BOOK VI.

VARIETIES OF NEGOTIABLE INSTRUMENTS OTHER THAN BILLS AND NOTES.

CHAPTER XLVII.

COUPON BONDS.

SECTION I.

DEFINITION AND NATURE OF COUPON BONDS.

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§ 1486. The inventive spirit of modern finance and commerce, stimulated by the prodigious strides of internal improvements, has thrown into circulation a new species of security for money which has sprung at once to the front rank of negotiable instruments. This security is styled a coupon bond." It is issued by the Federal Government,' by States,2 by Territorial Governments, or the local divisions thereof,3 by municipalities, by railroad, canal, and steamboat companies, and all manner of trading corporations. A vast portion of the wealth of the country is represented in " coupon bonds." The reports of all the courts have been filled for the last ten years with decisions respecting their

1. Ringling v. Kohn, 4 Mo. App. 444; Lafayette Sav. Bank v. Stoneware Co., 4 Mo. App. 276.

2. See chapter XVI, on the Federal and State Governments as Parties to Negotiable Instruments, vol. I, §§ 440, 446.

3. In National Bank v. County of Yankton, 101 U. S. (11 Otto) 133, Waite, C. J., said: "The Territories are but political subdivisions of the outlying dominion of the United States. Their relation to the general government is much the same as that which counties bear to the respective States, and Congress may legislate for them as a State does for its municipal organizations." Held, therefore, that railroad-aid bonds of Yankton county, Dakota Territory, authorized by act of Congress, were valid. The restrictions of an act of Congress are binding on a Territory of the United States and its subdivisions; and if they be violated in the issue of bonds the bonds are void. Bonds issued in aid of a railroad would not come under authority to contract debt " necessary to the administration of internal affairs." Lewis v. Pima County, 155 U. S. 54, 57, 15 Sup. Ct. Rep. 22.

nature and uses. Every banker, merchant, capitalist, and business man is deeply interested in the law concerning them; and we shall endeavor here to summarize the settled principles which control their issue and negotiation.

§ 1487. Whether individuals, as well as corporations and States, may execute negotiable coupon bonds. Since the seal does not affect the negotiability of such securities issued by corporations and States, there is no reason why the same principle should not be extended to them when issued by individuals. In a recent New York case, in the United States District Court, where individual coupon bonds were in suit, Blatchford, J., said: "I think that on the authority of the decision of the highest courts of this State, and of the United States, the bonds and coupons in question are negotiable instruments, although issued by an individual under his seal, and not by a corporation, and are not specialties so as to make them subject, in the hands of their assignee, to equities. existing against their assignor. Although under seal, they were issued, as shown on their face, to secure the payment of money on time; and they contain on their face expressions showing that they are expected to pass from one to another by delivery. Therefore, the attributes of commercial paper attach to them. Their character cannot be controlled or varied by the mere fact that their maker put a seal after his name. Such bonds and their coupons pass by delivery; a purchaser of them in good faith is not affected by want of title in their vendor, and the burden of proof on a question as to such good faith lies on the party who assails the possession. The evidence in this case shows that the Union Square National Bank became, to all substantial intents, the purchaser of these bonds and coupons in good faith for a full and fair consideration, in the usual course of business, and without notice of any possible defect in the title of their assignor. These views proceed on the assumption that the claim of the bank will absorb. all dividends on the bonds and coupons, and apply only to the interest of the bank therein. If there shall be a surplus beyond paying the claim of the bank, questions as to the title and position of their assignor may become material." 5 There is no doubt that an individual may execute bonds and coupons, but whether or not

4. Citing Brainard v. N. Y. C. & H. R. R. Co., 25 N. Y. 496; White v. Vermont R. Co., 21 How. 575; Mercy County v. Hacket, 1 Wall. 83; Fairbanks v. Sargent, 46 N. Y. S. C. 592.

5. Simeon Leland in Bankruptcy, 6 Bened. 175.

they are negotiable instruments may depend upon the statutory provisions of the States wherein they are issued. Custom has fixed the negotiability of corporate securities of this character regardless of statutory tests; but it remains to be seen whether individual securities of the like kind will be generally considered upon the same footing."

§ 1488. Description of coupon bonds. A coupon bond is an instrument complete in itself, and yet composed of several distinct instruments, each of which is in itself as complete as the whole together. As originally issued, the "coupon bond" consists of (1) an obligation to pay a certain amount of money at a future day; and (2), annexed to it is a series of coupons, each one of which is a promise for the payment of a periodical instalment of interest. The contract between the payor and the holder is contained in the bond, but the coupons are furnished as convenient instruments to enable the holder to collect interest without presenting the bond, by separating and presenting the proper coupon; and it also enables him to anticipate his interest by negotiating the coupon, which represents it, to another person, at any time before its maturity.

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§ 1489. Definition and use of coupons. The term coupon is derived from the French "couper- to cut," and it is defined by Worcester, in his dictionary, to signify "one of the interest certificates attached to transferable bonds, and of which there are usually as many as there are payments to be made; so called, because it is cut off when it is presented for payment." This is a succinct and clear definition, and indicates the design of the coupons. They are furnished as attached to the bond as evidence of successive periodical liabilities. They may be severed and negotiated before the maturity of the interest they represent, and thus pass as separate and independent securities, like other commercial instruments. For in whosesoever hands they are, they are evidence

