Wright, J., says: "We are of the opinion | annum, on the presentation and surrender of the that the instrument wants none of the essential coupons annexed as they severally become due; requisites of a negotiable promissory note. It with a provision that in case of non-payment of was an absolute and unconditional engagement interest for six months, the whole principal of to pay money on a day fixed; and although an the bond shall become due and payable. election was given to the promisees upon a surrender of an instrument six months before its maturity, to exchange it for stock, this did not alter its character, or make the promise in the alternative, in the sense in which that word is used respecting promises to pay. The engagement of the Railroad Company was to pay the sum of $1,000 in four years from date, and its promise could only be fulfilled by the payment of the money at the day named."

Hodges v. Shuler, 22 N. Y., 114; Andrews v. Hart, 17 Wis., 297; Muhlenberg v. P. & R. R. R. Co., 47 Pa., 16; Commonwealth v. Comrs. of Alleg. Co., 37 Pa., 237.

Bad faith must be shown affirmatively, to impeach the title of the appellees.

Swift v. Tyson, 16 Pet.. 1; Goodman v. Si monds, 20 How., 364 (61 U. S., XV., 940); Seybel v. Nat. Cur. Bk., 54 N. Y., 302; Lord v. Wilkinson, 56 Barb., 593.

In the case of commercial paper, and the same rule applies to the case at bar, a bona fide purchaser gets a good title, although it may have been stolen and transferred by the thief. Turnbull v. Bowyer, 40 N. Y., 460; Hall v. Wilson, 16 Barb., 548; Steinhart v. Boker, 34 Barb., 443.

Immediately following this acknowledgment of the indebtedness of the company and its promise of payment, there is in each of these instruments a further agreement of the company to make what is termed "the scrip preferred stock" attached to the bond full paid stock at any time within ten days after any dividend shall have been declared and become payable on such preferred stock, upon surrender in the City of New York of the bonds and the unmatured interest warrants.

The several instruments also state that the bonds are parts of a series of bonds issued by the company amounting to $2,200,000, and that upon the acquisition of certain other railroads the issue of bonds may be increased in certain designated amounts; that the bonds are executed and delivered in conformity with the laws of Wisconsin, the articles of association of the company, the vote of the stockholders and resolution of the Board of Directors; and that the bearer of each bond is entitled to the security derived from a mortgage of the property and franchises of the company executed to certain designated trustees, and to the benefits to be derived from a sinking fund established by the mortgage of all such sums of money as are reIn defining what constitutes a bona fide hold-ceived from the sales of lands granted to the er, of commercial paper, and in what way it may be acquired, the Court of Appeals of the State of New York has held that "He is not bound to make inquiries, nor to act upon circumstances which would put an ordinarily careful man upon inquiry, unless they are of such a character as would impeach the honesty of the holder. Gross negligence, even, has been held insufficient to impeach this holding, when a party has given consideration for the bill.

company by the United States or the State of Wisconsin.

To each of these bonds there was originally attached, by a pin, the certificate of scrip preferred stock which is referred to in the body of the instrument. This certificate was to the effect that the complainant was entitled to ten shares of the capital stock of the company, designated as "scrip preferred stock;" and that upon the surrender of the certificate and accompanying bond and all unmatured coupons thereon at any time within ten days after any dividend should have been declared and become

See cases cited: Griggs v. Howe, 3 Keyes, 172; Birdsall v. Russell, 29 N. Y., 220; Williams v. Tilt, 36 N. Y., 319; Park Bank v. Watson, 42 N. Y., 493; Welch v. Sage, 47 N. Y., 146; Sey-payable on the full stock of the preferred stocks bel v. Nat. Cur. Bk., 54 N. Y., 294; Goodman v. Simonds, 20 How., 368 (61 U. S., XV., 942). The following rule may be deduced from the authorities: that the rights of the holder are to be determined by the simple test of honesty and good faith, and not by any speculative is sue as to his diligence or negligence.

Magee v. Badger, 34 N. Y., 247; Belmont Branch of Ohio State Bank v. Hoge, 35 N. Y., 65.

