72 F. 623 | 6th Cir. | 1896
after making the foregoing statement of facts, delivered the opinion of the court.
The primary question which is to be decided is this: Were the •bonds now held by the appellee corporation issued without authority of law, and in violation of the restrictions and conditions imposed by the act of May 16, 1886, heretofore set out, and under which they purport to have been issued? If they were issued in violation of the substantial provisions of the permissive act, they were void, unless they have fallen into the hands of an innocent purchaser for value, and the requisite circumstances exist to constitute an estoppel, precluding the county from showing that in fact they were issued in violation of law.
Passing for the present all the conditions precedent to the actual preparation and formal execution of the bonds under the third section of the enabling act, we shall consider the terms and conditions imposed by the fourth section, so far as the issuance of the bonds is affected by that section. Aside from the positive provision of the fourth section, it is evident, upon obvious principles of law, that these bonds, when prepared and formally executed according to the provisions of the third section, were invalid obligations, as lacking the essential element of delivery, — a step as necessary to the validity of' a bond or other negotiable instrument as it is to the existence of a deed. 1 Daniel, Neg. Inst. § 63; Young v. Clarendon Tp., 132 U. S. 353, 10 Sup. Ct. 107. But whatever doubt might exist as to the obligatory character of these bonds while still in the hands of the county officials who had prepared and signed them, the fourth section,, in clear terms, resolves. No pow;er to made delivery of the bonds was conferred upon the county judge, or any other officer of the county, and all duty and power
“That municipal corporations have no power to issue bonds in aid of railroads, except by legislative permission; that the legislature, in granting permission to a municipality to issue its bonds in aid of a railroad, may impose such conditions as it may choose; and that such legislative permission does not carry with it authority to execute negotiable bonds, except subject to the restrictions and conditions of the enabling act, — are propositions so well settled by frequent decisions of this court that we need not pause to consider' them. Sheboygan Co. v. Parker, 3 Wall. 93-96; Wells v. Supervisors, 102 U. S. 625; Claiborne Co. v. Brooks, 111 U. S. 400, 4 Sup. Ct. 489; Young v. Clarendon Tp., 132 U. S. 340-346, 10 Sup. Ct. 107.”
In Barnett v. Denison, 145 U. S. 139, 12 Sup. Ct. 819, Mr. Justice Brown, in delivering the opinion of the court, said:
“The provisions of the statute authorizing them must be strictly pursued, and that the purchaser or holder of such bonds is chargeable with notice of the requirements of the law under which they are issued.”
The conclusion we reach is that this condition has not been complied with, and that the trustee, in delivering these bonds, did so in violation of his duty, and acted without authority of law.
This brings us to the consideration of the question as to whether the county is estopped to make this defense. The learned trial judge found as a fact that the appellee bought in open market, for value, and with no actual knowledge that the conditions imposed by the enabling act had been in any w'ay unperformed. That such a municipal corporation had no general authority to issue such negotiable securities, and that the purchaser is chargeable with notice of the terms, conditions, and requirements of the permissive statutes under which they. purport to be issued, is
First, it is said that the recital in these bonds imports a compliance with all the restrictions and conditions of the enabling act, and that these recitals cannot be contradicted. The recital in the bond is that it was "issued pursuant to the authority conferred upon the said county by an act of the legislature of Kentucky entitled, ‘An act to authorize the county of Mercer to subscribe aid to the Louisville Southern Railroad Company,’ approved May 13, 1886.’’ Looking to the act referred to, as the purchaser was bound to do, he discovered that these bonds were to be executed and deposited in escrow, and delivered only upon the completion of the Louisville Southern Railroad through the county of Mercer. By this provision he was advised that the recital that the bond "was issued pursuant to the authority” of the act referred to was a recital which, in the nature of things, could only refer to facts antecedent to the deposit of the bonds in escrow, and could not possibly operate as a recital covering the subsequent completion of the railroad through the county. The enabling act operated as notice to him that the bonds were not "binding and valid obligations" when placed in escrow, and would not become valid and legal securities “until the railway of the said company' shall have been so completed through such county that a train of cars shall have passed over the same.” The purchaser therefore bought with notice that the depositary held the bonds “in escrow,” and had no power to deliver them until the company should “become entitled lo the same by the construction of its road through the county.” The recitals in the bonds must therefore be referred to the acts which, under the permissive law, were to precede the execution and deposit of the bonds in escrow, and do not operate as a recital of facts which could not have existed when they were made. Where recitals are relied upon to cut off the defense that municipal bonds are in fact issued without authority of law, or in violation of law, they should be fairly and reasonably construed, and be such as to clearly indicate that the conditions and requisites of the law’ had been complied with. Risley v. Village of Howell, 12 C. C. A. 218, 64 Fed. 453; Northern Bank v. Porter Tp., 110 U. S. 618, 619, 4 Sup. Ct. 254; School Dist. v. Stone, 106 U. S. 183-187, 1 Sup. Ct. 84. In the case last cited, Mr. Justice Harlan, for the court, concerning the construction of words in a bond claimed to operate as a recital estopping a municipality from showing that the bonds had been issued in violation of law, said:
•‘Numerous cases have been determined in this court in which we have said that where a statute confers power upon a municipal corporation, upon the performance of certain precedent conditions, to execute bonds in aid of the construction of a railroad, or for other like purposes, and imposes upon certain officers — invested with authority to determine whether such conditions have been performed — the responsibility of issuing them when such conditions have*630 been, complied with, recitals by such officers that the bonds have been issued ‘in pursuance of,’ or ‘in conformity with,’ or ‘by virtue of,’ or ‘by authority of,’ the statute, have been held, in favor of bona fide purchasers for value, to import full compliance with the statute, and to preclude inquiry as to whether the precedent conditions had been performed before the bonds were issued. But in -all such cases, as a careful examination will show, the recitals fairly import a compliance, in all substantial respects, with the statute giving authority to issue the bonds. We are unwilling to énlarge or extend the rule now established by numerous decisions. Sound policy forbids it. Where the holder relies for protection upon mere recitals, they should at least be clear and unambiguous, in order to estop a municipal corporation, in whose name such bonds have been made, from showing that they were issued in violation or without the authority of law.”
