municipal corporations, and cannot be heard to say that he did not know what limitations are put by statute upon the power of the councils of towns and cities.

"The persons who contract with municipal corporations must, at their peril, know the rights and powers of the officers of such municipalities to make contracts and the manner in which they must make them." City of Princeton v. Princeton Electric Light & Power Co., 166 Ky. 730, 179 S. W. 1074; Dillon on Municipal Corporations, § 372.

Having no contract with the city to make the improvements, the contractor cannot recover against the city upon an implied contract for benefits received by the city from his work. It has been continually held

that municipal corporations are not bound, except by express contracts, made by officers authorized to make the contract and in the manner prescribed by law. City of Covington v. Hallam & Myers, 16 Ky. Law Rep. 128; Floyd County v. Allen, 137 Ky. 575, 126 S. W. 124, 27 L. R. A. (N. S.) 1125; City of Louisville v. Parsons, 150 Ky. 420, 150 S. W. 498; City of Bowling Green v. Gaines, 123 Ky. 562, 96 S. W. 852, 29 Ky. Law Rep. 1013; Allin v. Board of Education, 148 Ky. 746, 147 S. W. 920; Perry County v. Engle, 116 Ky. 594, 76 S. W. 382, 25 Ky. Law Rep. 813; Floyd County v. Oswego Bridge Co., 143 Ky. 693, 137 S. W. 237; Grinstead v. Monroe County, 156 Ky. 296, 160 S. W. 1041; Worrell Mfg. Co. v. City of Ashland, 159 Ky. 656, 167 S. W. 922, 52 L. R. A. (N. S.) 880; District of Highlands v. Michie, 107 S. W. 216, 32 Ky. Law Rep. 761; City of Owensboro 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 the contract to improve the streets in the instant case, by accepting the work as having been done according to the contract and is therefore estopped to say that the work was done without a valid contract with the city. The city, however, could only ratify a contract, which it had authority to make, because it cannot do indirectly what it had not authority to do directly. Hydes v. Joyes, 4 Bush, 465, 96 Am. Dec. 311; Norton v. Shelby County, supra.

that it was contracting by reason of any other powers it possessed, but expressly enacted the ordinance and made the contract with reference to its supposed powers, granted by the unconstitutional statute, and it cannot be assumed that it would have made the contract under any other terms than the supposed powers gave it. To make the city now liable under the powers it had to contract for street improvements, other than the supposed powers it attempted to exercise, it would be necessary to show that the ordinance and contract were such as to make the city liable under its real powers.

[13] To determine what its real powers were, it will be necessary to construe sections 3449, 3457, and subsection 7 of section 3290, Ky. Stats., together. When this is done, it

will be observed, according to the provisions of section 3457, supra, that, before the city is made liable for street improvements at all, both the ordinance under which the work was done and the contract must specify that it was to be paid for out of the city treasury. Neither the ordinance nor the contract contained any such specification. Hence the bonds sued on are void so far as they create ties of this case greatly weigh in favor of the an obligation upon the city. While the equiappellant, and the result seems harsh, the setting aside of the well-established principles of law to save him from the consequences cannot be justified, as the evil consequences which would flow from a contrary holding would be unending.

The judgment is therefore affirmed.
THOMAS, J., dissents.

CITIZENS' STATE BANK OF GREENUP v. JOHNSON COUNTY.

(Court of Appeals of Kentucky. Dec. 17, 1918.) 1. COUNTIES 184 - BONDS - "NEGOTIABLE INSTRUMENTS."

Bonds issued by a county, payable at a regular incorporated state bank, in accordance with the requirements of law at that time, held "negotiable instruments."

and Phrases, First and Second Series, Negotia[Ed. Note.-For other definitions, see Words

ble Instruments.]

2. BILLS AND NOTES

DUE COURSE-STATUTE.