6. See post, § 107a.

7. Arents v. Commonwealth, 18 Gratt. 776; Clark v. Iowa City, 20 Wall. 584; Commissioners of Knox County v. Aspinwall, 21 How. 539; Thomson v. Lee County, 3 Wall. 327; Town v. Culver, 19 Wall. 84; City v. Lamson, 9 Wall. 477; Beaver County v. Armstrong, 44 Pa. St. 63; Clarke v. Janesville, 10 Wis. 136; Maddox v. Graham, 2 Metc. (Ky.) 56; Rose v. City of Bridgeport, 17 Conn. 243; Brainard v. N. Y. & H. R. Co., 25 N. Y. 496; Railway v. Cleneay, 13 Ind. 161; Evertsen v. National Bank of Newport, 4 Hun, 694, 5 Rob. Pr. 238; Spooner v. Holmes, 102 Mass. 503; Commonwealth v. Emigrant In

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of title to demand the interest on the bond, and they serve the purpose of vouchers when the interest is paid; but the contract to pay the interest is in the bond. Yet so intimate is the relation between it and the coupons, that legislative authority to issue bonds implies authority to issue coupons attached to them for interest.8 Coupons are substantially a minute repetition of what is contained in more concise terms in the bond. They are attached to the bond to be separated therefrom at the convenience of the holder, and to be thereafter negotiated as money, or the representative of money by simple delivery." A legacy of a coupon bond carries with it the coupons though overdue.10

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§ 1490. Coupons are either actually notes, or like them.Coupons are more closely assimilated to promissory notes than to bank notes, bills of exchange, or checks, although in their formal wording they may sometimes less resemble them.

It is obvious from their nature and purpose that they are not intended for indefinite circulation like bank notes. They are made to facilitate the prompt payment of interest, and by no means designed to become a part of the currency of the country, although sometimes made use of as a substitute for money.

Therefore, even when drawn in the form of checks upon banks, they are regarded as due on the very day fixed for payment, and not as payable on demand like bank notes.11 Nor are they like checks, which must be presented to the bank before the drawer can be sued, even when worded like them. They are the primary engagements of their payor, and if payable at a bank, they are simply like notes so payable; if sued upon without previous presentment at the bank, the defendant may show that there were funds to meet them, but otherwise must stand

suit. 12

dustrial Association, 98 Mass. 12; National Exchange Bank v. Hartford R. Co., 8 R. I. 375; Langston v. S. C. R. Co., 2 S. C. 249; Clokey v. Evansville & Terre Haute R. Co., 16 App. Div. 304, 44 N. Y. Supp. 631; Townsend v. Col. Fuel & Iron Co., 16 App. Div. 314, 44 N. Y. Supp. 849; Atlantic Trust Co. v. Kinderhook & Hudson Ry. Co., 17 App. Div. 212, 45 N. Y. Supp. 492. 8. Arents v. Commonwealth, 18 Gratt. 773.

9. Evertsen v. National Bank, 4 Hun, 569.

10. Ogden v. Pattee, 149 Mass. 84.

11. Arents v. Commonwealth, 18 Gratt. 750. See In re Knaup, 144 Mo. 653, 46 S. W. 151, 66 Am. St. Rep. 435.

12. Virginia & Tenn. R. Co. v. Clay, MS., Special Ct. App. Va.; Trustees of I. I. Fund v. Lewis, 34 Fla. 424, 16 So. 325, 43 Am. St. Rep. 209.

§ 1490a. Differences between coupons and bills; not entitled to grace. Coupons are unlike bills of exchange, from which they differ in several distinctive respects: (1) They are not intended for acceptance when drawn upon a bank or banking-house. (2) They are not entitled to grace.13 (3) In short, they are simply in effect promissory notes payable on the very day of their maturity without grace. It has, however, been recently held in New York, that coupons are entitled to grace like other commercial paper, in a case directly presenting that question; so that judicial views of that point are now contradictory.' As the coupons are mere separable fragments of the bond, we think the text contains the better view. And it is evident from the very nature of coupons, and of the bonds to which they are attached, that the reasons out of which the allowance of grace is made upon mercantile paper do not apply to them. They are instruments of investment and traffic, and not ordinarily used like bills and notes to effect exchanges.

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§ 1491. Bonds and coupons are not bills of credit. Bonds and coupons, though designed to circulate as marketable commodities, are not bills of credit within the meaning of the United States Constitution.15

1491a. Bonds and coupons secured by mortgage. A coupon is part of the debt covered by the mortgage which secures its bond, and the security of the mortgage inures to the assignee of the coupon.16 Interest on the coupon is also covered by the mort

13. Arents v. Commonwealth, 18 Gratt. 773; Chaffee v. Middlesex R. Co., 146 Mass. 233. Contra, Evertsen v. National Bank, 66 N. Y. 18, 4 Hun, 692. See $§ 1505, 1506; Alabama, etc., Co. v. Robinson, 6 C. C. A. 79, 56 Fed. 690.

14. In Evertsen v. National Bank, 66 N. Y. 22 (1876), Allen, J., said: "It is probably true that they are regarded and treated, as well by promisor as promisee, as payable at the day, and paid as if in terms payable without grace; but this cannot destroy the character or change the legal effect of the instruments, the interpretation of which is for the courts. It is only as negotiable commercial paper that the plaintiff, as a bona fide purchaser, could acquire a good title to the coupons from one having no title thereto; and he can only acquire such title by a purchase under the same circumstances that would give him a title to other commercial paper; and if there were no days of grace for the payment of these coupons, they could not be transferred so as to give a good title." See Cooper v. Town of Thompson, 13 Blatchf. 434, and Jones on Railroad Securities, § 323.

15. McCoy v. Washington County, 3 Wall. Jr. 386.

16. Miller v. Rutland, etc., R. Co., 4 Vt. 399; County of Beaver v. Armstrong, 44 Pa. St. 63; Haven v. Grand Junction R. Co., 109 Mass. 88; Union