An acceptance by a municipal corporation of a draft, directing
it to pay to the order of the payee a sum of money due to the
drawer for work and labor done and materials furnished under a
contract, constitutes a new contract between the acceptor and the
payee which the latter may enforce in the courts of the United
States if he be a citizen of a different state from the acceptor
and if the amount be sufficient to give jurisdiction,
notwithstanding the drawer and the acceptor are both citizens of
the same state, and notwithstanding the provisions in the Act of
August 13, 1888, 26 Stat. 433, c. 866, § 1.
If a contract with a municipal corporation calls for payment for
work and labor and materials furnished under it in city warrants,
and the municipality accepts a draft for a sum in money from the
contractor in favor of the payee or order, without specifying that
it is payable in such warrants, it is not necessary to allege, in
an action on the acceptance, that demand was made payable in such
warrants and was refused.
This was a writ of error to reverse a judgment of the Circuit
Court for the District of Nebraska in favor of the defendants in
error upon certain orders accepted by the City of Superior. The
case was practically decided in overruling a demurrer to the
petition, which set forth, in substance, the following facts
1. That the plaintiffs, Ripley and Bronson, were citizens of the
Missouri, and the defendant, the City of Superior, a municipal
corporation of the Nebraska.
2. That under an ordinance, regularly adopted and confirmed by a
popular vote, the city entered into a contract with S. K. Felton
& Co. for the construction of a system of waterworks for the
sum of $25,000. That in pursuance of such contract, Felton &
Co. built and completed the waterworks, which were accepted by the
city on the 29th day of April, 1889, and that upon the contract
price there was paid $5,000 October 13, 1888, and $3,681 December
14, 1888.
3. That S. K. Felton & Co. became indebted to the
plaintiffs
Page 138 U. S. 94
for water pipe, hydrants and other material sold and delivered
to them by the plaintiffs and used in said waterworks in the sum of
$5,750, for which Felton & Co. executed the following
order:
"SUPERIOR, NEB., Dec. 24th, 1888"
"Upon final completion and acceptance of waterworks by the City
of Superior, Neb., pay to the order of Ripley and Bronson five
thousand seven hundred and fifty dollars, and charge same to
contract price and on contract for erection of said
waterworks."
"(Signed) S. K. FELTON & Co."
"(Addressed:) To the Mayor and City Council,"
"City of Superior, Superior, Neb."
4. That said order was presented at a meeting duly called of the
city council, and accepted by a vote of said meeting, and in
pursuance thereof the mayor and city clerk, under the seal of the
city, endorsed and accepted the said order as follows
"The City of Superior, Neb., hereby accepts the within written
order, provided the waterworks are fully completed according to
plans and specifications and are duly accepted by the city, and
then in that event the City of Superior will withhold from the
final payment of contract price that may be due S. K. Felton &
Co. the amount of this acceptance, or such part thereof as may
actually be due said S. K. Felton & Co. thereon, and will pay
over such amount in city warrants to Ripley and Bronson in lieu of
S. K. Felton & Co., such amount to be credited upon said
contract price for said waterworks as if the same was paid to S. K.
Felton & Co."
"Dated Superior, Neb., Dec. 24th, 1888."
"By order of the city council. C. E. ADAMS,
Mayor"
"(City of Superior Corporate Seal) C. E. ADAMS,
City
Clerk"
And thereupon said S. K. Felton & Co. endorsed upon said
order as follows:
Page 138 U. S. 95
"We accept and agree to above conditions the day and date
hereof, and that this may be embraced in our contract with the City
of Superior and be part thereof."
"S. K. FELTON & Co."
"Witness: Chas. E. Davis"
5. That the waterworks were completed by S. K. Felton & Co.,
and accepted by the city on the 29th of April, 1889, and that the
city paid to S. K. Felton & Co. a large amount of money
subsequent to the acceptance of this order in disregard of
plaintiff's rights, and that there has accrued and become payable
to them since said acceptance over $18,000, whereby the city became
liable to the plaintiffs for the amount of their order.
To this petition the defendant city interposed a demurrer upon
the grounds:
1. That it did not appear from said petition that the circuit
court had jurisdiction of the subject matter of the suit.
2. That the said petition did not state facts sufficient to
constitute a cause of action.
The court overruled the demurrer (41 F. 113), and, the defendant
not desiring to plead further, rendered judgment for the plaintiffs
in the sum of $6,061.87.
MR. JUSTICE BROWN, after stating the facts as above, delivered
the opinion of the Court.
(1) In support of its demurrer founded upon the alleged want of
jurisdiction in the circuit court, the plaintiff in error insists
that the plaintiffs below obtained their right to bring suit upon
this order by assignment from S. K. Felton & Co., who are not
alleged to be citizens of any other state than Nebraska, and hence
that the plaintiffs are disqualified to sue under the Act of August
13, 1888, 25 Stat. 433, c. 866, § 1,
Page 138 U. S. 96
the first section of which provides that no circuit or district
court shall
"have cognizance of any suit, except upon foreign bills of
exchange, to recover the contents of any promissory note or other
chose in action, in favor of any assignee or of any subsequent
holder if such instrument be payable to bearer, and be not made by
any corporation, unless such suit might have been prosecuted in
such court to recover the said contents, if no assignment or
transfer had been made."
