Keene Five-Cent Sav. Bank v. Lyon County, 97 F. 159

Keene Five-Cent Sav. Bank v. Lyon County

97 F. 159 | U.S. Circuit Court for the District of Northern Iowa | 1899

SHIRAS, District Judge.

The evidence in this case shows that the series of bonds issued by the defendant county, under date of July 1, 1885, and amounting to the sum of $20,000, were issued for the purpose of funding the then outstanding warrants of the county, and the bonds upon their face referred to the several acts of the general assembly of the state of Iowa, which conferred upon the county full authority to issue negotiable bonds for the purpose named. As the total amount of this series of bonds did not reach the 5 per cent, limitation imposed upon the power of the county to create indebtedness, there was nothing on the face of the bonds to charge the purchaser thereof with notice of any illegality therein, but,, on the contrary, every presumption was in favor of their validity.

The evidence clearly show's that the plaintiff corporation bought the bonds for full value, in good faith, and is therefore entitled to recover thereon, unless the defendant county has sustained its defense that the bonds are invalid because of the limitation found in the constitution of the state of Iowa, restricting the indebtedness of municipal corporations to 5 per cent, upon the value of the taxable property within the municipal limits, as shown by the last preceding tax lists. The total valuation of the taxable property in the county for the year 1884 was the sum of $1,580,735, and the limit of the indebtedness was therefore the sum of $79,036.75 at the time the bonds in suit were issued.

The valid outstanding bonded indebtedness of the county at that time amounted to $61,640.75. There was then outstanding county warrants to the amount of $19,765.64, of which $16,662.01 were funded in the bonds sold to the plaintiff company. On behalf .of *165the defendant, it is contended that the evidence by it introduced proves that the warrants thus bonded were issued in 1882, and that they were themselves void, because they were issued in violation of the constitutional limit. If defendant’s position in this particular is correct, it follows that in determining the amount of the indebtedness existing against the county when the bonds in suit were sold to plaintiff this amount of void warrants cannot be estimated, and therefore the amount thereof, to wit, $16,0(52.01, must be deducted from the total of outstanding warrants, to wit, §19,7(55.64, in order to ascertain the amount of the county indebtedness represented by valid warrants, which gives the sum of $3,103.63. Adding this amount to that of the valid bonds, and we have the sum of $64,440.38 as the total of the then valid outstanding indebtedness of the county, which would fall short of the 5 per cent, limitation in the sum of $14,596.37; or, in other words, at the time the bonds in suit were issued and sold to the plaintiff company, the county could lawfully create an additional indebtedness to that amount.

