43 Iowa 48 | Iowa | 1876
I. The abstract in this case is very defective. Besides failing to show which party appeals, it does not clearly show the names of all the defendants. We treat the ease as being appealed by plaintiffs, because both sides admit it in their arguments. Counsel for defendants assert in their argument that both parties appeal; this is denied by plaintiffs’ counsel in his argument, who insists that his clients only appeal. We cannot regard the defendants as having appealed in this state of the case. Other matters could be mentioned that ought to appear in the abstract.
II. Certain questions are raised as to the regularity of the action of the referee in admitting evidence of the defendants, offered at the trial, when, it is claimed, the case was submitted upon written evidence in the form of depositions. Wedonotfind it necessary, to pass upon the point thus made. If the evidence be considered as proper, our conclusions would not be changed thereby. We will proceed to examine other questions which determine the rights of the parties in this suit. The one that will first receive our attention involves the validity of the bonds in question.
III. It is insisted by counsel for plaintiffs that the record
Further discussion of the point or a rehearsal of the facts upon which our conclusion is based, need not be had.
IV". Code, Sec. 1821 (Acts Twelfth General Assembly, Chap. 9, Sec. 1), is in these words: “ Independent school districts shall have the power and authority to borrow money fori the purpose of erecting and completing school-houses. by\ issuing negotiable bonds of the independent district, to run I any period not exceeding ten years, drawing a rate of interest / not exceeding ten per cent per annum, which interest may be paid semi-annually; which said indebtedness shall be binding and obligatory on the independent district for the irse of which said loan shall be made; but no district shall permit a greater outstanding indebtedness than an amount equal toj five per cent of the last assessed value of the property of the¡ district.”
The constitution of this State contains the following inliib-n itory provision: “ No county, or other political or municipal i1 corporation, shall be allowed to become indebted in any manner, or for any purpose, to an amount in the aggregate exceeding five per cent on the value of the taxable property within such county or corporation, to be ascertained by the last State and comity tax list, previous to the incurring of such indebtedness.” Art. XI, Sec. 3.
It is clearly established by the evidence in this case that the taxable property of the district, as shown by the tax list contemplated in the foregoing provisions, amounted to $49,650. Five por cent upon this sum is $2,482.50. The debt existing at the time against the district was $425. The limit of the indebtedness which, under the constitution and the statute,.
The evidence shows that the bonds have passed out of the hands of Foster Brothers, and are now held by those who were strangers to the contract between them and the district. It is not shown that the holders of the instruments had express notice of the illegality of their inception, or of any infirmity charged against them, nor are there any facts shown which should have put tlie holders upon inquiry that would have led to the discovery of the infirmities of the paper. Those who Inow own the bonds must be regarded as innocent holders, if holders of this paper under any circumstances can be called innocent.
The question presented for our consideration is this: “Is the independent school district, a corporation existing under the laws of this State, liable to a tona fide holder of its bonds, issued for a sum exceeding the amount of the indebtedness which is restricted by the constitution and statutes of the State? ”
The statement of the question suggests that there are two subjects of inquiry to be pursued:
1. What is the effect of the inhibitory constitutional and statutory provisions upon the indebtedness which exceeds the prescribed limits?
2. Do these restrictions invalidate that part of the indebtedness which is within the limits, in case the whole debt is cheated by the same act and for the same purpose?
YI. We will now proceed to the consideration of the question involving the validity of the indebtedness which is
I am unable to .discuss the question in language and manner more satisfactory to myself than by repeating what I have heretofore said upon the subject. In 1871 the precise question was before this court in a case then pending here. The duty of preparing an opinion, expressing the views of a majority of the court upon the question, was assigned to me, which I then discharged to the satisfaction of my brothers who agreed with me. The cause was settled or dismissed before decision, and the opinion I wrote was not filed. It was presented to the profession through one of the law journals of the day.
