Chilton v. Town of Gratton

82 F. 873, 1897 U.S. App. LEXIS 2808

• Court: U.S. Circuit Court for the District of Nebraska
• Decided: September 30, 1897
• Status: Published

Opinion

HUNGER, District Judge

(after stating the foregoing facts). The sections of the statute under which the bonds in question were issued, and material in the consideration of this case, are as follows (sections 14,15, c. 45, p. 696, Comp. St. 1897):

“3518. Section 14. (Election.) Any precinct, townsilip or village (less than a city of the second class) organized according to law, is hereby authorized to issue bonds in aid of works of internal improvement, highways, bridges, railroads, court house, jails in any part of the county, and the drainage of swamps and wet lands, to an extent not exceeding ten per cent, of the assessed value of the taxable property at the last assessment within such township, precinct, or village, in the manner hereinafter described, namely: First: — xl petition signed by not less than fifty freeholders of the precinct, township or village shall be presented to the county commissioners or board authorized by law to attend to the business of the county, within which such precinct, township or village is situated. Said petition shall set forth the nature of the work eontenxplated, the amount of the bonds sought to be voted, the rate of interest, which shall in no event exceed eight per cent, per annum, aud the date when the principal and interest shall become due'; and the said petitioners shall give bonds to be approved by the county commissioners, for the payment of the expenses of the election, in the event that the proposition shall fail to receive a two-thirds of the majority of the votes cast at the election. Second: — Upon the reception of such petition the county commissioners shall give notice and call an election in the precinct, township or village, as the case may be. Said notice, call and election shall be governed by the law regulating the election for voting bonds by a county. Laws 1S85. c. 5S.

“3519. Section 15. (Issuance of Bonds.) If two-thirds of the, yotes cast at such election shall be in favor of the proposition, the county commissioners or board shall, .without delay, cause to be prepared and issued, the bonds in accordance with the petition and notice of election; said bonds shall bo signed by the chairman of the board or other person authorized to sign county bonds, and attested by the clerk of the county under the seal of the county. Said bdnds shall state for what purpose issued; the amount, and when payable, interest and when imyable, and the number of each bond. The county clerk shall enter upion the records, of the board, the petition, bond, notice, and call for the election, canvass of vote, the number, amount and interest, and date at which each bond issued shall become payable; and the county clerk shall cause such bond to be registered in the office of the secretary of state and state auditor, as required by law.”

Tbe county attorney, in his árgument and brief, urges that, as less than 50 of the petitioners praying for the calling of the election to vote upon the proposition to issue the bonds were freeholders of the township, the county board were without jurisdiction, and for. that reason the bonds are void, even in the hands of a bona fide holder. In support of this proposition he cites the folltiwing Nebraska cases: State v. School Dist., 10 Neb. 544, 7 N. W. 315; State v. School Dist., 13 Neb. 82, 12 N. W. 812; Orchard v. School Dist., 14 Neb. 378, 15 N. W. 730; State v. Babcock, 21 Neb. 187, 31 N. W. 682; Wullenwaber v. Dunigan, 30 Neb. 877, 47 N. W. 420; Fullerton v. School Dist., 41 Neb. 593, 59 N. W. 896; Hoxie v. Scott, 45 Neb. 199, 63 N. W. 387. I do not think these cases support his contention. In State v. School Dist., 10 Neb. 544, 7 N. W. 315, the facts clearly established that there were but three legal voters within the district; that the district was fraudulently organized by residents of an adjoining state, and the bonds issued without any notice of an election. In State v. School Dist., 13 Neb. 82, 12 N. W. 812, a peremptory writ of mandamus was issued, requiring the officers of the district to report the amount of the bonds to the couniy clerk, that the county board might levy the necessary taxes to pay the- same. The law required that a written request, to be signed by at least five legal voters, be had, before a special meeting of the district could be called to vote the bonds. An attempt was made to show that of the signers there were not five who were legal voters of the district. Maxwell, J., speaking for the court, said:

•‘When the proceedings have been conducted in good faith, and a request, properly signed, has been acted upon by the officer or-officers upon whom the law imposes the duty of calling such meeting-, and the meeting 1ms been held, a.nd the object of the request indorsed by the legal voters of the district, we will not, in a collateral proceeding, inquire whether, all the persons signing said request had resided in the district a sufficient length of time to entitle them to vote therein or not. If they had not, any taxpayer of the district could enjoin the issuing of bonds, because unauthorized; but, after the meeting lias been held in pursuance of the notice, the bonds issued and sold, and the district has received the avails, it is too late to raise the objection.”