It is contended, on behalf of defendant, that, as the issue of bonds sold to plaintiff exceeded this amount, being the sum of $20,000, the whole issue must be treaded as invalid and void, and that the court cannot recognize and enforce the contract of the county, evidenced by the bonds, up to the limit of the indebtedness that could be lawfully created. It must be remembered that the bonds in suit did not in themselves exceed the constitutional limit, but in fact they fall far short of the limit. The recitals in the bonds clearly pointed out the acts of the state legislature upon which they were based, and justified the purchaser in believing that they were issued for the purpose of refunding the outstanding obligations of the county, — a purpose for which there existed ample legislative authority. Upon the face of the bonds, therefore, there was nothing to show that they were invalid; and herein is an essential difference between the facts of this case and those existing in Doon Tp. v. Cummins, 142 U. S. 366, 12 Sup. Ct. 220, the decision in which is the main reliance of defendant in this case. In that case, the series of bonds bought by Cummins in itself exceeded the limit of the debt-creating power of the township, and it was held that, as the purchaser was bound to know the limit fixed by the constitution and the amount of the taxable property within the township, he was charged with knowledge of the fact that the issue itself violated the constitutional provision, and he could not he held to be an innocent purchaser, and he could not rely upon any of the recitals in the bonds as evidence in his favor. In the case at bar, admitting that the plaintiff company was bound to know of the existence of the constitutional limit, and of the fact that the value of the taxable property in the county in the year 1884 amounted to $1,580,735, it follows that the plaintiff knew that the county had the legal right to create indebtedness up to the full sum of §79,036.75, and the offer to sell to it bonds, in the sum of §20,000 only, would not charge the company with knowledge that the county was approaching or exceeding the constitutional limit. The plaintiff, having bought the bonds for full value, and in good faith, is now entitled to rely upon the recitals of *166the bonds; and, as the total issue was far within the limit imposed upon the county by the constitutional provision, it follows that the plaintiff, having proved the due execution of the bonds, and the payment of value therefor, has made out a full and sufficient prima facie case against the county, and is therefore entitled to recover, unless the comity has made out a good defense against the plaintiff’s case. The defense relied upon is not that the county did not have full authority to issue negotiable bonds for the purpose of refunding its outstanding obligations, either by direct exchange at par, or by selling the bonds and applying the proceeds in payment of its obligations; for the acts off the general assembly confer full power so to do upon the county. The defense is not that the bonds in suit were not issued for refunding purposes, or that the plaintiff company did not pay full value therefor, or that the county did not receive the money paid for the bonds; so that the defense is not based in fact upon any matter arising out of the immediate transaction between the plaintiff company and the county, nor upon any illegality appearing on the face of the bonds, but is based upon the provision of the constitution limiting the amount of indebtedness creatable by municipal corporations; and to sustain this defense the burden is upon the county of proving the amount of the valid indebtedness existing against the county at the date of the issuance of the bonds. As the defendant itself maintains that the warrants which were funded in the bonds in suit, to the amount of $16,-662.01, were invalid and void, and has introduced evidence in support of its contention,, the court is justified in holding that the defendant’s contention in this particular is correct; and, this being the case, then it is clear that the county cannot assert that the void warrants represented an existing indebtedness that should be estimated in determining whether the county had reached the limit of indebtedness. But it may be argued that, as the evidence shows that the money realized from the sale of the bonds was in fact used in paying off the void warrants, the county in fact received no legal benefit or consideration therefor, and should not be held bound upon the bonds to any amount. Under the recitals in the bonds, the plaintiff company had the right to assume that the county would apply the proceeds realized from the bonds in the payment of valid indebtedness. If the county', after receiving the money from the plaintiff company, misapplied the same by paying off warrants which could not be enforced against the county, the plaintiff cannot be held responsible for such action on part of the county officials; nor would the payment of the void warrants, after the purchase of the bonds by the plaintiff company, give them validity at any date prior to that of the payment. Lyon Co. v. Ashuelot Nat. Bank of Keene, N. H., 30 C. C. A. 582, 82 Fed. 137. Furthermore, the very act that might be said to give them validity, to wit, payment thereof by the county, at the same moment discharged them as indebtedness against the county; for, being paid in money, that ended any liability therefor on part of the county. It thus appears that when the bonds in suit were issued the lawful indebtedness of the county, amounted to the sum of $64,440.38, whereas the constitutional limit *167would authorize the creation of indebtedness up to the sum of §70.036.75. The county, for a lawful purpose, issued and sold its bonds in the sum of $20,000, receiving full value therefor, and when sued thereon it defends by pleading the constitutional limit. The purpose of the limitation was not to enable municipal corporations to escape from the payment of just obligations, but solely to limit the burden of indebtedness which could be placed upon the taxable property of the municipality. The purpose of the constitutional limitation is fully met if a recovery in this class of cases is limited to the amount of indebtedness which could be lawfully created at the time of the issuance of the bonds, and no good reason exists why the plaintiff company is not entitled to recover for so much of the indebtedness as comes within the constitutional limitation. A rendition of judgment for that amount does not cause the indebtedness of the county to exceed the limit, and I see no more reason for refusing to enter judgment for the amount justly due than there would be for refusing to enter judgment in a suit upon a promissory note wherein the defense of a partial failure of consideration had been maintained.

In view of the rulings of the circuit court of appeals for this circuit in City of Huron v. Second Ward Sav. Bank, 30 C. C. A. 38, 86 Fed. 272, and of the supreme court in Board of Com’rs of Gunnison Co. v. E. H. Rollins & Sons, 173 U. S. 255, 19 Sup. Ct. 390, a plausible argument can be made to the effect that the recitals in the bonds sued on estop the county from asserting that the bonds, being issued to refund actual existing indebtedness, did in fact increase the county indebtedness, so as to come, either in whole or in pan, within the constitutional inhibition; but as the bonds do not contain a positive statement that the county indebtedness, including the bonds issued, did not exceed the limit, I do not feel justified in holding that the county may not be heard to aver and prove the actual facts touching the amount of the county indebtedness; but I do hold that, as the evidence shows that when the bonds in suit were issued the county could lawfully increase its indebtedness by the sum of $14,590.37, the constitutional limitation is not infringed by holding the county liable for this amount upon the bonds sued on, and that the plaintiff company is entitled to judgment for this sum, with the interest thereon that has come due within 10 years before the bringing of this suit, the total sum being $29,242.33.