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municipal corporations, and cannot be heard that it was contracting by reason of any to say that he did not know what limitations other powers it possessed, but expressly enare put by statute upon the power of the acted the ordinance and made the contract councils of towns and cities.

with reference to its supposed powers, grant"The persons who contract with municipal

ed by the unconstitutional statute, and it cancorporations must. at their peril. know the not be assumed that it would have made the rights and powers of the officers of such munici contract under any other terms than the palities to make contracts and the manner in supposed powers gave it. To make the city which they must make them.” City of Prince now liable under the powers it had to conton v. Princeton Electric Light & Power Co., I tract for street improvements, other than the 166 Ky, 730, 179 S. W. 1074; Dillon on Mu

supposed powers it attempted to exercise, it nicipal Corporations, g 372.

would be necessary to show that the ordiHaving no contract with the city to make

nance and contract were such as to make the

city liable under its real powers. the improvements, the contractor cannot

[13] To determine what its real powers recover against the city upon an implied con

were, it will be necessary to construe sections tract for benefits received by the city from

3449, 3457, and subsection 7 of section 3290, his work. It has been continually held that municipal corporations are not bound,

Ky. Stats., together. When this is done, it

will be observed, according to the provisions except by express contracts, made by of

of section 3457, supra, that, before the city is ficers authorized to make the contract and in

made liable for street improvements at all, the manner prescribed by law, City of Cov

both the ordinance under which the work ington v. Hallam & Myers, 16 Ky. Law Rep.

was done and the contract must specify that 128; Floyd County v. Allen, 137 Ky. 575, 126

it was to be paid for out of the city treasury. S. W. 124, 27 L. R. A. (N. S.) 1125; City of

Neither the ordinance nor the contract conLouisville y. Parsons, 150 Ky. 420, 150 S. W.

tained any such specification. Hence the 198; City of Bowling Green v. Gaines, 123

bonds sued on are void so far as they create Ky. 562, 96 S. W. 852, 29 Ky. Law Rep. 1013;

an obligation upon the city. While the equiAllin v. Board of Education, 148 Ky. 746, 147

ties of this case greatly weigh in favor of the S. W. 920; Perry County v. Engle, 116 Ky.

appellant, and the result seems harsh, the 591, 76 S. W. 382, 25 Ky. Law Rep. 813;

setting aside of the well-established prinFloyd County v. Oswego Bridge Co., 143 Ky.

ciples of law to save him from the conse693, 137 S. W. 237; Grinstead v. Monroe

quences cannot be justified, as the evil conCounty, 156 Ky. 296, 160 S. W. 1041; Wor

1041; Wor- sequences which would flow from a contrary rell Mfg. Co. v. City of Ashland, 159 Ky. I holding would be unending. 656, 167 S. W. 922, 52 L. R. A. (N. S.) 880; The judgment is therefore affirmed. District of Highlands v. Michie, 107 S. W. 216, 32 Ky. Law Rep. 761; City of Owensboro THOMAS, J., dissents. v. Weir, 95 Ky. 159, 24 S. W. 115, 15 Ky. Law Rep. 506; Trustees of Belleview v. Hohn, 82 Ky. 1.

[12] (c) It is insisted that the city ratified CITIZENS' STATE BANK OF GREENUP v. the contract to improve the streets in the

JOHNSON COUNTY. instant case, by accepting the work as having

(Court of Appeals of Kentucky. Dec. 17, 1918.) been done according to the contract and is therefore estopped to say that the work was 1. COUNTIES 184 – Bonds "NEGOTIAILE done without a valid contract with the city. I INSTRUMENTS." The city, however, could only ratify a con Sonds issued by a county, payable at a regutract, which it had authority to make, be- lar incorporated state bank, in accordance with cause it cannot do indirectly what it had the requirements of law at that time, held “nenot authority to do directly. Hydes v. Joyes,

gotiable instruments." 4 Bush, 465, 96 Am. Dec. 311; Norton y. Shel

[Ed. Note.-For other definitions, see Words

and Phrases, First and Second Series, Negotiaby County, supra.