The opinion I am about to introduce, after a statement of the question under consideration, refers to that provision of the constitution of the State above quoted, limiting municipal and corporate indebtedness, and then proceeds in the following language, using the term “city” to describe the corporation whose acts were the subject of consideration:
This limitation, we argue, is a direct and positive prohibí-if tion, and unquestionably, we think, deprives the city of alljj power to issue obligations in violation thereof. A moment’s ' ■consideration will make this position plain.
| IX. There is no distinction in reason between the cases of ■I entire absence of enactment conferring power, and a prohibition of its exercise beyond a certain limit. They are in fact one and the same case. In the first instance power is not granted, and' is not, therefore, possessed; in the other it is expressly withheld, and its exercise prohibited, and is, therefore, not conferred. There is in each case' a total absence of authority. The same is true where power is granted upon condition's. They must be' complied with before the power passes to the corporation. It is equally plain that if power be conferred to be exercised to a certain extent and no farther, when the limit is reached, the power ceases. These principles are evident, and do not require the support of authority.' No other rules would keep corporations in subordination to the State, or be in harmony with the fundamental doctrine above announced, namely: all power of corporations is derived from positive enactment.
In the case before us, the city is authorized to create an indebtedness to a certain extent, and is expressly prohibited from exceeding such limit. Its officers may issue its bonds
These doctrines are well sustained by authority, and are not now for the first time recognized and applied by courts. The case of Reichard v. Warren County, supra, is not unlike in principle the one before us. In that case the limit, as provided by statute, upon the power of the county to expend money in building a court-house was a vote of the people. A contract was made for the expenditure of a larger sum than was voted, under which the plaintiff claimed recovery. It was held that the contract had no binding force, for the reason that it exceeded the limitation imposed' by the vote of the people upozi the power of the county. There are numerous cases in the reports where acts of counties and muziicipal and other corporations have been held void, because they exceeded the power conferred upon those bodies. We are not aware that a contrary doctrine has been anywhere recognized. It is admitted by evez’yone that, “If the bonds were issued 11 without any authority to issue bonds, they would be clearly 11 void.” But some insist, “ If the power to issue -exists, and is]/ irregularly exercised, or is exercised in disregard of conditions j and limitations, the bona fide holder is protected.” We have | established above that a condition or limitation upon a power 1 whereby it ceases at a certain point, as effectually defeats its exercise beyond the limit, as though no power had been granted at all. The statement of the rule, as admitted, is utterly inconsistent with the exception insisted upon. When the limitation is passed, there is the same absence of power *as Ij though none had ever been conferred; otherwise the condition'/ in limitation would be without effect. fide holders, without notice of their infirmities, binding upon the city. This position is
These cases are not numerous and are overcome, in our opinion, both by authority and reason supporting the contrary doctrine. The court in many cases has uniformly held that, in the absence of power to execute municipal or county bonds, no subsequent transfer thereof will give them effect, but they will be held void in the hands of bona fide holders. Hull & Argalls v. The County of Marshall, 12 Iowa, 142; Clark v. The City of Des Moines, supra; Smith v. Henry County, 15 Iowa, 385; Chamberlin v. The City of Burlington, 19 Id., 404.
The same rule is announced and fully recognized by the United States Supreme Court in the recent case of Marsh v. The Supervisors of Fulton County, 10 Wallace, 676, s. c. 5th West. Jur., 166. It is there held that a holder of a county bond “ was bound to look to the action of the officers of the county, and ascertain whether the law had been so far followed by them as to justify the issue of the bonds. The authority to contract must exist before any protection as an innocent purchaser can be claimed by the holder.” It is claimed that a different doctrine is recognized in the prior cases decided by the United States Supreme Court, involving municipal and county bonds. It will be found, however, upon an attentive examination, that the decisions referred to do not go to that extent. In Aspinwall v. Knox Country, 21 How, 539, and probably in some other cases, it is held that the purchaser is required to look no further than the instrument to ascertain whether the law authorizing it has been complied with. It is not held that the bond itself is evidence of power in the corporation to issue it. But should there be, to some extent, a conflict between the recent case of Marsh v. The Supervisors of Fulton Country, and prior adjudications in the same court, the last decision, which was concurred in by the whole bench, appears to be well supported by reason, and the principles of the law. It is in accord, too, with Aspinwall v. The County of Daviess, 22 How., 365, in which it is held that county bonds, issued in violation of the constitution of the State, are void, even though held by hona fide purchasers, without notice of their infirmity.
In our opinion the fact that the bonds in question are held by innocent purchasers does not render them valid against the city.
This argument is-answered by the view we have just.presented, as to the holder’s duty. It rests upon him to ascertain the authority of the city to issue the bonds. He, therefore, cannot claim the protection accorded to the holder, in good faith and without notice, of all instruments denominated negotiable or commercial paper.
