62 F. 778 | 8th Cir. | 1894
after stating the facts as above, delivered the opinion of the court.
Before entering upon the discussion of any other question in this case, it is well to dispose of the contention that the holders of these bonds had notice of their invalidity before they paid for them. This contention rests chiefly upon the proposition that the defendant was forbidden by the statute to sell the bonds for less than 98 cents on a dollar (section 1830, Comp. Laws Dak.), and that the New England Loan & Trust Company bought them October 17, 1890, for 97⅛ cents on a dollar. The records of the board of education, however, disclose the facts that Mr. Stick, the president of one of the hanks of Huron, bid 100 cents on a dollar for them, and that the defendant, the hoard of education, accepted that hid, and ordered the bonds delivered to him, October 3, 1890. Under this order, evidenced by a resolution of the board, the bonds were delivered to him, and he accepted them. This constituted a sale of the bonds at par. It vested the title in Mr. Stick, and a perfect right of action for the |60,000 in the hoard of education. If the hoard failed to enforce its right and to collect the purchase price, that cannot affect the sale, or the title to the bonds. So far as Mr. Stick was concerned, however, it did collect the full purchase price. Its treasurer received a credit of $5,000 from the sale of these bonds, in the First
This conclusion disposes at the' outset of two defenses that are urged against these bonds.
It is no defense to these bonds, against innocent purchasers for value, before maturity, that the defendant loaned $59,500 of the proceeds of the sále of them to the city of Huron for city, warrants that were never paid, and that cannot be legally enforced, so that it has actually realized but $500 from the sale of its bonds. That a municipal corporation has given away or squandered the proceeds of negotiable securities which it placed upon the market cannot affect the rights of bona fide purchasers, who had no knowledge of, nor part in, the gift or waste. They are in no way responsible for the wise and economical use by the corporation of the funds it borrows. County Com’rs v. Beal, 113 U. S. 227, 240, 5 Sup. Ct. 433; Cairo v. Zane, 149 U. S. 122, 137, 13 Sup. Ct. 803; Maxcy v. Williamson Co., 72 Ill. 207.
Hor is it any defense to such bonds, as against bona fide purr chasers, that the citizens and officers of a municipal corporation, with the intention to use the proceeds of the bonds for an unlawful purpose, took the necessary steps to issue them for a lawful purpose, certified on the face of the bonds that they were issued for such lawful purpose, and then appropriated the proceeds to the unlawful purpose. Corporations are as strongly bound to an adherence
Another contention of counsel for the defendant is that article 3, c. 17, of t he Compiled Laws of Dakota, under which the bonds were issued, was never legally adopted, and hence the bonds were void, and this, because the resolution of the city council of Huron passed August 30, 1890, calling the election for the adoption of this article, was required, by a positive provision of the city charter, to be published two weeks before it took effect, and the election was held September 11, 1890, and before it could have been so published. In support of this contention, they cite National Bank of Commerce v. Town of Granada, 4 C. C. A. 212. 54 Fed. 100. In that case the bonds were issued under section 4541 of Mills’ Annotated Statutes of Colorado, which expressly provides that the city council or board of trustees shall call the election, and shall publish the notice of the election, to determine whether or not the bonds shall issue, and shall then issue the bonds if the voie is favorable. The board of trustees of the tow-n of Granada passed an ordinance which in itself called the election, prescribed the notice, and authorized the mayor and clerk to issue the bonds if the vote was favorable. A general statute of the state provided that such an ordinance should be published, and that it should not take effect until ñve days after its
It is next urged that if article 3 was adopted at the election of September 11, 1890, the election of the members of the board of education September 22, 1890, was void, and there was no legal organization of the defendant corporation in that year, because article 3 makes provision for the election of members of the board at the annual elections of the city, which occur in March in each year, but makes no provision for their election at any other time. Section 1808, Comp. Laws Dak., provides that any city organized under the general law or under a special act may adopt the provisions of article 3 by a majority vote of its electors at any time. It also provides that any town or village not so organized, having 250 inhabitants within a radius of a mile, may adopt its provisions, and that in the latter case the county superintendent shall, upon a petition of a majority of the legal voters, call the first election by posting notices which shall state the time and place of holding the election, and the names and number of offices to be filled. Thus it