ble Instruments.] (d) It is insisted that the city did have authority to make the contract, under which 12


DUE COURSE-STATUTE. the improvements were made, other than

Ky. St. § 3720b, subsec. 56, declaring that, that which appeared to be contained in the

to constitute notice of infirmity, person to whom unconstitutional statute, and having exer

instrument is negotiated must have had actual cised its authority in such an irregular way knowledge of the infirmity, having been passed that the assessments provided for could not since the execution of the bond sued on, its probe enforced, and that because of its authority visions will not govern the rights of the parties, to make a contract for improvements, that unless declarative of the pre-existing law. the contract it did make was not ultra vires, 3. BILLS AND NOTES 329_STATUTES. and hence it should be made liable for the Ky. St. $ 3720b, subsec. 56, declaring that, costs. However, the city did not pretend to constitute notice of infirmity, person to whom

Om For other cases see sume topic and KEY-NUMBER in all Key-Numbered Digests and Indexes

instrument is negotiated must have had actual | any, but to preserve that which did have vaknowledge of infirmity, or of such facts that his | lidity.' taking the instrument amounted to bad faith, is

13. APPEAL AND ERROR 843(1) - MOOT declarative of the pre-existing law.

QUESTIONS. 4. BILLS AND NOTES 332-BONA FIDE PUR- An appellate court will not decide a question CHASER-"ACTUAL NOTICE."

raised by the parties, but not presented by the "Actual notice,” under Ky: St. § 3720b, sub- evidence, for its decision on such a moot quessec. 56, providing that, to constitute notice of in- tion would be only dictum. firmity, person to whom instrument is negotiated must have had actual notice, is either actual Appeal from Circuit Court Johnson knowledge of the particular infirmity or actual knowledge of facts which, if investigated, would

County. disclose the defect.

Action by the Citizens' State Bank of Green: [Ed. Note.-For other definitions, see Words up against Johnson County. From a judgand Phrases, First and Second Series, Actual ment for defendant, plaintiff appeals. ReNotice.)

versed, for new trial, with directions. 5. MUNICIPAL CORPORATIONS Om955(3)

Allan D. Cole, of Maysville, Fogg & Kirk, BONDS-EVIDENCE-Bona FIDE HOLDER.

of Paintsville, and H. W. Cole, of Mayville, Plaintiff, the purchaser of a negotiable coun

for appellant. ty bond, held not to have had any actual notice of infirmities in the instrument, which would

Vaughan & Howes, of Paintsville, for apdeprive it of rights as purchaser without notice.


THOMAS, J. In 1891 the fiscal court of Good FAITH. The same standard for measuring the good

Johnson county, by an order duly made and or bad faith of a purchaser of negotiable paper

entered upon its records, authorized the isapplies when he acts upon evidence furnished by

sual of 10 of the county's bonds, for the sum the face of the paper as when he is governed by

| of $500 each, aggregating $5,000, which was facts aliunde the paper.

done for the purpose of raising funds to

build a jail and jailer's residence. The bonds 7. TRIAL Om139(1)—DIRECTION OF VERDICT.

were duly issued, bearing 6 per cent. interWhere the evidence is such that reasonable

est, payable semiannually, and were made men would not draw different conclusions there- | from, it is the duty of the court to direct the

| payable to bearer and at the Second Nationjury accordingly.

al Bank in the city of Ashland, Ky. There

were attached to the bonds coupons represent8. MUNICIPAL CORPORATIONS 942–Bonds ing each semiannual installment of inter

- BONA FIDE PURCHASER - INFIRMITIES ON ' est for the period which the bonds were to FACE OF Bond.

run, which was 20 years from date. The A bond and coupons held not to bear upon

pon bonds were signed by the county judge of their faces sufficient evidence of alteration to

the county, and countersigned by its county apprise officers of a purchasing bank of some infirmity in the bond at the time it was purchased.

