.' 'On the whole case,' the conclusion was that the state of Texas was entitled under the bill, filed for that purpose, to reclaim the bonds from persons who had acquired title under the circumstances stated.

The case came before the court again in another aspect, and is reported as Texas v. Hardenberg, 10 Wall. 68, in which the grounds of the former decision were reconsidered and declared to be satisfactory. The same question, as to part of the same issue of bonds, came again before the court in Huntington v. Texas, 16 Wall. 402, in which the two prior decisions were relied on, on behalf of the state of Texas, as conclusive. The court rehearsed the propositions decided in those cases, and referring to the question in regard to the invalidity of the act of 1862, repealing the act of 1851 restricting the negotiability of the bonds, said: 'But it must be observed that we have not held that such a repealing act was absolutely void, and that the title of the state could in no case be divested. On the contrary, it may be fairly inferred from what was said in Texas v. White that if the bonds were issued and used for a lawful purpose the title passed to the hol er unaffected by any claim of the state. Title to the bonds issued to White and Chiles was held not to be divested out of the state, because of the unlawful purpose with which they were issued, and because the holders were, in our opinion, chargeable with notice of the invalidity of their issue and of their unlawful use.'

Some of the same issue of bonds were in litigation before this court in National Bank of Washington v. Texas, 20 Wall. 72. In that case the title of the appellant was acquired after the thirty-first day of December, 1864, when they became redeemable, and they were not indorsed by the governor. It was alleged that they were issued and used in aid of the rebellion, but the fact, and all knowledge of it on the part of the appellant, was denied, and the court found the allegations were not sustained by the proof. The question, 'whether the bonds were overdue, in the sense which puts a purchaser of dishonored negotiable paper on the inquiry as to defenses which may be set up against it,' was expressly waived, in the opinion of the court, because, it being 'quite clear that they were transferable by delivery after due, the same as before,' it followed that, 'to invalidate the title so acquired by a purchaser, it is necessary to make out some defect in that title,' which the court decided had not been done. In answer to the point that the title of the appellant failed for want of an indorsement by the governor, in support of which Texas v. White and Texas v. Hardenberg were cited, the court said: 'On an examination of the report of that case it will be seen that the court was of opinion that it was established, both in evidence and by the answers of some of the parties, that the bonds then in controversy were all of them issued to White and Chiles, and the illegal contract on which they were issued was in evidence, and the court was further of opinion that the parties had notice of these facts.'

As to what was said in Texas v. White, that the indorsement of the governor was essential to the title of a purchaser, on the ground that the state could, by statute, while the bonds were in its possession, limit their negotiability by requiring as one of its conditions the indorsement of the governor, and that the repeal of that statute, in view of its supposed treasonable purpose, was void, it is remarked by the court: 'All of this, however, was unnecessary to the decision of that case, and the soundness of the proposition may be doubted.'

In the case of Vermilye v. Adams Exp. Co., 21 Wall. 138, the controversy involved the title to treasury notes issued under the act of March 3, 1865, (13 St. 468,) payable to the holder three years after date, and dated July 15, 1865, bearing interest payable semi-annually, for which coupons were attached, except for the interest of the last six months; that was to be paid with the principal when the notes were presented. On the back of each note was this statement: 'At maturity, convertible at the option of the holder into bonds, redeemable at the pleasure of the government at any time after five years, and payable twenty years from June 15, 1868, with interest at six per cent. per annum, payable semi-annually in coin.' The notes in question were stolen from the express company and subsequently sought by Vermilye & Co., bankers in New York; but, at the time of the purchase, more than three years had elapsed from the date of their issue, and the secretary of the treasury had given notice that they would be paid or converted into bonds at the option of the holder on presentation to the department, and that they had ceased to bear interest. The judgment of the court sustaining the title of the express company was founded on the fact that the purchase was made after the maturity of the obligations. Mr. Justice MILLER, delivering the opinion of the court, said: 'They had the ordinary form of negotiable instruments, payable at a definite time, and that time had passed an they were unpaid. This was obvious on the face of the paper.'

