Risley v. Village of Howell, No. 174

No. 174 | 6th Cir. | Oct 15, 1894

Having made the foregoing statement of the facts,

SEVERENS, District Judge,

delivered the opinion of the court.

In the determination of the validity of municipal bonds of the character of those involved in the present suit, two questions of controlling importance are quite often presented. The first one is whether the municipality was empowered by the legislature to issue bonds of the character of those in suit; and, secondly, if such authority is found, but some irregularity' or fraud has attended their issue, what effect should be given to representations of facts contained in the bonds where they have come into the hands of bona fide purchasers, who have bought them for value, in reliance upon the truth of such represent at,ions? As to the question of power, there has been apparently a growing tendency in the courts to look with close scrutiny into the source of the authority for the making and issuing of such bonds, and to deny the power unless it is given expressly or by clear implication. But if the power is found to exist, and bonds have been issued in professed execution of the power, containing recitals of things done by the municipality or its officials in conformity with the requirements of the authorizing statute, and those things are peculiarly within the knowledge and duty of the officials executing the bonds, there has been no relaxation of the rule which protects bona fide purchasers relying upon the truth of representations made in the bonds against the irregularities and frauds of the municipality or the officials who represent it in the exercise of the power. In the present ease there can be no question but that at the time when these bonds wore-executed the common council of the village of Howell had complete authority in law and in fact to issue and negotiate the bonds of the. village for tin* purpose of raising money to be applied in the making of such public improvements as the common council should determine. The statute and the vote of the electors supplied all the required authority. The validity of a law in all substantial particulars identical with this was recognized by the supreme court of Michigan in the case of Common Council of Cedar Springs v. Schlich, 81 Mich. 405" court="Mich." date_filed="1890-06-13" href="https://app.midpage.ai/document/common-council-v-schlich-7934789?utm_source=webapp" opinion_id="7934789">81 Mich. 405, 45 N. W. 994, where it was also held that a court of equity would not, at; the suit of the village, enjoin the negotiation of bonds which the common council had by fraudulent evasion issued in aid of the saint1 railroad company under circumstances much the same as those involved in the present record.

II is material to notice, in passing, the order of things in the transaction as prescribed by the statute. First, a vote of the electors was to he taken whether the common council should be permitted to borrow money and issue bonds for a lawful purpose thereafter to be determined hv the common council. The proceeds of the bonds were intended by the statute to he brought into the treasury of the village. Then, secondly, the common council were to determine the kind of public improvement to which the funds should be devoted. Thirdly, that being done, the fund was to be devoted to the payment of the expenses of the public improvement thus determined upon. The vice in the transaction in which these bonds were issued was in the malfeasance of the common council in misappropriating the bonds to an unlawful use. It was the settled law of Michigan that it was incompetent for the legislature, under the constitution thereof, to authorize the municipalities of the state to aid in the construction of railroads. People v. Salem, 20 Mich. 452" court="Mich." date_filed="1870-05-26" href="https://app.midpage.ai/document/people-ex-rel-detroit--howell-railroad-v-township-board-6634848?utm_source=webapp" opinion_id="6634848">20 Mich. 452; Bay City v. State Treasurer, 23 Mich. 499" court="Mich." date_filed="1871-10-18" href="https://app.midpage.ai/document/people-ex-rel-bay-city-v-state-treasurer-6635364?utm_source=webapp" opinion_id="6635364">23 Mich. 499. Whether the electors contemplated the ultimate disposition which was made of these bonds or not, it was an abuse of the powers of the common council to make that disposition of them, and a legal fraud upon the village. That fraud was perpetrated in the execution of a power which they were exercising in behalf of the village, and, as respects an innocent holder, the fraud in the diversion of the bonds themselves or their proceeds was the fraud of the principal in whose name the bonds were issued, and the village must abide the responsibility therefor. It was said by this court in the case of Cadillac v. Institution for Savings, 7 C.C.A. 574" court="6th Cir." date_filed="1893-11-20" href="https://app.midpage.ai/document/city-of-cadillac-v-woonsocket-inst-for-savings-8847990?utm_source=webapp" opinion_id="8847990">7 C. C. A. 574, 58 Fed. 985, repeating the language of the supreme court in former decisions, that a corporation is held by the same obligations as an individual to adhere, to the truth in its dealings with others, and that it cannot defeat the claims which its own conduct and representations have superinduced; and, in the nature of things, its representations must be those made by its officials. The circuit court of appeals for the Eighth circuit, in a well-considered opinion, just published, clearly indicates the demarkation between those questions which relate to the authority to issue bonds and those which concern the regularity of its exercise, and emphasizes the obligation of good faith towards purchasers in the exercise of • the power. National Life Ins. Co. v. Board of Education, 10 C.C.A. 637" court="8th Cir." date_filed="1894-07-16" href="https://app.midpage.ai/document/national-life-ins-co-of-montpelier-v-board-of-education-8850279?utm_source=webapp" opinion_id="8850279">10 C. C. A. 637, 62 Fed. 778. If the plaintiff, and those from whom he derived his title, were chargeable with notice of the fraud, the bonds would not be enforceable against the village. Thus far there seems to be no serious controversy. But it is claimed in behalf of the defendant that these obligations bore upon their face a reference to the ordinance directing their issue which disclosed their fraudulent character, and that the recital of the ordinance was notice to any purchaser of the bonds of the facts appearing from the ordinance, and which he would have learned from an inspection thereof. This brings us to the vital question in the case, and presents the point upon which the court below seems to have turned the case in favor of the defendant.