Moreover, in October, 1890, when these bonds were issued, this board of education was in any event a de facto corporation, exercising, under article 3, till the powers and functions granted to a corporation legally organized. It was recognized, and its action was acquiesced in, by the state aud by the citizens, for at least 18 mouths; and, as against bona fide purchasers of its bonds, its acts, as a de facto board of education, if within the powers granted to a board legally organized under this law, are binding upon the defendant corporation. It is the province of the state to question, by proper judicial proceedings, its incorporation; not that of a defendant in a private suit, when it has asserted its corporate existence, and incurred liabilities to innocent parties on the faith of it. “When a municipal body has assumed, under color of authority, and exercised, for any considerable period of time, with the consent of the state, the powers of a public corporation, of a kind recognized by the organic law, neither the corporation nor any private party can, in private litigation, question the legality of its existence.” Ashley v. Hoard, 8 C. C. A. 455, (60 Fed. 55, 63; County of Ralls v. Douglas, 105 U. S. 728, 730; Coler v. School Tp. (N. D.) 55 N. W. 587; Clement v. Everest, 29 Mich. 19; Burt v. Railroad Co., 31 Minn. 472, 18 N. W. 285, 289; State v. Carr, 5 N. H. 367; People v. Maynard, 15 Mich.
Finally it is insisted that the bonds are void because the defendant failed to comply with section 5, art. 13, of the constitution of South Dakota, which provides that any city, county, town, school district, or other subdivision, incurring indebtedness, shall, at or before the time of so doing, provide for the collection of an annual tax sufficient to pay the interest and also the principal thereof when due. Whether or not this provision of the constitution is self-ex-ecutory, and whether it is mandatory or simply directory, are questions exhaustively discussed in the briefs, which we will not now stop to consider. Conceding, without deciding, that it is both self-executory and mandatory, the question arises whether or not the defendant’s noncompliance with its provisions is an available defense against bona fide purchasers of these bonds, in view of the recitals they contain. Among/ other things, these bonds recite: “That all conditions and things required to be done, precedent to and in the issuing of said bonds, have duly happened and been performed in regular and due form as required by law.” One of the conditions and things required to be done, precedent to and in the issuing of these bonds, was to provide, in accordance with this constitutional requirement, for the collection of the annual tax to pay the principal and interest of the bonds. The defendant certified on the face of these bonds that this thing had been done. On this certificate the present holders bought the bonds. Can the defendant now prove the falsity of this certificate to defeat them?
Our attention has not been called to any decision of the supreme court of South Dakota upon this question, and it is, in any event, a question of general commercial law, which the national courts must decide for themselves. If. the decisions of the supreme court have settled the question, it will be unnecessary to consider those of the state courts, but we remark, in passing, that the cases of Wilson v. Shreveport, 29 La. Ann. 673, Knox v. City of Baton Rouge, 36 La. Ann. 427, and City of New Orleans v. Clark, 95 U. S. 644, which suggest that bonds may be void that are issued in violation of a constitutional provision which requires the provision for the. collection of the annual tax to pay them to be contained in the act or ordinance which authorizes their issue, have no relevancy to the question before us. It is well settled that all purchasers must taire notice of the existence and contents of the statute or ordinance under which the bonds declare that they are issued. If, as in National Bank of Commerce v. Town of Granada, supra, the ■ordinance recited in the bonds was never passed, or never took effect, the mayor and the clerk of the town, who signed the bonds, could not enact it into an ordinance by referring to it, and the purchasers must take notice that no act of theirs could give these agents the necessary authority to issue the bonds. If, as in Coffin v. Board, 6 C. C. A. 288, 57 Fed. 137, the statute recited in the bonds expressly prohibited their issue at the time they were issued, purchasers must take notice of that provisiop. of the law; and recitals
The distinction between these cases and that at bar is marked and manifest. An examination of the statutes or ordinances recited in the bonds in those cases disclosed the fact that it. was not in the power of the representatives who issued them, by any act of theirs, to make a lawful issue of the bonds, and that if they had done every act and performed every condition in their power the bonds would still have been unauthorized. In the case at bar there was no lack of power in the board of education to make a lawful issue of bonds when those in suit were issued. Article 3, under which they were issued, provided that the taxable property of the whole corporation should be subject to taxation by them (section 1825, Comp. Laws Dak.), and that they should annually levy a sufficient amount to pay the interest on all bonds they issued under this article, and to create a sinking fund for the payment of the principal (section 183;>, Id.) An ordinance or resolution of this board, passed at or before the issuance of the bonds, providing for the collection of such an annual lax until the bonds and coupons were paid, would have complied with the provision of the constitution. If this was not passed, it was not from lack of power in the board, but from a failure on its part to exercise the power with which it was vested in the manner provided by the constitution.