It was further shown that the fact that the holder had an option to convert them into other bonds did not change their character in this respect; and 'that the simple fact that they were the obligations of the government' did not take them 'out of the rule which subjects the purchaser of overdue paper to an inquiry into the circumstances under which it was made, as regards, the rights of antecedent holders.' And referring to the case of Texas v. White, 7 Wall. 700, where the bonds were redeemable after the thirty-first day of December, 1864, it was stated that the court had there held 'that after that date they were to be considered as overdue paper, in regard to their negotiability; observing that in strictness it is true they were not payable on the day when they became redeemable, but the known usage of the United States to pay all bonds as soon as the right of payment accrues, except when a distinction between redeemability and payability is made by law and shown on the face of the bonds, requires the application of the rule respecting overdue obligations to bonds of the United States which have become redeemable and in respect to which no such distinction is made.' Mr. Justice MILLER then added: 'We have not quoted the language from the opinion in that case with any view of affirming it. It may admit of grave doubt whether such bonds, redeemable but not payable at a certain day, except at the option of the government, do become overdue in the sense of being dishonored if not paid or redeemed on that day. But the notes in the case before us have no such feature. They are absolutely payable at a certain time, and we think the case is authority for holding that such an obligation, overdue, ceases to be negotiable in the sense which frees the transaction from all inquiry into the rights of antecedent holders. This ground is sufficient of itself to justify the decree in favor of the express company.'

It is apparent that the original decision of the court in reference to the Texas indemnity bonds in Texas v. White, 7 Wall. 700, has been questioned and limited in important particulars in the subsequent cases involving the same questions. The position there taken, that the legislature of Texas, while the state was owner of the bonds, could limit their negotiability by an act of legislation, of which all subsequent purchasers were charged with notice, although though the bonds on their face were payable to bearer, must be regarded as overruled. And the further position, that negotiable government securities, redeemable at the pleasure of the government after a specified day, but in which no date is fixed for final payment, cease to be negotiable as overdue after the day named when they first become redeemable, must be regarded as limited to cases where the title of the purchaser is acquired with notice of the defect of title, or under circumstances which discredit the instrument, such as would affect the title to negotiable paper payable on demand, when purchased after an unreasonable length of time from the date of issue. In addition to this, the opinion of Chief Justice CHASE in the first case expressly excepts from the rule of the decision, out of the class of overdue obligations to which it is applied, those in which 'a distinction between redeemability and payability is made by law, and shown on the face of the bonds,'-an exception which embraces and defines the very bonds now in question; for, by law, as well as by the terms of the obligation, they were redeemable at the pleasure of the government after the first day of July, 1870, but were payable, finally and unconditionally, on the first day of July, 1885, and the interest coupons attached covered the whole period until the date of ultimate payment. So that, in no aspect, and the cases cited by considered as governing the present, unless, indeed, the implications from them may be treated as furnishing the rule whi h determines that, at the time when the title of the claimants in these cases, adjudged invalid, accrued, these bonds were not overdue.

The single question in the present cases is whether the bonds in controversy were overdue at the time of the purchase by those who claim title against the Manhattan Savings Institution. That question must be resolved by a proper construction of the contract contained in the bonds themselves, assuming it to be still open, so far as effected by previous judicial decisions; and, in construing the contract, it must be conceded that the obligations of the government in this form are governed by the rules of the law-merchant regulating negotiable securities, modified only, if at all, by the laws of the United States, under the authority of which they were created and put in circulation; and of those laws, and of whatever was lawfully done or declared by the government or its officers in pursuance of them, it is also to be admitted, every holder must be conclusively presumed to have had knowledge. On their face, these bonds are payable on the first day of July, 1885, and are redeemable at the pleasure of the United States after the first day of July, 1870. This was in conformity to the act of March 3, 1865, (13 St. 468,) under which they were issued, which expressly authorized that they might be made payable at any period not more than 40 years from date of issue, or that they might be made redeemable at the pleasure of the government at or after any period, not less than 5 nor more than 40 years from date, or might be made both redeemable and payable, as aforesaid, as should be expressed upon their face. They were, accordingly, made both redeemable and payable as was expressed upon their face. The pleasure of the government to redeem them, or any part of them, of course, could only be declared by law. Provision to this effect was made by the act of July 14, 1870, which provided the means for actual redemption by the sale or exchange of the bonds which it authorized the secretary of the treasury to issue, and required him to designate by public notice from time to time, by class, date, and number, in the order of their numbers and issue, the particular bonds to be redeemed by payment and cancellation. And the effect, as to all bonds called for redemption and not sooner presented, was declared to be that, 'in three months after the date of such public notice, the interest on the bonds so selected and advertised shall cease.'