In order to determine what effect should be given to this part of the recitals in the bonds, reference must be had to the whole ipstrument under the just and familiar rule of construction. In one part of each of the bonds it was represented that it was an “improvement bond.” This, taken in connection with the subsequent reference to the statute, meant that it was a bond issued to provide means for a public improvement. In another place it was represented that the bond was “issued under and by authority of a special act of the state of Michigan entitled 'An act to authorize the village of Howell to make public improvements in the village of Howell,’ being Act 248 of the Local Acts of 1885 of the legislature of the state of Michigan, approved February 25, 3 885, and also under the ordinance of the village of Howell, passed August 12, 3885.” What was the meaning of this representation? To say that a thing is done “under and by ihe authority” of a statute referred to is equivalent to saying that it is done in conformity with it, and authorized by it. In Stoddard v. Chambers, 2 How. 284" court="SCOTUS" date_filed="1844-03-15" href="https://app.midpage.ai/document/stoddard-v-chambers-86280?utm_source=webapp" opinion_id="86280">2 How. 284, 317, the supreme court said, in speaking of a statute which excluded from its operation locations of land previously made “under any law' of the United States”: “Now, an act under a law means in conformity with it, and unless the location of the defendant shall have been made agreeably to law” he is not within the exception. Bringing all the recitals in the bonds together, they amount to a representation that they were issued to raise money to defray the expenses of a public improvement of a kind to be determined by the common council, that (he requirements of the law had all been complied with, and that an ordinance in conformity with the law had been passed directing their issuance; for if the ordinance was not in conformity with the law, inasmuch as it preceded the issue of the bonds, it falsified the preceding statement that the bonds were issued in conformity with the statute. And we can entertain no doubt whatever but that this was precisely the way in which the framers of these bonds intended the recitals to be construed. They were inserted to fortify the bonds, and give assurance of their legal validity to purchasers, and invite their confidence. Bead in the light of the known purpose of the makers, it cannot but be believed that it was intended to represent that the ordinance for the issue of the bonds was in pursuance of the statute which had just been recited. Least of all can it be believed that the framers of these bonds intended by the reference to the ordinance to challenge the attention of purchasers to it, or expect that that would follow by reason of the reference.

The general rale of construction applies, that in determining the intent and meaning ot any part the general purpose of the whole is to be regarded. And it would seem a very just rale also that the meaning which the maker of an instrument intends and expects the other party to put upon it should be adopted if the other has accepted it in that sense, and the words will bear that construction. The import of these recitals is substantially the same as of those in the bonds involved in Hackett v. Ottawa, 99 U.S. 86" court="SCOTUS" date_filed="1879-03-24" href="https://app.midpage.ai/document/hackett-v-ottawa-89918?utm_source=webapp" opinion_id="89918">99 U. S. 86, and Ottawa v. National Bank, 105 U. S. 343; and in respect to the ground for an estoppel the case is not distinguishable from those. There the bonds recited that they were issued by virtue of the charter of the city, and in accordance with an ordinance of the city council entitled “An ordinance to provide for a loan for municipal purposes.” It was held that these recitals estopped the city from denying, as against a bona fide holder, that the law had been complied with in the issue of the bonds. The authority of these decisions has never been questioned, and it is unnecessary to cite the long list of cases in which they have been cited and approved. It makes no substantial difference that in those cases the recital of the ordinance stated the title indicating the purpose of the ordinance, showing it to be a legal one, and that in the present case such statement is made by necessary implication from other language employed.