court clerk; the coupons being signed by

the latter official only. 9. BILLS AND NOTES 378 – FRAUDULENT This suit was filed by the appellant, plainALTERATION-MATERIALITY OF ALTERATION. I tiff below, Citizens' State Bank of Greenup, To defeat the rights of a holder of commer

Ky., against the county, to recover upon a cial paper in due course, a fraudulent alteration

bond which plaintiff alleges is one of the ismust be a material one.

sue above referred to, and which it claimed 10. MUNICIPAL CORPORATIONS 942–Bonds to own under a bona fide purchase made in -PURCHASER IN DUE COURSE-ALTERATIONS. due course from the then holder in the early

A bond and coupons held not to so obviously part of the year 1905. show that the numbers on them had been alter-| The answer pleaded (1) a denial that plained as to require a purchaser, in the exercise of tiff was a bona fide purchaser, or that it obgood faith, to have investigated the title of the tained the instrument sued due course; holder.

(2) non est factum; (3) r ed and cancel11. ALTERATION OF INSTRUMENTS 9MATE

lation; and (4) that the b ol sued on, if RIAL ALTERATION-MARGINAL NUMBER.

duly executed, was never issued, but after The dumber placed on a bond forms no part

execution was canceled. · Other defenses of its obligatory terms, and an alteration of it, growing out of facts arising subsequent to though fraudulent, would necessarily be imma the time plaintiff obtained the bond, and terial.

which defendant insists rendered the plain12. ALTERATION OF INSTRUMENTS Om 8 - RE

tiff a purchaser with notice, if one at all, TRACING SIGNATURE.

were relied on, but none of them is sustained To retrace the signature of the county clerk

by any testimony in the record. on a bond is not such a material alteration as True it is that plaintiff made some conwill invalidate the instrument; the purpose not tracts looking to a contemplated transfer being to give validity to a thing which never had of the bond, but according to the testimony

For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes

none of them was ever completed, so as to 6, 7, and 8 of the jail bonds as having vest the attempted transferee with full and been paid by him, and they were ordered complete title. So that, according to our view, canceled. On that same day the then sheriff the case must be determined upon the theory of the county, Samuel Stapleton, produced that plaintiff at the time of the suit occupied Nos. 3, 4, and 5 of the same issue, which the same status with reference to the paper he had paid, and they were likewise ordered that it did when it first acquired it. Appro- canceled. On the next day, December 16th, priate pleadings made up the issues, and upon an order was made to cancel 2 of the jail trial, under instructions from the court, the bonds, which the order recites had theretojury returned a verdict in favor of defend- fore been paid by W. E. Litteral, county ant, resulting in the dismissal of the peti-judge. There was also produced at the trial tion. Complaining of that judgment, plain- bond No. 9, upon which was written in red tiff prosecutes this appeal.

ink these words: Perhaps it should have been said that the “Canceled by S. P. King, October 2, 1902. J. bonds provided for the county to have the M. Price, Clerk, by C. Buckinham, D. C.” right, after five years from date of their issual, to pay and discharge them, and the There was never any order made with refprincipal defense as argued by counsel is erence to either the payment or the cancellathat this reserved right was exercised with tion of the last-mentioned bond. What we reference to the bond sued on, if indeed it have just related is all the testimony shown, was ever put in circulation after being ex either by the fiscal court record or by any ecuted, and further, that if it was never put testimony aliunde the record, concerning the in circulation it was afterwards canceled, | payment or cancellation of any of the 10 and that in either event plaintiff's trans- jail bonds referred to. It would therefore feror obtained it fraudulently from the ar- appear that the pleas of payment and canchives of the county, and in the same man-cellation were each entirely unsupported by ner removed or erased from the face of the the testimony, unless the face of the bond bond the evidence of cancellation which the itself and that of the coupons thereto attachcounty had put upon it, and with the bond in ed furnish evidence of those two defenses, this condition transferred it to the plaintiff. and this brings us to the chief contention in The disposition of the questions raised rela- | the case. tive to the manner in which plaintiff acquired! [1] It is conceded, as indeed it would have the bond will be deferred to a later part of to be, that the bond under the law as it then this opinion, since we have concluded to con existed was a negotiable instrument and comsider first some other defenses made in the mercial paper, so as to protect bona fide holdanswer.