329-PURCHASERS IN

to constitute notice of infirmity, person to whom Ky. St. § 3720b, subsec. 56, declaring that, instrument is negotiated must have had actual knowledge of the infirmity, having been passed since the execution of the bond sued on, its provisions will not govern the rights of the parties, unless declarative of the pre-existing law. 3. BILLS AND NOTES 329-STATUTES.

none of them was ever completed, so as to vest the attempted transferee with full and complete title. So that, according to our view, the case must be determined upon the theory that plaintiff at the time of the suit occupied the same status with reference to the paper that it did when it first acquired it. Appropriate pleadings made up the issues, and upon trial, under instructions from the court, the jury returned a verdict in favor of defendant, resulting in the dismissal of the petition. Complaining of that judgment, plaintiff prosecutes this appeal.

Perhaps it should have been said that the bonds provided for the county to have the right, after five years from date of their issual, to pay and discharge them, and the principal defense as argued by counsel is that this reserved right was exercised with reference to the bond sued on, if indeed it was ever put in circulation after being executed, and further, that if it was never put in circulation it was afterwards canceled, and that in either event plaintiff's transferor obtained it fraudulently from the archives of the county, and in the same manner removed or erased from the face of the bond the evidence of cancellation which the county had put upon it, and with the bond in this condition transferred it to the plaintiff. The disposition of the questions raised relative to the manner in which plaintiff acquired the bond will be deferred to a later part of this opinion, since we have concluded to consider first some other defenses made in the

answer.

The defense of non est factum, which includes the one that the bond was forged, finds no support whatever by any testimony found in the record. On the contrary, it is conclusively shown that the bond sued on was duly subscribed by the proper officers of the county, with the seal of the county thereto attached. This seems to be conceded by counsel representing the county, and these defenses will require from us no further consideration.

That all of the 10 bonds directed to be and which were executed were also issued and put into circulation is equally established by the testimony, especially by that of John P. Wells, who is shown by an order of the fiscal court to have been employed for the express purpose of negotiating the bonds. He says in his testimony that all 10 of them were given to him, and that he sold them; but he does not give the names of the purchasers. So that this testimony at once silences the contention that the bond sued on, provided it was one of the 10, was not issued after being executed.

Another uncontradicted fact appearing in the record is that only 9 of the 10 jail bonds issued were ever taken up or paid by the county. On December 15, 1897, one Howes, the ex-sheriff of the county, produced Nos.

6, 7, and 8 of the jail bonds as having been paid by him, and they were ordered canceled. On that same day the then sheriff of the county, Samuel Stapleton, produced Nos. 3, 4, and 5 of the same issue, which he had paid, and they were likewise ordered canceled. On the next day, December 16th, an order was made to cancel 2 of the jail bonds, which the order recites had theretofore been paid by W. E. Litteral, county judge. There was also produced at the trial bond No. 9, upon which was written in red ink these words:

"Canceled by S. P. King, October 2, 1902. J. M. Price, Clerk, by C. Buckinham, D. C."

There was never any order made with reference to either the payment or the cancellation of the last-mentioned bond. What we have just related is all the testimony shown, either by the fiscal court record or by any testimony aliunde the record, concerning the payment or cancellation of any of the 10 jail bonds referred to. It would therefore appear that the pleas of payment and cancellation were each entirely unsupported by the testimony, unless the face of the bond itself and that of the coupons thereto attached furnish evidence of those two defenses, and this brings us to the chief contention in the case.

[1] It is conceded, as indeed it would have to be, that the bond under the law as it then existed was a negotiable instrument and commercial paper, so as to protect bona fide holders in due course against latent defense. Its terms fully met all of the requirements of the law relating to such paper, so as to make it a negotiable instrument, and it was made payable at a regularly incorporated bank in this state, which was a requirement of the law at that time, and plaintiff acquired it before its maturity. So that the first question under this head is: Did plaintiff acquire the bond in due course and without notice, so as to protect it against the defenses interposed?

[2, 3] Our present statute upon the subject (being subsection 56 of section 3720b of the Kentucky Statutes) defines the character of notice which would deprive the holder of such an instrument from being one in due course in this language:

"To constitute notice of an infirmity in the instrument, or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the that his action in taking the instrument amountinfirmity or defect, or knowledge of such facts ed to bad faith."

But since our present statute was passed subsequent to the execution of the bond sued on, its provisions would not govern the rights of the parties, unless they coincided with and were declarative of the law upon the subject as theretofore existing.

