82 F. 929 | U.S. Circuit Court for the District of Northern Iowa | 1897
The general facts upon which this proceeding in equity is based are set forth at length in the case of Ætna Life Insurance Co. v. Lyon County, heard before this court, and reported in 44 Fed. 329. In that case, which was an action at law on coupons belonging to a part of the series of bonds issued by Lyon county, which are involved in the present suit, the defense was interposed that the entire series of bonds was void, because in excess of the 5 per cent, limitation; but it was held therein that, under the evidence, it appeared that part of the series of bonds were valid and enforceable, and part were invalid; but in order to ascertain the amount for which the county should be held liable, and to determine whether all the bondholders should share ratably in the amount, or whether the bonds first sold, and up to the constitutional limit, should be paid in full, required the bringing of a suit in equity. In pursuance of this ruling,
In support of the demurrer upon the first branch of the proposition, reliance is mainly placed upon the ruling of the supreme court in the cases of Litchfield v. Ballou, 114 U. S. 190, 5 Sup. Ct. 820, and Hedges v. Dixon Co., 150 U. S. 182, 14 Sup. Ct. 71. In the former' case it appeared that the city of Litchfield, Illinois, had issued bonds which were in excess of the constitutional limitation'of 5 per cent., and in an action at law on the bonds they had been declared void for that reason. Thereupon a suit in equity was brought, wherein it was sought to hold the city liable, on the ground that the money realized from the sale of the bonds had been used in the erection of a waterworks plant for the benefit of the city. The supreme court held that the provisions of the constitution of Illinois in terms prohibited the city from becoming indebted, in any manner or for any purpose, in an amount exceeding 5 per cent, on the value of its taxable property, and that to permit a recovery against the city for an amount in excess of the limit, upon the theory of an implied promise to repay the money used in erecting the waterworks, would be as much a violation of the constitutional provision ás to allow a recovery upon the express promise of payment contained in the bonds, because in each case alike the indebtedness of the city would thereby be caused to exceed the constitutional limit. In Hedges v. Dixon Co., the facts were that, under the vote of electors of the county, a donation of bonds in an amount exceeding the limit of indebtedness fixed by the constitution of Nebraska was made by the county to a railway company. The holders of the bonds filed a bill in equity, praying that an accounting might be taken to ascertain the limit of valid indebtedness which the county might incur, and that the excess of the bonds over the sum should be decreed invalid, and each bond should be scaled down its proper proportion, so that the bonds should be held to represent, in the aggregate, the amount of indebtedness legally creatable by the county. The supreme court held that the entire issue of bonds was invalid and void at law, and that, as the county did not receive the proceeds of the sale of the bonds, there was no ground for equitable relief. The difference in the facts between these cases and the one at bar renders the ruling therein inapplicable to the question now under consideration. In the case now before the court the bonds
It is clear, under the ruling of the supreme court: in Doon Tp. v. Cummins, 142 U. S. 366, 12 Sup. Ct. 220, that a recovery cannot be had upon a series of bonds which of themselves exceed tlie ¡5 per cent, limitation, by simply showing that the series were sold for cash, and that, if the county officials had properly used the proceeds in payment of existing indebtedness, the total debt, of the county would not have been increased; for, as is said in that case, “it would be inconsistent alike with the words and with the object of the constitutional provision, framed to protect municipal corporations from being loaded with debt beyond a certain limit, to malee their liability to be clanged with debts contracted beyond that limit depend solely upon the discretion or the honesty of tlieir officers.” This case, however, does not go to the extent of holding that, if A. should advance or loan to the county a certain sum, say, $ 100,000, for (he purpose of enabling the county to refund its existing valid indebtedness, and the money should Lx* applied to that purpose, A. could not recover because, tin* sum he loaned in itself, or if added to the pre-existing indebtedness, exceeded the constitutional limitation. If, in such a case, A. should advance the named sum for refunding purposes to the county officials, and they should misappropriate tlie money, then A. could not recover against the county, because to recognize the indebtedness would of necessity increase 1;lie total amount: to a sum beyond the limit. If, however, A. should, for the purpose named,-.pay to the count}- officials the agreed amount, and they should apply it in payment of the preexisting debts of the county, the actual indebtedness would not be. increased, and no reason exists why A. should not: be entitled to re