It may be admitted, for the sake of the argument,-although the proposition cannot be considered indisputable,-that, after the maturity of a call for the redemption of designated bonds, the obligation of the government to pay them thereby became fixed and irrevocable, so that thereafter, on demand and refusal of payment, and action would accrue to the holder for the recovery of the principal and accrued interest, the court of claims having jurisdiction in such cases. In that view, preserving the distinction expressly made by the law between redeemability and payability, the bond becomes, after the maturity of a call for redemption, payable at the option of the holder on demand, but without future interest, at any time prior to the day fixed for ultimate payment, when it becomes unconditionally due. The construction which, after the maturity of such a call, reads the contract as if the day when interest is to cease had been originally inserted as the day of of ultimate payment, confounds and obliterates the express distinction made in the law itself between redeemability and payability, and rewrites the contract upon a different basis. The legal effect of the call undoubtedly is to entitle the holder to demand payment at its maturity, and, even though not demanded, to exonerate the government from liability for interest accruing after that date; but, consistently with the terms of the statutes, and the obvious purposes in view, in the original creation and issue of the securities in the form adopted, it cannot be that the legal effect of such a call for the purpose of redemption is the same as if the bond had been originally framed as an obligation to pay absolutely on a day previously fixed.

The acts of congress, under which these and similar bonds of the United States were authorized and issued, do not in terms attach to them the legal quality of negotiable securities; but they are such in form and fact, and obviously for the purpose of giving them the highest credit and the widest and most unfettered currency by passing, by delivery, with a title unimpeachable in the hands of bona fide purchasers for value. In the form in which those now in question were issued, until a call for their redemption was advertised, they were not due upon their face until the day fixed for final payment; and the right reserved to the government, at its option, to anticipate the payment cannot be construed as affecting the contract injuriously to the holder any further than the law declaring it, either expressly or by necessary implication, requires. That law gives to the holder three months after the date of the call for redemption within which to present his bonds for payment or exchange, with interest to the date of redemption; but the only penalty it prescribes, if the holder chooses to retain his original security, is the loss of future interest. In no other respect does it alter the original contract. It seeks to impose upon it no other disability, nor take from it any other immunity. It stands, therefore, upon its statutory basis as a bond redeemable at the treasury on demand, without interest after the maturity of the call, payable according to its original terms, and not overdue, in the commercial sense, till after the day of unconditional payment. If the obligation had been originally written in that form-a promise to pay absolutely on the first day of July, 1885, with interest according to coupons attached, but redeemable at the treasury at and after July 1, 1870, interest to cease three months thereafter if not presented for redemption within that period-it would have expressed in advance the exact contract as it became by the exercise of the reserved option of redemption; and in that form it seems to us quite plain that it could not be considered an overdue obligation, in the sense in which that term is applied to ordinary commercial paper, until after the limit fixed for final payment had been passed.

The title of the purchaser of overdue negotiable paper, such as a bill of exchange or a promissory note, stands on the same footing as if it had been dishonored by a refusal to accept or pay, and had been put under protest. When transferred after it has become due, although not reduced to the rank of an ordinary chose in action, the legal title to which cannot pass by assignment or delivery, it carries on its face the presumption which discredits it, and deprives it of that immunity which, while the time for payment was still running, was secured to it in favor of a bona fide purchaser for value without actual notice of any defect, either in the obligation or the title. This was put by Mr. Justice BULLER, in Brown v. Davies, 3 Term R. 80, on the ground that to take an overdue note or bill was 'out of the common course of dealing.' Ordinarily a note or bill when due becomes functus officio, because it was made to be paid at maturity, and if it fails of its intended operation and effect, the presumption is that it is owing to some defect, which has furnished a sufficient reason to the party apparently chargeable for not having punctually performed his obligation. In the strong language of Lord ELLENBOROUGH in Tinson v. Francis, 1 Camp. 19, 'after a bill or note is due it comes disgraced to the indorsee.' No such presumption, in our opinion, arises to affect the title of a holder of the bonds of the United States, such as those now in question, acquired by a bona fide purchaser for value prior to the date fixed in the bonds themselves for their ul imate payment; for, as we have already shown, the only change in the original effect of the contract by the exercise of the right of earlier redemption is to stop the obligation to pay future interest. And as against one choosing for any purpose of his own to retain his bond as a continuing security for the value it always represents, having impressed upon it by the law of its creation the faculty of passing from hand to hand as money, and therefore just as useful in the pursuits of trade and the exchanges of commerce and banking as so much money in the form of coin or bank-notes, and more convenient because more portable, no such presumption can be entertained on the ground that its continued circulation is not in the due course of business, that it has fully performed all its intended functions, and that it has been, in any sense, dishonored by a refusal on the part of the obligor to fulfill its obligation. On the contrary, supposing the purchaser bound to know, what in fact does not appear on its face, that the bond has been called for redemption under penalty of a stoppage of interest after three months, the very notice, which it is said discredits his title, is in fact an advertisement, not that the maker has any ground to refuse payment, but that the previous holder preferred to hold the security for the money rather than to accept the money which it represents.