ers in due course against latent defense. Its The defense of non est factum, which in terms fully met all of the requirements of the cludes the one that the bond was forged, | law relating to such paper, so as to make it finds no support whatever by any testimony a negotiable instrument, and it was made found in the record. On the contrary, it is payable at a regularly incorporated bank in conclusively shown that the bond sued on was this state, which was a requirement of the duly subscribed by the proper oflicers of the law at that time, and plaintiff acquired it county, with the seal of the county thereto

before its maturity. So that the first quesattached. This seems to be conceded by tion under this head is: Did plaintiff accounsel representing the county, and these quire the bond in due course and without defenses will require from us no further notice, so as to protect it against the defens. consideration.

es interposed? That all of the 10 bonds directed to be and

[2, 3] Our present statute upon the subject which were executed were also issued and (being subsection 56 of section 3720b of the

into circulation is equally established Kentucky Statutes) defines the character of by the testimony, especially by that of John notice which would deprive the holder of such P. Wells, who is shown by an order of the an instrument from being one in due course fiscal court to have been employed for the in this language: express purpose of negotiating the bonds. “To constitute notice of an infirmity in the inHe says in his testimony that all 10 of them strument, or defect in the title of the person newere given to him, and that he sold them; gotiating the same, the person to whom it is nebut he does not give the names of the pur- gotiated must have had actual knowledge of the chasers. So that this testimony at once si

infirmity or defect, or knowledge of such facts

that his action in taking the instrument amountlences the contention that the bond sued on,

ed to bad faith.” provided it was one of the 10, was not issued after being executed.

But since our present statute was passed Another uncontradicted fact appearing in subsequent to the execution of the bond sued the record is that only 9 of the 10 jail bonds on, its provisions would not govern the issued were ever taken up or paid by the rights of the parties, unless they coincided county. On December 15, 1897, one Howes, with and were declarative of the law upon the ex-sheriff of the county, produced Nos. the subject as theretofore existing.

In the English case of Gill v. Cubit, 3 B., the statute above referred to was but de& C. 446, decided in 1824, the doctrine was claratory of the common-law rule as thereannounced that, if the holder acquired the tofore existing (3 R. C. L. P. 1022), and that paper under circumstances which should unless plaintiff in this case had actual knowlhave excited the suspicions of a prudent edge of defects in the bond, or knowledge of man, he would be deprived of the benefits such facts that its action in taking the bond accruing to a holder in due course, although amounted to bad faith, it is a purchaser in he may have given full value for the paper. due course, and its right to recover cannot But the requirement that a purchaser should be defeated by any defense which the deact with prudence was 10 years later re fendant may have had against a prior holder, pudiated by the highest court of England in [4, 5] Actual notice is defined to be either the case of Crook v. Jadis, 5 B. & Ad. 909, 27 actual knowledge of the particular infirmity E. O. L. 234, in which the rule was announced in the instrument or actual knowledge of that the purchaser, to be deprived of the facts which, if investigated, would disclose rights of a bona fide holder, must be guilty the infirmity or defect, and of such nature of gross negligence, and this rule has since as not to investigate them should amount to been followed by the courts of England so bad faith, and the knowledge of facts which far as we are advised. Lord Denman, who would impose investigation may arise from was the first English judge to repudiate the matters aliunde the instrument, or from facts doctrine of the Cubit Case, in the case of appearing upon the face of it. There is no Goodman v. Harvey, 4 Ad. & El. 870, 31 pretense here that plaintiff had any actual E. C. L. 212, in speaking upon this point knowledge of any infirmity or defect in the said:

bond sued on, if there existed any, and there “I believe we are all of the opinion that gross

is a total failure of proof to show that its negligence only would not be a sufficient answer officers, at the time it purchased the bond, were the parties each given consideration for the had knowledge of any facts aliunde the bond bill. Gross negligence may be evidence of mala which would in the least impose upon them fides, but is not the same thing. We have shak the duty to investigate, even though they en off the last remnant of the contrary doctrine. were required to exercise prudence in doing Where the bill has passed to the plaintiff with

so. The purchase was made from L. B. Cauout any proof of bad faith in him, there is no objection to his title."