It is this difference between the inadequate exercise of ample power and the total absence of power to be exercised that widely separates this case from Dixon Co. v. Field, 111 U. S. 83, 4 Sup. Ct. 315; Northern Bank of Toledo v. Porter Tp. Trustees, 110 U. S. 608, 1 Sup. Ct. 254; McClure v. Township of Osgood, 94 U. S. 429; Lake Co. v. Graham, 130 U. S. 674, 9 Sup. Ct. 654; Nesbit v. Independent Dist., 144 U. S. 610, 617, 12 Sup. Ct. 740; Sutliff v. Commissioners, 147 U. S. 230, 235, 13 Sup. Ct. 318; and Hedges v. Dixon Co., 150 U. S. 182, 14 Sup. Ct. 71, — cited by counsel for defendant.
In Dixon Co. v. Field, supra, each bond disclosed upon its face that; if was apart of an issue of $87,000. The constitution prohibited the county from issuing bonds to an amount in excess of 30 per cent, of its assessed valuation. Eighty-seven thousand dollars was more than 10 per cent, of that valuation, and ihe supreme court held that the recitals in (he bond did not estop the county from showing these fads, because the purchaser was bound to take notice of the constitution and statute under which his bond was issued, the assessed valuation to which the constitution referred him, and the total amount of the issue of bonds disclosed on the face of each, and from these facts he must know that the county commissioners could not, by any act of theirs, lawfully issue the bonds.
In Sutliff v. Commissioners, supra, the constitution and the stat-uie limited the power of the county commissioners to incur debts for the county to a, certain percentage of the assessed valuation. They had incurred indebtedness in excess of that limitation before any of the bonds wrere issued. The statute required the county com
The other cases cited above rest upon the same principle. In each of them the bonds failed, not because the municipal representatives who issued them failed to exercise the power they had in-the manner prescribed, but because they had no power to exercise, and the constitution, statutes, and public records referred to therein gave notice to the purchasers of this want of power. It ⅛ clear that these authorities do not rule the case before us. Nor do such cases as Marsh v. Fulton Co., 10 Wall. 676; Buchanan v. Litchfield, 102 U. S. 278; Lake Co. v. Rollins, 130 U. S. 662, 9 Sup. Ct. 651,—in which warrants or bonds that contained no recitals were declared void for want of compliance with some provisions of the law under which they were issued. ,
It is, however, insisted that there is something in a constitutional provision so sacred that no certificate of a compliance with its terms can estop the corporation that makes it from proving its falsity. The remark of Mr. Justice Jackson in Hedges v. Dixon Co., 150 U. S. 187, 14 Sup. Ct. 71, that, when municipal bonds are issued in violation of a constitutional provision, no estoppel can arise by reason of any recitals contained in the bonds, and his reference to Lake Co. v. Rollins, 130 U. S. 662, 9 Sup. Ct. 651; Lake Co. v. Graham, 130 U. S. 674, 9 Sup. Ct. 654; and Sutliff v. Commissioners, 147 U. S. 230, 13 Sup. Ct. 318, — are cited in 'support of this position. But there was no question of the effect of such recitals before the court in Hedges v. Dixon Co., and the remark was entirely unnecessary to the decision of the case. The bonds there in question had been adjudged void in Dixon Co. v. Field years before, and the question then before the court was whether, inasmuch as only a part of the issue was beyond the constitutional limit of indebtedness, a court of equity would scale down the amount, and permit a recovery for such a sum as was within the limit. When he made the remark the learned justice had in mind the bonds of Dixon county, and it was true that the recitals in "those bonds, and in the bonds in the particular cases he cites, did not constitute estoppels, because the purchasers were charged with notice of the want of power of those who issued them, by the statutes and the records they referred to. The remark should undoubtedly be limited to the particular facts of those cases.