Mr. Justice Field delivered the opinion of

the court:

This was a suit to compel the defendants to surrender to the complainant three coupon bonds of the Milwaukee and St. Paul Railway Company, each for $1,000, of which he claims to be the owner, and which he alleges were received by the defendants in bad faith, with notice of his rights. These instruments are dated May 6, 1863. By each of them, the company acknowledges its indebtedness to certain persons named, or bearer, in the sum designated, and promises to pay the amount to the bearer on the first of January, 1893, at the office of the company in the City of New York, with semi-annual interest at the rate of seven per cent. per

of the company, the complainant should be entitled to receive ten shares of such full paid preferred stock, and that this scrip preferred stock was only transferable on the books of the company at their office in the City of New York in person or by attorney, on the surrender of the certificate.

In November, 1868, these bonds, with coupons and certificates attached, belonged to the complainant, and during that month were stolen from a bank in Bridgeport, Connecticut, together with a large amount of other property there on deposit. They were received in Janu. ary and February, 1869, by the defendants, banking institutions in the City of New York, as collateral security for notes discounted by them, and are now held as such security for those notes or new notes given in renewal of them, and they were received without actual notice of any defect in the holder's title. At that time the cer tificates of scrip preferred stock, originally pinned to the bonds, were detached from them.

And the questions for determination are, whether the agreement in the instruments as to the scrip preferred stock affected their negotiability; and whether the absence of the certif

cates attached was a circumstance sufficient to put the banks upon inquiry as to the title of the holder.

The statement made of the character and form of the instruments, would seem to furnish an answer to these questions.

The agreement, respecting the scrip preferred stock, is entirely independent of the pecuniary obligation contained in the instrument. The latter recites an indebtedness in a specific sum, and promises its unconditional payment to bearer at a specified time. It leaves nothing optional with the company. Standing by itself, it has all the elements and essential qualities of a negotiable instrument. The special agreement as to the scrip preferred stock in no degree changes the duty of the company with respect either to the principal or interest stipulated. It confers a privilege upon the holder of the bond, upon its surrender and the surrender of the certificate attached, of obtaining full preferred stock. His interest in and right to the full discharge of the money obligation is in no way dependent upon the possession or exercise of this privilege.

and stock. It was only upon a surrender of the note that he was to receive stock, and the money payment did not mature until six months after the holder's right to exchange the note for stock had expired. We are of opinion that the instrument wants none of the essential requirements of a negotiable promissory note. It was an absolute and unconditional engagement to pay money on a fixed day, and although an election was given to the promisees, upon a surrender of the instrument six months before its maturity, to exchange it for stock, this did not alter its character or make the promise in the alternative in the sense in which that word is used in respect to promises to pay.'

In Welch v. Sage, 47 N. Y., 143, the effect of the certificate attached to the bonds issued by the Milwaukee and St. Paul Railway Company, identical with those in this case, was considered by the same Court of Appeals, and the court there held that the certificate constituted no part of the bond; that the latter was entire and perfect without it, and that the admission of the debt and the promise to pay were in no degree qualified by it.

Whether the privilege was of any value at the The absence of the certificates, at the time the time the bonds were received by the defendants bonds were received by the defendants, was not we are not informed, nor, in determining the ne- of itself a circumstance sufficient to put the degotiability of the bonds, is the value of the priv- fendants upon inquiry as to the title of the ilege a circumstance of any importance. Its holder. There is no evidence in the case, as alvalue can in no way affect the negotiable char-ready observed, that the privilege which the ceracter of the instrument. An agreement con- tificates conferred was of any value; and if it fessedly worthless, providing that upon the sur- had value, no obligation rested upon the holder render of the bonds the holder should receive, to preserve the certificates. He was at liberty instead of full paid up stock in the railway com- to abandon the privilege they conferred and rely pany, stock in other companies of doubtful solv- solely upon the absolute obligation of the comency, would have had the same effect upon the pany to pay the amount stipulated. The abcharacter of the instrument. sence of the certificates when the bonds were offered to the defendants amounted to little if anything more in legal effect than a statement by the holder that in his judgment they added nothing to the value of the bonds. In the case of Welch v. Sage, already cited, it was held that the absence of the certificate from the bond, when taken by the purchaser, would not of itself establish the fact that the purchaser was guilty of fraud or bad faith, although it would be a circumstance of some weight in connection with other evidence.