There is therefore no estoppel by recital because there is no statement in the bonds implying that the Louisville Southern Railroad had been completed through the county, as required by the provision's of the enabling act. Buchanan v. Litchfield, 102 U. S. 278; Carroll Co. v. Smith, 111 U. S. 561, 562, 4 Sup. Ct. 539; Lake County v. Graham, 130 U. S. 674, 9 Sup. Ct. 654; Citizens’ Sav. & Loan Ass’n v. Perry Co., 156 U. S. 692-701, 15 Sup. Ct. 547. We have then to deal with bonds which contain no recital whatever implying that the most important of the conditions precedent specified in the enabling act, upon which the power to issue them depended, had been performed. In this respect the case is distinguished from cases where the recitals were such as to imply, compliance with all 'precedent conditions, such as that they had been “issued pursuant” to a particular act, as in Knox Co. v. Aspinwall, 21 How. 540, or “by virtue of the law of the state entitled 'An act,’ ” etc., as in Insurance Co. v. Bruce, 105 U. S. 328, or “under and in pursuance of an act,” etc., as in Lewis v. Commissioners, 105 U. S. 739, or “under authority of an act,” etc., as in Oregon v. Jennings, 119 U. S. 74, 7 Sup. Ct. 124. This court, in Cadillac v. Institution, 7 C. C. A. 574, and 58 Fed. 935, 16 U. S. App. 545, held that, under an act authorizing the issuance of new bonds “to extend the time of payment of old bonds falling due,” a recital that a bond was issued “for the purpose of extending the time of payment of bonds falling due” estopped the city from showing-that the bonds thus refunded were void bonds. So in Risley v. Village of Howell, 12 C. C. A. 218, 64 Fed. 453, the bonds recited, that they were issued under an act approved February 25, 1885, which act authorized the issuance of bonds “to raise money to make public improvements.” It was held that it was not a defense to show that in fact the money obtained for the bonds had been expended under an ordinance, referred to in the bonds, for a purpose, not a “public improvement,” within the decisions of the supreme court- of the state. On the contrary, the case falls distinctly within another class of cases, where the bonds either contained no recitals, or the recitals were made by onb not intrusted with the duty of ascertaining and determining the facts recited. Dixon Co. v. Field, 111 U. S. 83, 4 Sup. Ct. 315; German Sav. Bank v. Franklin Co., 128 U. S. 526, 9 Sup. Ct. 159; Barnett v. Denison, 145 U. S. 139, 12 Sup. Ct. 819; Citizens’ Sav. & Loan Ass’n v. Perry. Co., 156 U. S. 701, 15 Sup. Ct. 547.
The mere fact that the bonds have been issued, and are, in form, negotiable securities, if entitled to any significance whatever, would only raise a presumption that they had been delivered to the railroad company by the trustee in compliance with the terms of the law. Such a presumption would not be conclusive, and the county would not be estopped, even as against one who bought in actual ignorance of the true facts. This seems the well-settled rule, established by Buchanan v. Litchfield, Daviess Co. v. Dickinson, German Sav. Bank v. Franklin Co., and Citizens’ Sav. & Loan Ass’n v. Perry Co., heretofore cited. In the case last cited this precise point was urged. Justice Harlan, for a unanimous court, in answer, said: .
“But it is urged that, the bonds having been executed and issued by those whose duty it was to execute and issue them whenever that could be rightfully done, the county is estopped to plead their invalidity, as between it and a bona fide purchaser for value. This argument would have force if the material circumstances bringing the bonds within the authority given by law were recited in them. In such a case, according to the settlea doctrines of this court, the county would be estopped to deny the truth of the recital, as against bona fide holders for value. But this court, in Buchanan v. Litchfield, 102 U. S. 278-292, upon full consideration, held that the mere fact that the bonds were issued, without any recital of the circumstances bringing them within the power granted, was not in itself conclusive proof, in favor of a bona fide holder, that the circumstances existed which authorized them to be issued.”
