p. 76rants to set up a defence known to have been existing at the time they were reissued in lieu of the original warrants surrendered to the county court, and by its order cancelled ?
Second,, Can the claim set up in the answer, if held by the county against the original payee when the warrants were issued or while they were still in his possession, be set up as defence or set-off in a suit by a holder of them for value, who had no notice of such defence when he acquired them ?
On which questions the opinions of the judges were opposed, and the demurrer having bqqn overruled, final judgment was rendered for the defendant.
Whereupon, upon'motion of the plaintiff, the points on which the disagreement happened were stated under the direction of the judges, and certified to this court for final decision.
Mr. M. T. Sanders for the plaintiff in error.
Under the law of Arkansas, the warrants which are the foundation of this suit are negotiable instruments. Rev. Stat., sects. 602, 603, 605; Crawford County v. Wilson, 7 Ark. 214 ; Carnall v. Crawford County, 11 id. 604; Gunn v. Pulaski County, 3 id. 427; Adamson v. Adamson, 9 id. 26; Brem v. Arkansas County Court, id. 241; Reiff v. Conner, 10 id. 241; Jefferson County v. Hudson, 22 id. 595.Sect. 27, art. 7, of the Constitution of the State gives to the county court • exclusive original jurisdiction in the local concerns of'the county. It is a court of record. Its judgment-allowing demands against the county, and directing the issue of a warrant for their payment, merges- them and all preexisting equities between the parities, and cannot be collaterally impeached.The transferee of the warrants sued on must- be treated as the assignee of, the judgment pursuant to which they were issued. A defence which might have been made available against the original claim-cannot be set up in an action on the judgment. Nolle v. Merrill, 48 Me. 140 ; Guinard v. Heysinger, 15 Ill. 288 ; Flint v. Sheldon, 13 Mass. 443 ; Ellis v. Clarke, 19 Ark. 420 .The defence here does not arise out of the transaction in which the warrants, all of which bear date in 1875, were issued. It rests upon a claim of the county against the original payee,
p. 77who was a surety of the defaulting county tax-collector for the year 1872. Conceding that they are of no higher grade than bills of exchange or promissory notes negotiated after maturity, the county could not avail itself of the defence set up.-The indorsee of an overdue negotiable note takes it subject to all the equities which attached to it in the bands of the payee, if they are connected with the note itself, but not to such as grow out of distinct and independent transactions. National Bank of Washington v. Texas, 20 Wall. 72 , 89; Oulds v. Harrison, 10 Exch. Rep. 572; Burrough v. Moss, 10 Barn. & Cress. 558; Benwick v. Williams, 2 Md. 356 .Mr. Augustus H. Cfarland, contra.
delivered the opinion of the court.
The warrants in suit are evidences of indebtedness by the county of Monroe, issued by that branch of its government to which is intrusted, by the laws of the State, the examination and approval of claims against the county. They are orders upon the treasurer of the county to pay out of its funds for county purposes, not otherwise appropriated, the amounts specified. They establish, prima facie, the validity of the claims allowed and authorize their payment. But they have no other effect. Their issue determined nothing as to other demands of the payee .against the county, or of the, county against him. Had there been other claims to be adjusted and settled .between the parties, these warrants, if lawfully issued, would have been taken as approved iteins in the account — nothing more.
The warrants being in form negotiable, are transferable by . delivery so far as to authorize the holder to demand payment of. them and to maintain, in his own name, an action upon them. But they are not negotiable instruments in the sense of the law merchant, so that, when held by a bona fide purchaser, evidence of their invalidity or defences available agfiinst the original payee would be excluded. The transferee-takes.them subject to all legal and equitable defences which existed to them in-the hands of such-qiayee.
There has" been a great number of decisions in the courts of the several States upon instruments of this kind,-and there is
p. 78little diversity of opinion respecting their character. All the courts agree that the instruments are mere prima fade and not conclusive'evidence of the validity of the allowed claims against the county by which they were issued. The county is not estopped from questioning the' legality of the claims; and when this is conceded the instruments conclude nothing as to other demands between the parties. The cases will b'e found collected in notes to the fourteenth chapter of Dillon on Municipal Corporations. The law respecting these instruments is also fully stated by this court in Mayor v. Ray, reported in the 19th of Wallace. That case was upon warrants of a city and not of a county, a circumstance which does not affect the doctrine. The court, speaking through Mr. Justice Bradley, said: “Vouchers for money due, certificates of indebtedness for services rendered, or for property furnished for the uses of the city, orders or drafts drawn by one city officer upon another, or any other device of the kind, used for liquidating the amounts legitimately due to public creditors, are, of course, necessary instruments for carrying on the machinery of municipal administration, and for anticipating the collection of taxes. But to invest such documents with the character and incidents of commercial paper, so as to render them in the hands of bona fide holders absolute obligations to pay, however jrregular or fraudulently issued, is an abuse of their true character and purpose.” And again: “ Every holder of a city order or certificate knows that, to be valid and genuine at all, it'must have been issued as a voucher for city indebtedness. It could not be lawfully issued for any*< other purpose. He must take it, therefore, subject to the risk that it has been lawfully and properly issued. His claim to be a bona fide holder will always be subject to this qualification. The face of the paper itself is notice to him that its validity depends upon the regularity of its issue. The officers of the city have no authority to issue it for any illegal or improper purpose, and their acts cannot, create an estoppel against the city itself, its taxpayers, or people. Persons receiving it from them know whether it is issued, "and whether they receive it for a proper purpose and a proper consideration. Of course they are affected by the absence of these essential ingredients; and all
p. 79subsequent holders take
cum onere, and are affected by the same defect.” These observations apply equally to the county warrants in suit, as to the city warrants there considered. And the same reasons which deny to them negotiability in the sense of the law merchant, allow any matter of set-off to them which the county held against the original parties.
The case of Crawford County v. Wilson, in the Supreme Court of Arkansas, is cited as showing that a different rule prevails in that State. The language • of the opinion, that county warrants are endowed with the properties of negotiable instruments, must be read in connection with the point in-, volved, which was whether county warrants were transferable by mere delivery, so as to vest the legal interest in the holder. To this extent they may be called negotiable, but no court of Arkansas has held that they were negotiable in the sense of the law merchant, so as to shut out, in the hands of a bona fide purchaser, inquiries as to their validity, or preclude defences which could be made to them in the hands of the original parties. The law is not different there from that which obtains in other States.
The cancellation of the warrants originally issued and the substitution of others in their place did not change their charter. Neither that proceeding nor the original auditing of the claims of Gallagher had the force of a judicial determination, concluding either him or the county. There was no litigation on the subject between adversary parties which could give to the result any greater efficacy than the award of an ordinary boaid authorized to audit claims against a municipal body. Shirk v. Pulaski County, 4 Dill. 209 .
We answer, therefore-, the first question certified to us in the negative, and the second in the affirmative, and accordingly affirm the judgment.
Judgment affirmed.