As we have seen, the true effect to be given to the exercise of the right of redemption within the period of absolute payment, is to make the bonds payable during that interval, on demand, but without interest after three months from the maturity of the call. But the rule as to ordinary negotiable paper, payable on demand, is that it is not due, without demand, until after the lapse of a reasonable time within which to make demand; and what the length of that reasonable time is, may vary according to the circumstances of particular cases, and must be governed very largely by the intentions of the parties, as manifested in the character of the paper itself, and the purposes for which it is known to have been created and put in circulation. It was said by Baron PARKE, in Brooks v. Mitchell, 9 Mees. & W. 15, that 'a promissory note, payable on demand, is intended to be a continuing security.' And in Losee v. Dunkin, 7 Johns. 70, it is said: 'The demand must be made in reasonable time, and that will depend upon the circumstances of the case and the situation of the parties.' In reference to the bonds involved in this litigation, we have no hesitation in saying that, at the time the title of the purchasers was acquired, no unreasonable length of time had elapsed after the maturity of the call. On the contrary, we think any holder had a right, without prejudice, except as to loss of interest, to wait without demand for the whole period, at the expiration of which the bond was unconditionally payable.

The fact that interest was to cease to accrue three months after the date of call had no tendency to discredit the bonds or affect the title of a bona fide purchaser for value in the due course of trade. While it has been held that a note, the principal of which is payable by installments, is overdue when the first installment is overdue and unpaid, and is thereby subject to all equities between the original parties, (Vinton v. King, 4 Allen, 562,) yet it is said by the supreme judicial court of Massachusetts in National Bank of N. A. v. Kirby, 108 Mass. 497-501: 'We are referred to no case in which it has been held that failure to pay interest, standing alone, is to be regarded sufficient in law to throw such discredit upon the principal security upon which it is due, as to subject the holder to the full extent of the security to antecedent equities.' 'To hold otherwise,' said this court, in Cromwell v. County of Sac, 96 U.S. 51-58, 'would throw discredit upon a large class of securities issued by municipal and private corporations having years to run, with interest payable annually or semi-annually.' And the doctrine was reaffirmed in Railway Co. v. Sprague, 103 U.S. 756. These were cases where non-payment of interest was in breach of the contract, and constituted a default. It is much stronger in its application here, where the obligation to pay interest ceases because that is the contract, to which the holder of the bond has consented and to which he submits, because he prefers to hold a security, although not bearing interest, rather than to surrender it at once.

But an adequate and complete view of the nature and function of the right of redemption reserved in these bonds, and of its intended effect upon the rights of the parties under the contract, cannot be had without considering it in its actual operation and execution. The clause which makes the bonds redeemable was not a casual provision occurring in a single obligation, but was an effective and significant instrument in a series of great financial transactions. The five-twenty bonds issued under the acts of March 3, 1865, (13 St. 668,) and April 12, 1866, (14 St. 31,) as we are informed by public official documents, amounted to $958,483,550, nearly a thousand millions of dollars.

On March 1, 1871, the nearest date prior to the commencement of operations under the refunding act of 1870, the following amounts of 6 per cent. five-twenty bonds were outstanding:

Five-twenties of 1862,........ $493,738,

Five-twenties of March, 1864,.... 3,102,

Five-twenties of June, 1864,... 102,028,

(Five-twenties of 1865,. 182,112,

Act March 3, (Consols of 1865,. 264,619,

(Consols of 1868,. 39,663,

'(The National Loans of the United States,' by Bailey, Washington, 1882, p. 94.)