Bnt_5iip.IELse they are estopped to dispute the validity of the city bonds; all the tax-payers of the city are affected in the same manner, and to the same extent. No tax-payer, therefore, can resist the bonds, and the corporation and its officers are equally estopped to object to them. There is, therefore, no one who can contest their validity. It follows that the bonds, though illegal and void, having been issued without authority, can be enforced against-the city, and thus the plain and direct provision of the constitution of the State is defeated and disregarded. The argument proves too much, and is thus completely answered.
It is readily seen that the rules relating to principals and agents have no application to the question we are considering, and do not even serve to illustrate the principles involved. The city authorities execute the power granted to the city, not as agents, but in the discharge of the functions of the municipal government. The municipal power is exercised through the city officers. They are instruments for the exercise of the power conferred by the city charter. They constitute 'the government of the city. They derive their authority from the charter, not from an ideal being called the city. The constitutional prohibition acts directly upon them.
The constitution provides that the General Assembly shall make no law respecting the establishment of religion, or providing religious tests, as qualifications for officers of public trust. Now suppose that the General Assembly should, by law, permit the municipalities of the State to establish religion within their respective limits, or provide religious tests? Would it be claimed that the courts must sustain the acts of a corporation in the exercise of the power thus granted to it, on the ground that all of the people of the city assented thereto? No one will maintain such a doctrine. The people of a city cannot make for themselves such laws. Being in conflict with the constitution, which, until it be changed or abrogated in the manner therein prescribed, is paramount to the will of the people, we would declare laws of this character void, even though every being in the State affected thereby should assent to them. For the very same reason the courts must declare void the act of a city in issuing the bonds in question, even though it were done with the consent of all the citizens and tax-payers. Being against the policy of the State as declared in the constitution, it cannot be made valid.-
The argument under consideration is based upon the position that the inhabitants of a city by their silence are estopped to deny the validity of the bonds; that having failed to object to them at a proper time, their assent will be presumed. It will be conceded that such implied assent can have no greater effect to make the instrument valid, than consent expressly given, which we have seen will not so operate. ■ •
In the case of Miners Ditch Co. v. Zollenbach, 37 Cal., 453, sometimes cited and relied upon as an authority in point against our view, a private corporation, for the purpose of •consolidating its business and property with another corporation, conveyed all its lands. It was held that, as it had the power to convey its property for some objects, the purpose for which the conveyance was made, though admitted to be without the general scope of its power, did not invalidate the act. The case recognizes no principle in conflict with the views we have above announced, but on the contrary contains reasoning in their support. The following extract from the opinion of the court in that case, announced by Chief Jhstioe Sawyer, •very happily expresses the distinction we have just attempted to point out: “The term ultra vires, whether with strict propriety or not, is also used in different senses. An act is said to be ultra vires when it is not within the scope of the powers of the corporation to perform it under any circumstances, or for any purpose. An act is also, sometimes, said to be ultra vires with reference to the rights of certain parties, when the corporation is not authorized to perform it without their consent; or with reference to some specific purpose, when it is
■In our opinion, the bonds and coupons, issued in excess of the limit prescribed, are void, and of no binding force against the city.
XIV. A few thoughts upon this branch of the case, in addition to the foregoing argument, I will briefly present. They are principally in reply to objections urged by counsel in this case.
XYI. It is said that since the district “ had the general power to contract an indebtedness, although the amount was limited by the constitution, and the fact of such limit being reached was a matter in pais, and the bonds have come to the hands of dona fide holders, the obligation of the city to pay is complete, although the bonds were issued in excess of such limit.”
The purchaser of the paper in question is, as we have seen, chargeable with notice of the statute and constitution of the State; the facts upon which the determination of the limit of indebtedness is to be made, and whether it has been reached, are all open to the world. The tax list is a county record; indebtedness of the school district is shown by its record. There can be no excuse for ignorance, on the part of the purchaser of the bonds, of the facts presented and set out in these records.
The presumption which is the foundation of the estoppel recognized by the court, it is clearly stated in the foregoing quotation, will be exercised only in cases when there is a grant of power. If the power be withheld, if there be no legislative1 grant of authority for the exercise of the power, no estoppel will arise from the acts of the officers, or the people of the corporation.