dill, who had the bond in his possession at

the time, with all coupons maturing prior See 4 Amer. & Eng. Ency. of Law (20 Ed.)

to that time detached, indicating--at least pp. 299-301.

to some extent-that they had been duly Some of the states, in the absence of a

discharged. Caudill's father lived in the , statute, follow the doctrine of the Cubit

town where plaintiff bank was located, and Case; but the great majority of them fol

so far as the record shows was an honorable low substantially or in a slightly modified

man, well known by the officers of the bank. form the rule announced in the Goodman

His son had been deputy sheriff of Johnson Case, as will be seen from a note to the case

county, and was introduced to the bank's of Mee v. Carlson, 29 L. R. A. (N. S.) 351,

officers. The cashier, on being offered the in which the annotator in summing up the

bond, submitted it to the bank's president; present state of the law upon the subject

it appearing upon its face to be regular, and

nothing appearing in the actions or conduct says:

of the seller indicating fraud or any charac"But the weight of authority is that circum

ter of wrongdoing, and plaintiff's officers bestances which would excite the suspicions of a

ing informed as to the genuineness of the prudent man are not sufficient to put the purchaser of a negotiable instrument on inquiry."

bond, etc., it was finally concluded by them

to purchase it, which was done, the seller inTo the same effect is the text, as well as

dorsing his name upon the back thereof.

There certainly can be found nothing in this the cases in the notes supporting it, in 8 Corpus Juris, pp. 500-503. This court in the

transaction to indicate either remotely or case of Woolfolk v. Bank of America, 10

indirectly anything smacking of actual noBush, 504, announced the same rule, saying:

tice, so as to convert the transaction into

one of bad faith on the part of the bank. "Neither want of ordinary care nor gross neg

[6-8] This leaves for consideration the conligence will divest the holder of his title, and he must be allowed to recover, unless he obtains the

tention made by counsel for the county that paper mala fides."

the bond and the coupons bear upon their fac

es sufficient evidence of alterations, erasSee, also, 3 R. C. L. pp. 1071-1073.

ures, and interlineations as to apprise the The term "mala fides," as applied to con

officers of the bank of some infirmity in the duct of the purchaser of negotiable paper bond at the time it was purchased, and to before its maturity, as used by the court in make their action in purchasing the bond one that opinion, may be considered, as indeed of bad faith, and in support of this contenit is, synonymous with "bad faith," as used tion the bond and the attached coupons, in the statute. We therefore conclude that which were filed with the petition as an ex

hibit, were introduced upon the trial and Whether we adopt the rule that this issue have been brought here for our inspection, as thus presented is one of law, and to be

At the outset it may be said that the same determined by the court, or one of fact, and standard of measuring the good or bad faith to be determined by a jury, we are forced to of the purchaser applies when he acts upon the conclusion that the appearance of neievidence furnished by the face of the paper ther the bond nor the coupons furnishes as when he is governed by facts aliunde sufficient evidence to submit the issue to the the paper. In each instance, as we have jury, and, no other reason interfering, the seen, his conduct must be of such a nature court should have sustained plaintiff's moas to make his act in taking the instrument tion for a directed verdict in its favor. one of bad faith. Blakey v. Johnson, 13 (9, 10] But at this point it is urged that Bush, 197, 26 Am. Rep. 254, and Woolfolk an inspection of the bond and coupons shows v. Bank of America, supra.