In Hodges v. Shuler, 22 N. Y., 114, which was decided by the Court of Appeals of New York, we have an adjudication upon a similar question. There the action was brought upon a promissory note of the Rutland and Burlington Rail way Company, by which the company promised, four years after date, to pay certain parties in Boston $1,000, with interest thereon semi-annually, as per interest warrants attached, as the same became due; "Or, upon the surrender of this note, together with the interest warrants not due, to the treasurer, at any time until six The law is well settled that a party who takes months of its maturity, he shall issue to the hold- negotiable paper before due for a valuable coners thereof ten shares in the capital stock in said sideration, without knowledge of any defect of company in exchange therefor, in which case title, in good faith, can hold it against all the interest shall be paid to the date to which a div-world. A suspicion that there is a defect of title idend of profits shall have been previously de- in the holder, or a knowledge of circumstances clared, the holder not being entitled to both in- that might excite such suspicion in the mind of terest and accruing profits during the same pe-a cautious person, or even gross negligence at riod."

It was contended that the instrument was not, in terms or legal effect, a negotiable promissory note, but a mere agreement, and that the indorsement of it operated only as a mere transfer, and not as an engagement to fulfill the contract of the company in case of its default. But the Court of Appeals held otherwise. "The possibility seems to have been contemplated," says the court, that the owner of the note might, before its maturity, surrender it in exchange for stock, thus canceling it and its money promise, but that promise was, nevertheless, absolute and unconditional, and was as lasting as the note it self. In no event could the holder require money See 21 WALL, U. S., Book 22.

the time, will not defeat the title of the purchaser. That result can be produced only by bad faith, which implies guilty knowledge or willful ignorance, and the burden of proof lies on the assailant of the title. It was so expressly held by this court in Murray v. Lardner, 2 Wall., 110 [69 U. S., XVII., 857], where Mr. Justice Swayne examined the leading authorities on the subject and gave the conclusion we have stated.

See, also, Goodman v. Simonds, 20 How., 343 [61 U. S., XV., 934].

In the present case it is not pretended that the defendants, when they took the bonds in controversy, had notice of any circumstances outside 41

649

of the instruments themselves, and the absence | was attended with serious restrictions and emof the certificates referred to in them, to throw doubt upon the title of the holder.

We see no error in the rulings of the court below, and its judgment is, therefore, affirmed.

barrassment. 1 Smith, Ch. Pr., 343; 1 Greenl. Ev., sec. 361; Eckford v. De Kay. 6 Paige,565; Ashton v. Parker, 14 Sim., 632; 2 Dan. Ch. Pr., Perkins ed., 1865, p. 885, n. A bill of discovery was a dilatory and expensive measure. 2 Story, Cited-2 McCrary, 482; 2 Low., 549: 27 Ohio St., 380; Eq., secs. 1483, 1489. It was also less effect127 Mass., 79; 34 Am. Rep., 346; 58 N. H.,87; 42 Am.ual than the examination of the defendant as a Rep., 583.

STATE OF TEXAS, Compt.,

v.

JOHN CHILES.

(See S. C., 21 Wall., 488-492.) Parties as witnesses-order for subpæna.

1. The purpose of the Act of Congress, section 858 of the Revised Statutes, making parties in actions competent witnesses, was, except as to those named in the proviso, to put them upon a footing of equality with other witnesses, all to be admissible to testify for themselves and compellable to testify

for the others.

2. An order may be made that a subpoena issue for defendant in an equity case, in order that his deposition may be taken in behalf of complainant. [No. 6, Original.

Argued Feb. 15, 1875.

Decided Apr. 5, 1875.

BILL in equity is stated by the court.

witness.

In trials at law the system of exclusion was more rigid. The general rule of the common law was that no party to the record could be a witness for or against himself, or for or against any other party to the suit. 1 Greenl. Ev., secs. 329, 330. This doctrine was attacked by Bentham in his work on evidence, published in 1828, with great force of reasoning. He maintained that "In the character of competency no objec tions ought to be allowed." Vol. I. p. 3. His views produced a deep impression in England, and became the subject of earnest discussion there. Subsequently they bore fruit. In "the County Courts Act," passed by Parliament in 1846, it was declared that "On the hearing or trial of any action, or on any other proceeding under this Act, the parties thereto, their wives and all other persons may be examined, either on behalf of the plaintiff or defendant upon oath or solemn affirmation." This was a great alteration in the law from what it was before. After it had been tested for six years in the county courts and its

Messrs. R. T. Merrick and T. J. Du- wisdom approved, the rule was, in 1851, by a

rant, for complainant.