"But it still remains that there must be authority vested in the officers, by law, as to each necessary fact, whether enumerated or nonenumerated, to ascertain and determine its existence, and to guaranty to those dealing with them the truth and eonclusiveness of their admissions. In such a case the meaning of the law granting power to issue bonds is that they may be issued, not upon the existence of certain facts, to be ascertained and determined whenever disputed, but upon the ascertainment and determination of their existence by ihe officers or body designated by law to issue the bonds upon such a contingency. This becomes very plain when we suppose the case of such a power granted to issue bonds, upon the existence of a state o£ facts to be ascertained and determined by some persons or tribunal other than those authorized to issue the bonds. In that ease it would not be contended that a. recital of the facts in the instrument itself, contrary to the finding of those charged by law-with that duty, would have any legal effect.”
It is to bo observed at the outset that it is significant that while the act provides, in very plain language, that the requisite facts antecedent to the preparation and deposit of the bonds with the trustee shall be ascertained and determined by the county judge, no such explicit statement is found regarding the determination of the subsequent precedent conditions by this trustee. If he is empowered to make any determination whatever, the power is only inferentiallv granted. So it is significant that no provision is found requiring an indorsement of such decision on the bonds, or the making of some .other permanent record that so grave a determination had been made. The very failure to provide in clear terms for a determination by this trustee of the existence of conditions which could only arise after the county judge had parted with the bonds and lost all control over them, and to provide' for some method of certifying that determination, affords a strong presumption against the interpretation now contended for. Especially is this.noticeable in view of the very well defined distinction between bonds with and without recitals. But it is said that the act authorized the making of “negotiable bonds,” and that it ought not to be presumed that the legislature intended that “ne; gotiable bonds” should be forever open to the defense that the railroad had never been completed as required by the act, and that we ought, therefore, to infer that the trustee was authorized to
Counsel have very ably argued that a distinction exists between the effect of a delivery in violation of the conditions, where the thing in escrow' was negotiable paper, and has come to the hands of an innocent; purchaser without notice, and for value. 1 Daniel, Neg. Inst. §§ 68, 855, 856; Taylor v. Craig, 2 J. J. Marsh, 449. Possiblv such distinction is sound, though if the purchaser bought with notice that the paper had been held in escrow, and that the trustee had no power to deliver until a condition had arisen, of which the purchaser likewise had notice, he could hardly be regarded as a bona fide holder. Every one dealing with an agent assumes all the risk of a lack of authority in the agent to do what he does. Negotiable paper is no more protected against this inquiry than any other. The purchaser of these bonds bought with notice that they had been held in escrow. The authority of the custodian was not a secret. Herein is the distinction between this case and that class of cast's where paper is fraudulently issued by an agent who is authorized to make and issue negotiable paper in the business of his principal, and the question whether the paper issued is in the business of the principal is peculiarly within the knowledge of the agent, and not known to the world or a stranger. In such cases the agent is impliedly authorized to represent the existence of the fact upon W'hich his agency depends. Farmers’ Nat. Bank v. Hutton Manuf’g Co., 6 U. S. App. 312, 332, 3 C. C. A. 1, and 52 Fed. 191. It is difficult to see why one who takes such bonds as those in suit is not just as much obliged to look to the authority of the
It is next insisted that the county should be held responsible upon the principle that, whenever one of two innocent persons must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it. This principle can have no application "here, for two reasons: First, the holders of these bonds cannot be regarded as innocent purchasers, inasmuch as they are constructively chargeable with all that inquiry would have disclosed; and, second, the bonds, as bonds of a municipal corporation, are invalid, for want of power to issue them until the actual completion of the railroad in whose aid they were authorized. Neither are the bonds validated because of the payment of interest for a time after their issuance. The question here is not one of mere irregularity in the method of exercising a power. The defense presented goes to the power of the county. There was no authority to issue bonds in aid of the railroad until the road had been constructed through the county. That condition having never been complied with, neither the county court nor the county judge could, by any act of omission or commission, waive its performance. Neither could the county court or any of the county officials validate them by subsequent acts of ratification. If the power to issue them did not exist when they were issued, no payment of interest, or resolution to adopt them, can operate to make them valid contracts. Ratification can only be effective when the party ratifying possesses the power to perform the act ratified. Marsh v. Fulton Co., 10 Wall. 676-684; Norton v. Shelby Co., 118 U. S. 425-451, 6 Sup. Ct. 1121. In Doon Tp. v. Cummins, 142 U. S. 366-376, 12 Sup. Ct. 220, the court, through Mr. Justice (Irav, said:
“A ratification can have no greater effect tlian a previous authority, and debts which neither the district nor its officers had any power to authorize or create cannot be ratified or validated by either of them, by the payment of interest, or otherwise.”
That the county still holds the railroad stock received when these bonds were delivered is no reason for holding these bonds valid. By proper proceedings the railroad company can recover* this stock, or compel payment for its valué.’ Justice would demand the Return of the stock, or compensation for its value. No such question exists in this case. Norton v. Shelby Co., 118 U. S. 454, 6 Sup. Ct. 1121. The judgment must be reversed and remanded, with direction to render judgment in accordance with this opinion.