The action in this case is brought upon an order drawn by S. K.
Felton & Co. in which they direct the city to pay to the
plaintiffs below a certain sum of money upon the completion and
acceptance of certain work undertaken by them for the city, and
charge the same to their contract price. This order was presented
to the corporation and formally accepted, "provided the waterworks
are fully completed, according to plans and specifications, and are
duly accepted by the city," and the city promised to pay the same
in city warrants. This acceptance was a contract directly between
the city and the plaintiffs below, upon which the city was
immediately chargeable as a promisor to the plaintiffs. Nothing is
better settled in the law of commercial paper than that the
acceptance of a draft or order in favor of a certain payee
constitutes a new contract between the acceptor and such payee, and
that the latter may bring suit upon it without tracing title from
the drawer. From the moment of acceptance, the acceptor becomes the
primary debtor, and the drawer is only contingently liable in case
of nonpayment by the acceptor. Daniel on Negotiable Instruments
§ 532;
Fentum v. Pocock, 5 Taunton 192;
Wallace v.
McConnell, 13 Pet. 136. Ever since the case of
Young v.
Bryan, 6 Wheat. 146, it has been the settled law of
this Court that the circuit court has jurisdiction of a suit,
brought by the endorsee of a promissory note against his immediate
endorser, whether a suit would lie against the maker or not, upon
the ground, as stated by Chief Justice Marshall, "that the endorsee
does not claim through an assignment, but upon a new contract
between himself and the endorser." This case was approved in
Mollan v.
Torrance, 9 Wheat. 537;
Evans v.
Gee, 11 Pet. 80;
Page 138 U. S. 97
and
Coffee v.
Bank, 13 How. 183. It needs no argument to show
that the same rule would apply as between the acceptor and the
payee, and, if the latter be a nonresident of the state, he may
bring suit directly against the acceptor notwithstanding the drawer
of the paper is a resident of the same state as the acceptor, for
the same reason that the acceptance creates a new contract, to
which the drawer is not a party.
Thompson v. Perrine,
106 U. S. 589.
The same principle is illustrated in the case of
De Sobry v.
Nicholson, 3 Wall. 420, in which it was held that
if the requisite citizenship exist between the immediate parties to
a contract, the jurisdiction of the circuit court cannot be
defeated by the fact that another and prior contract, to which the
plaintiff is not a party, is set out as an inducement to the making
of the contract in suit.
So, in
Manufacturing Co. v. Bradley, 105 U.
S. 175, a corporation agreed to pay on a certain date to
A a sum of money at a specified rate of interest, and, by an
endorsement on the paper after it matured, further agreed, in
consideration of forbearance to a date named, to pay at a higher
rate of interest to bearer. It was held that the endorsement was a
new contract, upon sufficient consideration, and negotiable within
the meaning of the law merchant, and that B, the legal holder of
the paper, was not precluded from suing thereon in the circuit
court by the fact that A was a citizen of the same state as the
corporation. In delivering the opinion of the Court, Mr. Justice
Matthews observed:
"It is true that the bond, as originally executed, was payable
to Gayer, receiver, simply, and was not negotiable; but the
subsequent endorsement was a new and complete contract, upon a
distinct and sufficient consideration, and, being payable to
bearer, is negotiable by delivery merely."
(2) In support of its second ground of demurrer, the defendant
city further insists that inasmuch as the acceptance of the city
was a promise to pay in city warrants, the petition should allege
that the plaintiffs demanded payment in warrants, and that the city
refused to give them warrants for the order. The order, however,
was to pay a certain sum in dollars and
Page 138 U. S. 98
cents, and the promise was to pay the amount of the acceptance,
and, if payment had been made or tendered either in current money
or in city warrants, it was matter of defense, and the burden of
proof was upon the defendant. No allegation in the petition that
payment in city warrants was demanded and refused was necessary to
constitute a complete cause of action, and it is only after a
failure to make out a
prima facie case in the petition
that a general demurrer will lie.
Wallace v.
McConnell, 13 Pet. 136;
Brabston
v. Gibson, 9 How. 263,
50 U. S. 279.
As the warrants were a mere method of payment in money, for the
convenience of the city in carrying on its financial business, it
may be treated as a promise to pay in money.
Babcock v.
Goodrich, 47 Cal. 488. If the promise were to pay in bank
notes or other representatives of money, it would scarcely be
claimed that it was not a promise to pay in money or that any
special demand of bank notes was necessary to be averred. There is
an allegation in the petition that, though often requested, the
said City of Superior has not paid to plaintiffs the amount of said
order and acceptance or any part thereof, and that there is now due
and unpaid upon the same, the entire amount thereof. We think this
is a sufficient allegation of nonpayment and refusal to pay to
render the city chargeable in this form of action.
The judgment of the circuit court must be
Affirmed.