Mr. Albert Pike, for respondent.

Mr. Justice Swayne delivered the opinion of the court:

This is an application for an order that a subpœna issue for John Chiles, the defendant, in order that his deposition may be taken on behalf of the complainant. The proper disposition of the motion depends upon the solution of the question whether he can be required to testify by the other party. The provision of the Act of Congress upon the subject is as follows: "Sec. 858. In the courts of the United States, no witness shall be excluded in any action on account of color, or in any civil action because he is a party to or interested in the issue tried: Provided, That, in actions by or against executors, administrators or guardians, in which judgment may be rendered for or against them, neither party shall be allowed to testify against the other as to any transaction with or statement by the testator, intestate or ward, unless called to testify thereto by the opposite party, or re quired to testify thereto by the court. In all other respects, the laws of the State in which the court is held shall be the rules of decision as to the competency of witnesses in the courts of the United States, in trials at common law and in equity and admiralty." Rev. Stat. U. S.,

162.

It was a rule in equity of long standing that the complainant could examine the defendant as a witness, upon interrogatories, and that one defendant might examine another, but they could not examine the complainant without his consent, and the right to examine a defendant

NOTE.-Competency of witnesses in U. S. courts in civil cases, how far governed by state laws. Vance v. Campbell, 66 U. S., XVII., 168.

measure known as "Lord Brougham's Act,” with a few exceptions not necessary to be stated, made applicable in all legal proceedings elsewhere. An able writer says: "Every eminent lawyer in Westminster Hall will readily admit that it has been productive of highly bene ficial results." He adds: "In courts of law it has not only enabled very many honest persons to establish just claims which, under the old system of exclusion, could never have been brought to trial with any hope of success, but it has deterred at least an equal number of dishonest men from attempting on the one hand to enforce a dishonest demand, and on the other to set up a fictitious defense." The common law commissioners, in their report upon the subject, said:

the Bench, the profession and the public, the "According to the concurrent testimony of new law is found to work admirably, and to contion of justice." 2 Taylor, Ev., sec. 1218. tribute in an eminent degree to the administra

ed in some form in most if not in all the States The innovation, it is believed, has been adoptand Territories of our Union. 1 Greenl. Ev., sec. 329. It is eminently remedial, and the language in which it is couched should be construed accordingly.

A doubt has been suggested whether the enactment before us does not give merely a privilege to each party which may be availed of or not as a matter of choice, without conferring the right upon either to compel the other to testify.

This view is too narrow and cannot be main

tained. The first sentence forbids, in the courts of the United States, exclusion in any case on account of color, and in civil actions on account offers to testify and is excluded by reason of of interest or being a party. If either party being a party, there is certainly a clear infrac

tion of the 'statute, both as to its language and States for the Southern District of New

That section in the Act of June 30, 1864, provided that the tax should be paid when the average amount of the capital of any bank, or Cited--22 Wall., 350; 7 Biss., 326; Chase, Dec., 555 person engaged in the business of banking, was

At the time of the passage of this last menArgued Mar. 30, 1875. Decided Apr. 12, 1875. | tioned Act, the government and the class of

bankers among whom the plaintiffs below were | Internal Revenue in the district and, as such included, were directly at issue in regard to the officer, enforced the payment of the taxes thus very questions now involved in this controversy; and the claim made by the government and which is sought to be sustained here was presented to Congress, and the amendatory Act of 1872 was passed, with full knowledge on the part of Congress of the nature of such claim.

It is fair, therefore, under the circumstances, to regard this Act of 1872, as a declaration on the part of Congress of the construction and meaning of the original Act.