Of these, large amounts were held abroad by investors in foreign countries, and had been dealt in by bankers in the principal money centers of the world. It was expected and desired by congress that this should be so, as the secretary of the treasury had been expressly authorized by law to dispose of any of the bonds of the United States, 'either in the United States or elsewhere.' Act March 3, 1865, § 2. And under the refunding act of July 14, 1870, as we have already seen, the secretary of the treasury established an agency in London for the purpose of delivering the bonds sold under that act, and receiving in exchange therefor the outstanding securities of the United States agreed to be received in payment therefor. The object of this great exchange was to reduce the annual interest on the public debt of the United States from 6 to the lower rates of 5, 4 1/2, and 4 per cent. To have called in the redeemable debt and paid for it in gold coin, and to have obtained the gold coin for that purpose by sales of the new securities, would have been awkward, circuitous, and impracticable, involving the needless export and import of a mass of the gold coin distributed by the necessities of the world's commerce throughout its markets, the attempt to do which would have produced disturbances of market values, certain to have defeated it. Any transfer of specie, in large amounts, to meet balances occasioned by these operations, would have been almost as serious in its effects, and was, therefore, by every consideration of public and private interests, to be avoided. The difficult practical question was, how to avoid it,-how to substitute in the markets of the world one loan for the other by an exchange of securities without any serious and disturbing movement of coin. Congress had placed it within the power of the secretary of the treasury to accomplish this by authorizing him to receive the five-twenty bonds, to be redeemed in exchange at par for the bonds to be issued at a lower rate of interest. This he was enabled to do by calling in the five-twenty bonds for redemption, by which they were made equal in value as money to par and in erest then due, and by agreeing to treat and receive them as money in the exchange. This created a demand for the 'called bonds' to be used for that purpose, and they were bought from the holders by bankers and agents of the syndicates who had contracted to place the new loans under the act of 1870. This transaction could only have been successfully effected upon the assumption that the call for redemption did not affect the negotiable quality of the bonds, nor impose upon them any disability, except the cessation of interest after the maturity of the call, nor deprive them of any other immunity which had previously belonged to them.

On the contrary, it must have been within the contemplation of the treasury department, and of those with whom it was dealing, that the 'called bonds,' until finally absorbed by payments into the treasury in exchange for new bonds, which constituted the fact of redemption, were equivalent, in all legal qualities, to money itself, or to those usual equivalents of money which circulate, without question, as such, like treasury notes, payable on demand. And this view, we have already seen, the parties were authorized and justified in adopting by the language and purposes of the statutes under which the transactions were accomplished. By this means an enormous public debt was shifted and converted, so as largely to reduce the burden of its interest; the agents of the government were facilitated in the great work they had undertaken; the individual holders of the securities of the United States, scattered throughout the countries of Europe, received the money due them on the bonds for which they subscribed, at their own domiciles; and this series of great financial operations was successfully accomplished without interference with the usual course of the business of the world, without disturbing the fixed distribution of currency which commerce had apportioned to its appropriate markets, and without unsettling the value of property or labor, either at home or abroad. These benefical results were greatly facilitated, if not made feasible, by the unquestioned negotiability of the called bonds, which, when subjected to the right of redemption reserved by their terms, were thereafter considered and treated as the equivalent of money. This could not have been if the principles which protect bona fide purchasers for value, in the due course of trade, without actual notice of a defect in the obligation or title, had not been practically adopted. The practice, as found to have existed, was, in our opinion, well warranted by law. This confidence was invited by the convenience of the government itself, and certainly promoted its interests and advanced its purposes. The practice it engendered, on the part of the public dealing in its securities, had been expressly sanctioned by formal recognition and approval by the treasury department long prior to the negotiation of the war loans, which commenced in 1862. In 1860 Atty. Gen. Black officially advised the secretary of the treasury (9 Op. 413) that treasury notes, redeemable after one year from date, interest thereon to cease at the expiration thereafter of 60 days' notice of readiness to pay and redeem the same, were intended to be a continuing security, and to pass by delivery, after the period of redemption equally as before, as money or banknotes, not liable to any equities between the original or intermediate parties.

It was, by force of such a custom, declared by Lord SELBORNE 'to be the legitimate, natural, and intended consequence (unless there should be any law to prohibit it) of that representation and engagement which appears on the face of the scrip itself, when construed according to the obvious import of its terms,' that in the case of Goodwin Robarts, first in the exchequer chamber (L. R. 10 Exch. 337) and afterwards in the house of lords, (1 App. Cas 476,) an instrument, payable to bearer in the bonds of a foreign government, was held to be negotiable by delivery, on the ground t at, 'after those payments had been made and receipts for them signed, the scrip was as much a symbol of money due and as capable of passing current upon the principle explained in the authorities, with respect to bank-notes and exchequer bills, as the bonds themselves would have been if they had been actually delivered in exchange for it.' 1 App. Cas. 497.

We are, therefore, of opinion that the title of J. S. Morgan & Co., and of L. Von Hoffman & Co., respectively, to the bonds claimed by them, ought to have prevailed against that set up by the Manhattan Savings Institution; and, for error in not so holding, the several judgments of the court of claims in these cases are reversed, and the causes are remanded to that court, with directions to render judgments in accordance with this opinion; and it is so ordered.

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