There is nothing in the case of Barnett v. Denison, 145 U.S. 135" court="SCOTUS" date_filed="1892-05-02" href="https://app.midpage.ai/document/barnett-v-denison-93368?utm_source=webapp" opinion_id="93368">145 U. S. 135, 12 Sup. Ct. 819, opposed to this conclusion. That case, as stated by Mr. Justice Brown, in delivering the opinion of the court, involved “the single question whether a requirement of a charter that the bonds issued by a municipal corporation shall specify for what purpose they are issued is so far satisfied by a bond which purports on its face to be issued, by virtue of an ordinance, the date of which is given, but not its title or contents, as to cut off defenses which might otherwise be made.” Much reliance is placed upon an except from that opinion of language used arguendo by Mr. Justice Brown that “ordinarily the recital of the fact that the bonds were issued in pursuance of a certain ordinance would be notice that they were issued for a purpose specified in such ordinance.” This might be literally true if that recital were the only one in the ordinance, and thus stood unaffected by any context. But reference to the opinion shows that the writer was considering the effect of the recital as a representation by which the city would be bound, for he refers to Haclcett v. Ottawa and Ottawa v. National Bank, above cited, where the only question pertinent to the discussion was whether the city was estopped by the recital of the purpose for which the ordinance was passed. The defendant, however, contends that the plaintiff cannot set up an estoppel against the village, for the reason that the action of the common council was a matter of record, which was open to anybody for examination. The cases cited in support of this contention do not, however, support it. In Crow v. Oxford, 119 U.S. 215" court="SCOTUS" date_filed="1886-11-29" href="https://app.midpage.ai/document/crow-v-oxford-91744?utm_source=webapp" opinion_id="91744">119 U. S. 215, 7 Sup. Ct. 180, the bonds in suit purported to have been issued under a statute of Kansas of March 1, 1872, and it further appeared from the bonds themselves that that law had not been in force long enough to allow the notice of election which it required to have been given prior to their issue. But the plaintiff, notwithstanding all this, claimed to recover upon the ground that there was another statute of Kansas, passed March 2, 1872, which authorized the issue of such bonds, and which was in force long enough to have allowed the requisite notice of election. The public records of the proceedings, however, upon which the bonds were issued, showed that they were taken under the act recited in the bonds, and not under the other act which was invoked to support them. Relative to the duty of the purchaser to examine those records, the court said (at page 222, 119 U. S., and page 180, 7 Sup. Ct.): “Even though the plaintiff purchased the bonds and coupons,” as the finding of the fact says, “before their maturity, for value, without actual notice of any defense to them, or of any defect or infirmity in the proceedings for issuing them, he was, in the absence of such recitals in the bonds as, would protect him, bound by the information open to him in the official records of the officers whose names were signed to the bonds.” The court then proceeded to decide that the recitals did not protect the plaintiff, but, on the contrary, showed that, as already said, no adequate notice could possibly bare been given. In Nesbit v. Independent District, 144 U.S. 610" court="SCOTUS" date_filed="1892-04-18" href="https://app.midpage.ai/document/nesbit-v-riverside-independent-district-93348?utm_source=webapp" opinion_id="93348">144 U. S. 610, 12 Sup. Ct. 746, bonds bad been issued by the municipal corporation in excess of the limita lion imposed by the constitution of the state. The bonds were held to be void for lack of power. The question whether the power to issue such bonds at all was exhausted, and no longer existing, involved the inquiry whefher the limited amount had already been reached; and it was held, in the absence of an express recital of the number of bonds which had been issued, that the purchaser was bound to refer to the public records, which disclosed the fact of the overissue, and that he was affected by notice of the facts he could thus have ascertained. Tn that case the question was the primary one of the existence of authority, and not one of irregularity in the exercise of a power confessedly existing, and it belongs to that class of cases where it has been held that no recital implying the existence of the power could supply the lack of it. The case of Sutliff v. Lake County Com’rs, 147 U.S. 230" court="SCOTUS" date_filed="1893-01-16" href="https://app.midpage.ai/document/sutliff-v-lake-county-commissioners-93485?utm_source=webapp" opinion_id="93485">147 U. S. 230, 13 Sup. Ct. 318, was a case of the same character. The bonds in suit were part of an issue in excess of the limitation prescribed by the constitution of the stale, and, as the public records to which the purchaser had access disclosed the lack of power, he was held hound by the facts disclosed by them, notwithstanding the recital in the bonds that they were issued in conformity with the statute. That case is distinguishable upon the same ground as in the last case above referred to.

We are of opinion that, upon the facts found, the common council had complete authority to issue such bonds as these in suit, and that the defendant is estopped from selling up the fraudulent conduct of its own officials in the issue of them by the assurances contained in their recitals that they were issued in pursuance of the statute authorizing them. The judgment must be reversed, and the cause remanded to the court below, with directions to enter judgment for the plaintiff for the amount of the bonds and coupons in suit, with interest at the rate therein specified.