In the case of Doon Tp. v. Cummins, supra, which is the case upon which reliance is mainly placed to sustain the demurrer, Li: is stated That, if an exchange of bonds is made, the constitutional limitation would not be infringed, which clearly recognizes the idea that valid debts may he refunded by the substitution of new bonds therefor, so long as the effect thereof is not to increase the indebtedness beyond the constitutional limit. In the Doon Case the action was at law', based upon the bonds as negotiable instruments issued by the township. In cases wherein the right of recovery is thus rested upon negotiable paper, and wherein the holder may seek to estop the municipality by the recitals found on the face of the note or bond, or relies upon the peculiar privileges accorded by the commercial law to paper of this character, it is entirely propia- to hold that, under that aspect, the paper itself creates an independent indebtedness, the validity of which, as against the constitutional limitation, depends upon the ques-!ion whether the amount thereof, being added to tbe pre existing-debts, brings the aggregate beyond the limit.
But if the suit is not based upon the rights created by the purchase of negotiable paper, but upon the facts of a transaction to which the plaintiffs and defendant were parties, then it would seem that the transaction must he viewed as a whole, and that the rights of the parties must 'be determined by the effect of the entire transaction. Thus, in this case it appears that Lyon county was indebted to various parties; that the county determined to refund this outstanding indebtedness; that, for that purpose, B. L. Richards was appointed the financial agent of the county; that the issuance of bonds, under the provisions of the statutes then in force, and up to the limit of ?120,000, was authorized; that the bonds on their face showed that they were intended to he used for refunding purpose; that, to induce the parties to purchase the same, the nature of the indebtedness to he paid off was explained to the purchasers; that, from time to time, bonds were sold to the various parties; that the money realized therefrom was used in paying off the pre-existing indebtedness of the coiinty. Thus,
In support of the demurrer, it is further urged that a court of equity has no jurisdiction, because there is an adequate remedy at law. As
The last position taken in support of the demurrer is that the action is barred by the statute of limitations, and this is on the theory that the claims of the plaintiffs is for money had and received, and that the right of action accrued when the money was furnished, which was more than five years before this suit was brought. There can be no question that if fhe suit is to be viewed as one wherein the complainants are seeking to recover damages because they were induced- to part with their money on the promise of receiving therefor valid bonds of the county, which were not in fact, furnished them, then, under the rulings made in Morton v. City of Nevada, 3 C. C. A. 109, 52 Fed. 350, and Merrill v. Town of Monticello, 18 C. C. A. 636, 72 Fed. 462,the right of action for damages or for money had and received would be deemed to have accrued when the money was paid over and the void bonds were delivered, or, at furthest, when the county ceased paying interest on the bonds; but, as already stated, this proceeding is not for the recovery of damages, nor is it a case wherein the county had no authority to issue refunding bonds under any circumstances. In tbe cases just cited, the defendant town had no authority whatever to issue the bonds upon which the money was obtained, and it was held that the statute began to run against the right: to recover the money paid from the date of fhe payment thereof. In the case at bar (he suit is based upon the facts of the transactions liad between the complainants and the defendant county, it appearing that the county obtained certain sums of money from the complainants for the purpose of refunding the debt of the county. The county had full authority to refund its indebtedness. It had the power to borrow money for that purpose. It had the power to issue bonds for refunding purposes. The averments of the bill show that it procured money from the several complainants for refunding purposes,' and that the money thus procured was applied in whole or in part to the refunding of valid existing indebtedness of the county. The real contracts between complainants and the county were to the effect that, to enable the county to refund its existing debt, the complainants would furnish certain sums of money, and the county agreed to apply the