It is a general and salutary principle of the law that one who, by his acts or representations, or by his silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist, and the latter rightfully acts on such belief, so that he will be prejudiced if the former is permitted to deny their existence, is conclusively estopped to interpose
In Buchanan v. Litchfield, 102 U. S. 278, 290, Mr. Justice Harlan intimated the opinion that, in a case where neither the constitution nor the statute prescribed any rule or test by which persons should ascertain the indebtedness of a corporation, a recital in the bonds that the requirements of the constitution were complied with might estop the corporation from denying it.
In Pana v. Bowler, 107 U. S. 529, 539, 2 Sup. Ct. 704, the supreme court ujiheld the estoppel of a recital in bonds, as against an alleged defect in the mode of conducting an election held prior to the adoption of the constitution of Illinois, when the bonds were issued after its adoption, in the face of a prohibition contained in that constitution against the issuing of any bonds unless their issue had been authorized under then existing laws by a vote of the people prior to the adoption of the constitution.
In Oregon v. Jennings, 119 U. S. 74, 7 Sup. Ct. 124, the supreme court held that recitals in bonds to the effect that a constitutional provision had been complied with estopped the town of Oregon to deny the statement. In delivering the opinion of the court, Mr. Justice Blatchford said:
“In respect to this compliance with the conditions imposed by the vote of the people, whether the question is to be regarded as arising under the provision of the constitution or that of a statute, it must equally be regarded as concluded by the recitals in the bonds made by the supervisor and town clerk.”
And in Chaffee Co. v. Potter, 142 U. S. 355, 364, 12 Sup. Ct. 216, the supreme court held, in 1891, that the recital in the bonds that the total amount of the issue did not exceed the limit prescribed by the constitution of Colorado estopped the county, as against a bona fide holder, from proving the violation of this constitutional provision.
Upon reason and authority, therefore, our conclusion is that an estoppel may arise in a proper case upon a recital that an act has been performed which was required by a constitution, as well as upon the recital of the performance of an act required by statute.
From the decisions to which we have referred, we think the following rules are fairly deducible:
Recitáis in municipal bonds, by the representative body that issues them, to the effect that all the requirements of the laws with reference to their issue have been complied with, will not estop the municipality from proving, as against a bona fide purchaser, that the representative body had no power to issue them, where no act of the representative or constituent body could make ihe issue lawful at the time it was made and this fact appears from the constitution and statute under which the bonds are issued, the public rec
Such a recital may constitute an estoppel in favor of a bona fide purchaser, even where the body that issued the bonds had no power to issue them, and could not, by any act of its own or of its constituent body, make a lawful issue of bonds, if that fact does not appear from the bonds the purchaser buys, the constitution and statutes under which they are issued, and the public records referred to therein. Chaffee Co. v. Potter, supra.