The same court has more recently held that, in the absence of authority in a corporation to contract a debt, which was attempted under an unconstitutional legislative enactment, the payment of interest by the corporation worked no estoppel against setting up the unconstitutionality of the legislation, and the invalidity of the bonds issued thereunder. Loan Association v. Topeka, 20 Wal., 655.
Prior to the adoption of our present constitution, many of the counties and cities of the State had become indebted to an extent that was not only burdensome, but threatened permanently to retard their growth and prosperity. Indebtedness of this character was uniformly contracted upon the affirmative vote of the electors. It was believed sound policy demanded that a restriction be placed upon the power of counties and other political corporations' to incur voluntary indebtedness. The constitutional restriction uqder consideration was the result of the sentiment then prevailing, which had its origin in the experience of the day.
It will be observed that this restriction operates upon the political sub-divisions of the State and upon the people. It is intended to prohibit the creation of indebtedness beyond the prescribed limit. All acts in contravention thereof are void. As we have shown, the provision is known to the world, and no one can be presumed to be ignorant of the invalidity of bonds issued in violation thereof. There can be no innocent purchasers of such paper issued without authority. It has been held that, where municipal bonds are issued without authority, a holder cannot recover on the ground that he is an innocent purchaser. Pendleton Co. v. Amy, 13 Wal., 297 (304); Aspinwall v. Commissioners of the County of Daviess, 22 How., 364 (379); Marsh v. Fulton Co., 10 Wal., 676;
Many other decisions could be cited in support of this doctrine. See cases referred to in Cooley’s Constitutional Limitations, Chap. 8, p. 215-16; Dillon’s Municipal Corporations, Secs. 108, 426.
Purchasers of these bonds, being presumed to take them with notice of the constitutional restriction that is violated by their issue, must be regarded by the law, with the people:, who vote for issuing the bonds and the corporations that do|| issue them, as violators of the constitution in attempts to cre-IJ| ate an indebtedness forbidden by it. Surely if, in the enforce- 11 merit of the constitution, those who attempt its violation are made to snffer thereby, it ought not to be said that the supreme law of the State becomes an instrument “ to ensnare and defraud” them.
The constitutional provision in question, it will be observed, prohibits the creation of indebtedness beyond the prescribed limit. It is an inhibition upon such indebtedness, however its creation may be attempted. It will cover the case of implied contract, as well as express contract by bond, or otherwise. It is ahned at-the»im#Ai€ri',-MSS^,.notitsJbr-m. It cannot be true, then, that a debt could be créated, because a consideration is received. It cannot, therefore, be admitted that “if the bonds are void, and the city has .-received value, it would be liable to pay back what it has received,” for this implies that, by receiving the “value ” a debt is created. It may be that the identical money or other thing of value paid in such cases could be recovered from the hands of the officers or agents of the political corporation while it could be reached there, on the ground that property therein.had not vested in the corporation. But upon this point we express no opinion. "What we do intend to say is, t-liat such a transaction cannot create a debt-, and no recovery as for a debt can be had thereon. Manning v. Dist. Tp. of Van Buren, 28 Iowa, 332; Cooley’s Const. Lim., p. 196; Zottman v. City of San Francisco, 20 Cal., 96.
It appears that the bonds all bear the same date and were issued, though at different times, as a part of one transaction. They were intended as security for a debt of $15,000 which was attempted to be contracted in building the school-house. It cannot be said that, in justice, invalidity should attach to certain particular bonds, while others, to the amount for which the district could lawfully contract indebtedness, should be held valid. Each bond being birt a part of the whole debt,
XXI. It appears that a part of the tax has been paid. Whatever sums have been paid in excess of the lawful tax of one per cent, which remains in the hands of the county treasurer, or the treasurer of the district, will be refunded to the tax-payers, each one receiving the excess paid by him.
XXII. No relief in the nature of a judgment in favor of the bond-holders for the amount lawful^ due on the bonds will be granted, as they claim nothing of the kind.. An answer in the nature of a cross-bill claiming such relief was filed, but it is insisted by defendants’ counsel that it was withdrawn. Whether that be so or not, they are now understood
A decree in harmony with this opinion will be entered in this “court.
Modified and affirmed.
The Western Jurist, January, 1872.
Western Jurist, January 3872, page 16.