In the English case of Gill v. Cubit, 3 B. & C. 446, decided in 1824, the doctrine was announced that, if the holder acquired the paper under circumstances which should have excited the suspicions of a prudent man, he would be deprived of the benefits accruing to a holder in due course, although he may have given full value for the paper. But the requirement that a purchaser should act with prudence was 10 years later repudiated by the highest court of England in the case of Crook v. Jadis, 5 B. & Ad. 909, 27 E. C. L. 234, in which the rule was announced that the purchaser, to be deprived of the rights of a bona fide holder, must be guilty of gross negligence, and this rule has since been followed by the courts of England so far as we are advised. Lord Denman, who was the first English judge to repudiate the doctrine of the Cubit Case, in the case of Goodman v. Harvey, 4 Ad. & El. 870, 31 E. C. L. 212, in speaking upon this point said:

"I believe we are all of the opinion that gross negligence only would not be a sufficient answer were the parties each given consideration for the bill. Gross negligence may be evidence of mala fides, but is not the same thing. We have shaken off the last remnant of the contrary doctrine. Where the bill has passed to the plaintiff without any proof of bad faith in him, there is no objection to his title."

the statute above referred to was but declaratory of the common-law rule as theretofore existing (3 R. C. L. p. 1022), and that unless plaintiff in this case had actual knowledge of defects in the bond, or knowledge of such facts that its action in taking the bond amounted to bad faith, it is a purchaser in due course, and its right to recover cannot be defeated by any defense which the defendant may have had against a prior holder. [4, 5] Actual notice is defined to be either actual knowledge of the particular infirmity in the instrument or actual knowledge of facts which, if investigated, would disclose the infirmity or defect, and of such nature as not to investigate them should amount to bad faith, and the knowledge of facts which would impose investigation may arise from matters aliunde the instrument, or from facts appearing upon the face of it. There is no pretense here that plaintiff had any actual knowledge of any infirmity or defect in the bond sued on, if there existed any, and there is a total failure of proof to show that its officers, at the time it purchased the bond, had knowledge of any facts aliunde the bond which would in the least impose upon them the duty to investigate, even though they were required to exercise prudence in doing dill, who had the bond in his possession at so. The purchase was made from L. B. Cauthe time, with all coupons maturing prior

Some of the states, in the absence of a statute, follow the doctrine of the Cubit Case; but the great majority of them follow substantially or in a slightly modified form the rule announced in the Goodman Case, as will be seen from a note to the case of Mee v. Carlson, 29 L. R. A. (N. S.) 351, in which the annotator in summing up the present state of the law upon the subject

says:

to some extent-that they had been duly discharged. Caudill's father lived in the town where plaintiff bank was located, and so far as the record shows was an honorable man, well known by the officers of the bank. His son had been deputy sheriff of Johnson county, and was introduced to the bank's officers. The cashier, on being offered the bond, submitted it to the bank's president; it appearing upon its face to be regular, and nothing appearing in the actions or conduct of the seller indicating fraud or any characof wrongdoing, and plaintiff's officers being informed as to the genuineness of the bond, etc., it was finally concluded by them to purchase it, which was done, the seller indorsing his name upon the back thereof. There certainly can be found nothing in this transaction to indicate either remotely or indirectly anything smacking of actual notice, so as to convert the transaction into one of bad faith on the part of the bank.

To the same effect is the text, as well as the cases in the notes supporting it, in 8 Corpus Juris, pp. 500-503. This court in the case of Woolfolk v. Bank of America, 10 Bush, 504, announced the same rule, saying: "Neither want of ordinary care nor gross negligence will divest the holder of his title, and he must be allowed to recover, unless he obtains the paper mala fides."

See, also, 3 R. C. L. pp. 1071-1073.

The term "mala fides," as applied to conduct of the purchaser of negotiable paper before its maturity, as used by the court in that opinion, may be considered, as indeed it is, synonymous with "bad faith," as used in the statute. We therefore conclude that

[6-8] This leaves for consideration the contention made by counsel for the county that the bond and the coupons bear upon their faces sufficient evidence of alterations, erasures, and interlineations as to apprise the officers of the bank of some infirmity in the bond at the time it was purchased, and to make their action in purchasing the bond one of bad faith, and in support of this contention the bond and the attached coupons, which were filed with the petition as an ex