Sutro v. Rhodes

McFarland, J. An act of the legislature was passed March 25, 1868, entitled “An act in relation to the funded indebtedness of Calaveras County, and to provide for the funding of unpaid claims against said county.” By this act, fund commissioners were created, and the board of supervisors were authorized to have prepared, executed, and issued bonds of the county in — 122 — denominations of one hundred dollars and five hundred dollars, but “ not to exceed in all one hundred and fifteen thousand dollars.” The bonds were to be signed and sealed in a certain prescribed manner; were to mature and bear interest (with interest coupons attached), as specially provided in the act; and a record of the number, date, and amount of each bond issued was to be entered upon the journal of the board. They were negotiable in form, being payable to a party named, or holder. Under this act, bonds were executed and issued in form as provided therein, to the amount of the said one hundred and fifteen thousand dollars; and after-wards additional bonds, similar in form to the first ones, and executed in the same manner, were issued to the amount of about forty thousand dollars in excess of said one hundred and fifteen thousand dollars. Nine of these latter “overissued” bonds, each of the par value of five hundred dollars, were sold by defendant to plaintiffs on July 18,1888, for $4,675; and plaintiffs bring this action to recover said last-mentioned sum of money. The court below rendered judgment for defendant, and plaintiffs appeal from the judgment, and from an order denying a new trial. It is averred in the complaint that at the time of the sale defendant “falsely and fraudulently represented and warranted to plaintiffs that said pretended bonds were good, valid, and legal,” and that such representation was made “ for the express purpose of cheating and defrauding them”; and that the bonds were not good, valid, and legal bonds of Calaveras County, but were entirely worthless; and that these facts were known to defendant and unknown to plaintiffs. It is further averred that “as soon as plaintiffs ascertained” the worthless character of said bonds they tendered them to defendant, and demanded the repayment of said money, but that defendant refused to accept them or repay the money. The answer admits the sale of the bonds, but denies nearly all the other material averments of the complaint. The court found that defendant did not make any — 123 — false or fraudulent representations “as to the goodness, validity, or legality” of the bonds, and did not warrant the same, nor did he make any representations as to their value; but that he “made the sale of said bonds in good faith, without any representations whatsoever, and without warranty,” and that “ at no time did the plaintiffs act or rely upon any representations made to them by the defendant in the sale of said bonds by defendant to the plaintiffs.” The court also found, in finding 2, “ that the said bonds were not worthless, but are good, valid, and legal bonds of Calaveras County, in this state.” The said last-named finding (No. 2) is clearly erroneous. The said bonds were issued, and purport upon their face to have been issued, under said act of March 25,1868; and by said act the power to issue bonds is expressly limited to the amount of one hundred and fifteen thousand dollars. It is not necessary to discuss the question at length, or to cite authorities to the point that the bonds involved in the case at bar, being an overissue, are invalid; because the point was definitely settled in the recent case of Sutro v. Pettit, 74 Cal. 332, 5 Am. St. Rep. 442, and the question presented there cannot be distinguished from the one presented here. The said bonds sold by defendant to plaintiffs were therefore invalid as legal obligations of the county of Calaveras. But we are satisfied that the judgment should be affirmed upon the other findings, notwithstanding the said erroneous finding of the validity of said bonds. We must take the other findings of the court to be supported by the evidence. The only witnesses examined were the defendant and the plaintiff Gustav Sutro, with whom the transaction occurred. There was a difference between them as to one or two material matters; but as to those matters, it was for the trial court to determine which statement should be taken as correct. There was therefore no express warranty of the legal 'validity of the bonds. Neither was there any implied warranty. Section 1764 of the Civil Code provides that. — 124 — “ except as prescribed by this article, a mere contract of sale or agreement to sell does not imply a warranty”; and none of the other sections of the article applies to the case at bar, except section 1774. And that section not only shuts out any claim of warranty in the present case, but it seems to exclude the authorities marshaled by appellant to the point that upon some principle of law — as, for instance, failure of consideration—he ought to recover in this action. The section is as follows: “ One who sells or agrees to sell an instrument purporting to bind any one to the performance of an act thereby warrants that he has no knowledge of any facts which tend to prove it worthless, such as the insolvency of any of the parties thereto, where that is material, the extinction of its obligations, or its invalidity for any cause.” The transaction between respondent and appellant was not the assignment of a debt, as the transfer of a non-negotiable obligation is sometimes construed to be; it was the sale of an instrument within the meaning of the code, and the section just quoted is the law upon the subject. It seems to be an express declaration and warning to purchasers of such instruments that the rule of caveat emptor applies, and that they must examine for themselves, and exercise their own judgment, or take a guaranty. Outside of our code, and among the general authorities, there is, no doubt, some conflict in the decisions on the question here involved; but the weight of them, we think, supports the conclusion above stated. The supreme court of the United States so held in Otis v. Cullum, 92 U. S. 447; and it was a case precisely like the one at bar. In that case, the city of Topeka issued bonds under certain acts of the legislature, and sold them to a bank which put them upon the market and disposed of them. Afterwards the courts held that the legislature had no power to pass the acts, and that the bonds were void; and thereupon the purchasers sued the bank to recover the money paid for them, upon the ground of failure of consideration. But it was held that — 125 — “ as the bank gave no warranty, it cannot be charged with a liability it did not assume.” The court, in its opinion, says: “The plaintiffs in error got exactly what they intended to buy, and did buy. They took no guaranty. They are seeking to recover, as it were, upon one, while none exists.....Such securities throng the channels of commerce which they are made to seek, and where they find their market. They pass from hand to hand, like bank notes. The seller is liable ex delicto for bad faith; and, ex contractu, there is an implied warranty on his part that they belong to him, and that they are not forgeries. Where there is no express stipulation, there is no liability beyond this. If the buyer desires special protection, he must take a guaranty. He can dictate his own terms, and refuse to buy, unless it be given.....It would be unreasonably harsh to hold all those through whose hands such instruments may.have passed liable, according to the principles which the plaintiffs in error insist shall be applied in this case.” This is the highest authority upon the question; and we do not deem it necessary to review the many other cases cited by counsel for both parties. In the case at bar, as in Otis v. McCullvm, 92 U. S. 447, the appellants “got exactly what they intended to buy, and did buy”; that is, certain written instruments, in form negotiable, made and signed by the persons, and in the manner and under the law, as stated on their face. (They purported to have been issued under said act of March 25, 1868.) The statute provides for a public record of bonds issued under it, so that it could easily have been ascertained whether the said bonds sold were over-issued; and moreover, plaintiffs were bound to know the powers of the municipal corporation and its officers by whom the bonds were issued. (Sutro v. Pettit, 74 Cal. 332; 5 Am. St. Rep. 442; Wallace v. Mayor of San José, 29 Cal. 181; Anthony v. Jasper, 100 U. S. 697.) It appears, also, that plaintiffs yrere bankers, and dealers in “state, county, and municipal bonds of the state of California,” and had the numbers of these bonds in their — 126 — office, to which they referred. And it is found that they did not rely upon any representations made by respondent. If, therefore, appellants made any mistake as to the validity of the bonds, it was a mistake of law. Indeed, the whole question involved — that is, whether the said bonds created a legal liability against the county of Calaveras—was a question of law. Upon that question, lawyers, and judges have differed; and plaintiffs, no doubt, had erroneous views upon the subject. Judgment and order affirmed. Sharpstein, J., Harrison, J., and De Haven, J., concurred.