Another rule that is established by a long line of decisions of the supreme court is that:
Where the municipal body has lawful authority to issue bonds or negotiable securities, dependent only upon the adoption of certain preliminary proceedings, and the adoption of those preliminary proceedings is certified on the face of the bonds by the body to which the law intrusts the power, and upon which it imposes the duty, to ascertain, determine, and certify this fact before or at the time of issuing the bonds, such a certificate will estop the municipality, as against a bona fide purchaser of the bonds, from proving its falsity, to defeat them. Commissioners v. Aspinwall, 21 How. 539; Bissell v. City of Jeffersonville, 24 How. 287; Moran v. Commissioners, 2 Black, 722; Meyer v. City of Muscatine, 1 Wall. 384, 393; Lee Co. v. Rogers, 7 Wall. 181; Pendleton Co. v. Amy, 13 Wall. 297, 305; City of Lexington v. Butler, 14 Wall. 282; Grand Chute v. Winegar, 15 Wall. 355; Lynde v. Winnebago Co., 16 Wall. 6; Marcy v. Township of Oswego, 92 U. S. 637; Town of Colomo v. Eaves, Id. 484; County of Moultrie v. Rockingham Ten-Cent Sav. Bank, Id. 631; Commissioners v. Bolles, 94 U. S. 104; Commissioners v. Clark, Id. 278; Commissioners v. January, Id. 202; County of Warren v. Marcy, 97 U. S. 96; Pana v. Bowler, 107 U. S. 529, 2 Sup. Ct. 704; Oregon v. Jennings, 119 U. S. 74, 7 Sup. Ct. 124; Chaffee Co. v. Potter, 142 U. S. 355, 12 Sup. Ct. 216.
In Commissioners v. Aspinwall, supra, a favorable vote of the electors of a county at an election called by prescribed notices was a condition precedent to the lawful exercise by the county commissioners of the power to issue the bonds. The defense was that the requisite notices of the election had not been given, but the court held that the county was estopped to make that defense by a recital in the bonds that they were issued in pursuance of the statute.
In Pana v. Bowler, 107 U. S. 539, 2 Sup. Ct. 704, Mr. Justice Woods, who delivered the unanimous opinion of the supreme court, said:
“This court has again and again decided that if a municipal corporation has lawful power to issue bonds or other negotiable securities, dependent only upon the adoption of certain preliminary proceedings, such as a popular election of the constituent body, the holder in good faith has the right to assume that such preliminary proceedings have taken place, if the fact be certified on the face of the bonds by the authorities whose primary duty it is to ascertain it.”
In Marcy v. Township of Oswego, 92 U. S. 637, the bonds recited the statutory prerequisite to the exercise of the authority to issue them, — that three-fifths of the electors of the town had voted in fa
In Town of Colomo v. Eaves, 92 U. S. 284, 491, in which the defense was that the proper notice of the popular election that was a condition precedent to the lawful issue of the bonds had not been given, the court again held that the recital in the bonds estopped the town, and declared that the rule that “where legislative authority has been given to a municipality, or to its officers, to subscribe for stock of a railroad company, and to issue municipal bonds in payment, but only on some precedent condition, such as a popular vote favoring the subscription, and where it may be gathered from the legislative enactment that the officers of the municipality were invested with power to decide whether the condition precedent had been complied with, their recital that it has been, made in the bonds issued by them, and held by a bona fide purchasin’, is conclusive of the fact, and binding upon the municipality, for the recital is itself a decision of the fact by the appointed tribunal,” had become so firmly seated in reason and authority that it could not be shaken. It never has been shaken, but has been uniformly reaffirmed in the later cases we have cited.
Tri view of the rule these authorities establish and illustrate, there is no longer any difficulty in disposing of the question we have been considering. Full power to perform the condition precedent that was not fulfilled in the case before us, and to make a lawful issue of the bonds, was vested in this board of education. The constitution and statute intrusted to this board (he power, and imposed upon it the duty, to ascertain and determine, before it issued the bonds, whether or not this condition had been performed. Neither the statute nor the constitution referred the purchaser to, or required any public record of the performance of this, condition, before or at the time of the issue of the bonds, other than the act of the board in issuing them. The board not only had special means of knowledge regarding the performance of this condition, but it ha.d absolute knowledge, for the board alone could perform the condition, and Hie purchaser had a right to assume that it knew and truthfully certified to what it had itself done. This board, by the act of issuing the bonds, decided that this and all other conditions precedent to their issue had been performed. It certified that fact on the face of the bonds it issued, and bona fide purchasers have bought them. The defendant corporation cannot now be heard to deny the truth of this certificate, to their prejudice. The case falls far within the rule adopted by the supreme court. That rule commends itself to our judgment as just and equitable, and the long line of decisions in that court, affirming it, has foreclosed all discussion of the rule itself in the national courts.
The judgment below must be reversed, and the cause remanded, with directions to grant a new trial, and it is so ordered.