that the numbers on them have been altered, In 8 Corpus Juris, pp. 496, 1063, it is stat- that the signature of the county court clerk ed that, when the facts are to be determined to the coupons has been retraced, and that from the face of the instrument, the issue these alleged fraudulent acts not only vitipresents a question of law for the determina ate the paper, but were sufficiently plain to tion of the court; the text on the last page have been detected by the officers of the referred to saying:

bank, and to have required them to investi

gate the title of the holder from whom they "And where the question is whether notice is imputable from the face of the instrument itself,

purchased it. In the first place, we cannot the question is one of law for the court."

agree with counsel that an inspection of the bond and coupons reveals evidence of alter

ations in the respects complained of; espeThis excerpt is supported by cases from a

cially are they not discernible by an ordinumber of courts, including some from the

narily casual inspection, although it might Supreme Court of the United States.

be admitted that by a close and minute in. But, whether we adopt this rule or not, the

spection, upon attention first being called to further rule prevails with this and all courts

the fact, some slight evidences of the matters that, if the evidence be such as that reasona

complained of are discoverable. But we are ble men would not draw different conclusions

convinced that, without special attention therefrom, it is the duty of the court to di- being called to the fact, and without very rect the jury accordingly. This rule has been close and minute inspection, the discovery so frequently announced by this court as not would not be made, by any ordinarily pruto need substantiation by a citation of cases. dent man. But, however this may be, a

Every member of this court has closely and fraudulent alteration, in order to defeat the painstakingly examined the face of the bond rights of a holder of commercial paper in sued on, as well as the coupons, and we fail due course, must, among other essentials, to discover anything therein which would be be a material one. & Corpus Juris, 728; calculated to arouse the suspicions of any Terry v. Hazlewood, 1 Duv. 104; Sinith v. ordinarily prudent man in purchasing it. Lockridge, 8 Bush, 423; Tranter v. Hibberd, True it is that on the face of the bond there / 108 Ky, 265, 56 S. W. 169, 21 Ky. Law Rep. appear some very faint and indistinct traces | 1710; Lisle v. Rogers, 18 B. Mon. 528; Duof some reddish substance in a few spots | ker v. Franz. 7 Bush. 275. 3. Am Ren. 314. here and there, but nothing to indicate how ! [11] The number placed upon the paper or for what purpose this condition was forms no part of its obligatory terms. It is brought about or produced, much less that it only for purposes of convenience or designawas the result of any fraudulent act. The tion, and an alteration of it, although fraudcoupons are practically in the same condition, ulent, would necessarily be an immaterial except that the coloring of the spots there one; hence we find in 2 Corpus Juris, 1206, on is, if anything, slightly more apparent than this statement of the law upon the subject: it is upon the bond itself. In either case

“The change of the serial numbers on negotithe coloring would scarcely be noticeable un

able bonds or bank bills is not material, as such less specific attention were called to it, and

numbers are extrinsic to the contract, and a not then, except by a close inspection. Blak-change in them cannot affect the liability which ey V. Johnson, 13 Bush, 197, 26 Am. Rep. the instrument represents." 254, and Woolfolk v. Bank of America, supra. It is defendant's theory that these | Among the cases supportir the text are faded and almost invisible marks are the re- the following: Wylie v. Mo. Pac. R. R. Co. mains of a cancellation which was written (C. C.) 41 Fed. 623; Morgan v. United States, upon the bond and coupons and fraudulent- | 113 U. S. 476, 5 Sup. Ct. 588, 28 L. Ed. 1044 ; ly erased by some holder prior to plaintiff. State v. Cobb, 64 Ala, 127; Commonwealth This could be urged with more force, and v. Emigrant Industrial Savings Bank, 98 with the assurance of more serious consider- | Mass. 12, 93 Am. Dec. 126; Elizabeth v. ation, if there were evidence in the record Force, 29 N. J. Eq. 587; Birdsall v. Rus. that the bond had been paid or canceled. sell, 29 N. Y. 220; Tennessee Bank Note

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