Doubtless it is possible to say that such statutes may have changed the law, but bearing in mind how easy and appropriate, had that been the intention, it would have been for Congress to declare that thereafter money so borrowed should not be liable to the tax, it seems to us that, considering the omission of such words, and the peculiar language of the statute itself, and the circumstances under which it was passed, a more fair and reasonable construction to be given to the law would be, to regard it as an Act declaratory of the meaning and construction of the original Act.

Mr. Justice Field delivered the opinion of

the court:

* *

*

assessed, amounting to over $6,000. The plaintiffs protested at the time against the legality of the assessment, and appealed from the decision of the assessor to the Commissioner of Internal Revenue. Failing to obtain any rescission of the assessment or restitution of the moneys paid, they brought the present action for their recovery.

The action was tried by the courts without the intervention of a jury, by stipulation of the parties under the recent Act of Congress. The court found the facts we have stated, but with greater fullness of detail, and held that the money thus temporarily borrowed by the plaintiffs in the ordinary course of their business, was not capital of the company employed in the business of banking and was not, therefore, liable to assessment as part of such capital; and that the assessment and collection of the tax was, therefore, illegal and unauthorized. The court accordingly gave judgment for the plaintiffs. To review that judgment the case is brought here on writ of error.

As appears from this statement of the case the only question for determination relates to the meaning to be given to the term “capital " The 110th section of the Revenue Act of the in the 110th section of the Revenue Act. The United States as amended on the 13th of July, term is not there used in any technical sense, 1866, 14 Stat. at L., 136, enacts That there but in its natural and ordinary signification. shall be levied, collected and paid a tax of one And it is capital, not merely of individuals but twenty-fourth of one per centum each month of corporations and associations, which is subupon the capital of any bank, asso-ject to the tax in question. When used with ciation, company or corporation, and on the respect to the property of a corporation or as capital employed by any person in the busi-sociation, the term has a settled meaning; it ap ness of banking, beyond the average amount in-plies only to the property or means contributed vested in United States bonds.' And the 79th by the stockholders as the fund or basis for the section of the same Act as amended declares business or enterprise for which the corporation "That every incorporated or other bank, and or association was formed. As to them the term every person, firm or company having a place does not embrace temporary loans, though the of business where credits are opened by the de- moneys borrowed be directly appropriated in posit or collection of money or currency subject their business or undertakings. And when used to be paid or remitted upon draft, check or with respect to the property of individuals in order; or where money is advanced or loaned any particular business, the term has substanon stocks, bonds, bullion, bills of exchange or tially the same import; it then means the proppromissory notes; or where stocks, bonds, bul- erty taken from other investments or uses and lion, bills of exchange or promissory notes are set apart for and invested in the special busreceived for discount or for sale, shall be re-iness, and in the increase, proceeds or earnings garded as a bank or as a banker. 14 Stat. at L., 115.

During the years 1869 and 1870 the plaintiffs were bankers within the meaning of this statute, doing business in the City of New York under the name of Clark, Dodge & Company; and at various times between the first of April, 1869, and the first of February, 1870, they made returns as required by law to the Assessor of Internal Revenue for the district, of the amount of their fixed capital employed in banking, and of the amount of moneys deposited with them by their customers. The assessor required more than this; he insisted, against the objection of the plaintiffs, that all moneys borrowed by them from time to time, and temporarily in the ordinary course of their business, formed a part of their capital employed in the business of banking and were subject to the tax imposed upon capital under the section cited. He accordingly assessed a tax upon the several amounts thus borrowed, within the dates mentioned, as part of the capital of the company.

The defendant was at the time Collector of

of which property, beyond expenditures incurred in its use, consist the profits made in the business. It does not, any more than when used with respect to corporations, embrace temporary loans made in the regular course of business. As very justly observed by the circuit judge, "It would not satisfy the demands of common honesty, if a man engaged in business of any kind, being asked the amount of capital employed in his business, should include in his reply all the sums which, in the conduct of his business, he had borrowed and had not yet re paid."

There is no difference in the business of banking as conducted by individuals from the business as conducted by corporations, which would warrant any different meaning to be given to the term "capital" in the two cases. Nor can any good reason be stated why a distinction should be made between banking corporations and individual bankers in this respect.

Independently of these considerations, there would be great practical difficulty in administering the law, upon the theory that moneys