Orchard v. School Dist., 14 Neb. 378, 15 N. W. 730, was an action upon a bond issued by the school district. The defense was that the same was issued without, authority. The request having been signed by only four legal voters of the district, the bond was held valid in the hands of an innocent purchaser. State v. Babcock, 21 Neb. 187, 31 N. W. 682, was an application for a peremptory writ of mandamus to compel the auditor of public accounts to certify certain bonds issued by Dannebrog precinct. No question of the right of a purchaser was involved. Wullenwaber v. Dunigan, 30 Neb. 877, 47 N. W. 420, was an action to enjoin the issue of bonds. Fullerton v. School Dist., 41 Neb. 593, 59 N. W. 896, was an action to restrain ihe defendant from registering, issuing, and selling certain bonds of the school district for the reason that the request for the election was not signed by the requisite number of legal voters. The court, after reviewing the foregoing cases, says:

“In a series of cases the court has refused to permit an inquiry into the qualifications of signers of petitions after the bonds had-boon issued and passed into the hands of innocent purchasers; but those eases are all based upon tlie distinction between the position of a taxpayer seeking relief promptly and one who has stood by until (lie rights of innocent purchasers have accrued.”

Hoxie v. Scott, 45 Neb. 199, 63 N. W. 387, is a case referred to in the statement of facts, in which an injunction was granted against the tax levied to pay the interest and part of the principal of these bonds. In the opinion, the court says:

“We shall not assume to pass upon ihe rights of holders of the bonds as bona fide purchasers, because these parties are not in court. The proposition upon which this appeal must bo determined must be considered as though there has been no sale of the bonds by the railroad company.”

These decisions of the state court, iu my opinion, not only do not support: the doctrine contended for that the want of a sufficient pel it ion renders the bonds void in the hands of an innocent purchaser, but rather sustain the contrary, when tlio rights of bona tide purchasers are considered. As stated by Irvine, O., in Fullerton v. School Dist.:

“It is therefore apparent that the court in all the cases referred to has considered the question of the sufficiency of the petition a judicial question open to inquiry in a proper collateral proceeding, hut has held parties precluded from the inquiry upon a reasonable doctrine of estoppel when they have acquiesced in the proceedings until the rights of third persons hare accrued.”

Tbe uniform bolding of tbe supreme court of the United States is that, where tbe municipality is authorized by legislative enactment to issue negotiable bonds upon tbe performance of precedent conditions, and such bonds are issued containing recitals that they are issued in accordance with tbe provisions of such statute, the bona fide purchaser has a right to presume that all the prerequisites of the law to a valid issue have been complied with, where it may be gathered from the statute that the officers issuing such bonds were empowered to decide whether there has been a compliance with the precedent conditions. Knox Co. v. Aspinwall, 21 How. 589; Moran v. Miami Co., 2 Black, 732; Mercer Co. v. Hacket, 1 Wall. 83; Supervisors v. Schenck, 5 Wall. 784; Town of Venice v. Murdock, 92 U. S. 494; Moultrie Co. v. Savings Bank, Id. 631; Warren Co. v. Marcy, 97 U. S. 96; Northern Bank of Toledo v. Porter Tp. Trustees, 110 U. S. 608, 4 Sup. Ct. 254. That the question as to whether the petitioners were freeholders of Gratton township was one to be passed upon and determined by the county board, there can be no doubt; Marcy v. Oswego Tp., 92 U. S. 637; Evansville v. Dennett, 161 U. S. 434, 16 Sup. Ct. 613; Moulton v. Evansville, 25 Fed. 382, and cases supra.

It is further urged that the city of O’Neill, although included in the limits of Gratton township, cannot be considered as a portion of said township in determining whether the issue of bonds was in excess of the amount allowed by the statute based upon the assessed valuation of the property within the' township. This claim is urged upon the well-recognized principle that “there .cannot be at the same-time, within the same territory, two distinct municipal corporations exercising the same power and jurisdiction.” An examination of the statutes of Nebraska relative to townships will, I think, convince any one that the powers and jurisdiction of cities of the second class (like O’Neill) and townships are entirely separate, distinct, and unlike in all respects, and hence the rule has no application to this -case. All the counsel for defendant unite in the claim that the proportionate share of the court-house bonds issued by Center precinct, collectible from the taxable property of Gratton township, was, at the time of voting and issuing the bonds in question, an indebtedness of Gratton township, and for that reason the $36,000 of railroad bonds were and are invalid as an overissue. That the court-house bonds are to be paid by Shields and Gratton townships (the territory of which comprised Center precinct) in proportion to the taxable property of each, there can be no doubt; and if the proportion which Grat-ton Township was liable for, based on the last assessment prior to the issuing of the $36,000 of bonds, was an indebtedness of Gratton township, within the terms of the statute, then the issue of $36,000 was in excess of the amount .permitted by law, and invalid unless the plaintiff is accorded the usual rights of a bona fide holder of commercial paper. It is, however, urged, that plaintiff cannot be regarded as a bona fide bolder to the extent that defendant is («topped by recitals from pleading the invalidity of the bonds by reason of the excessive issue; the contention being that, where the existence of facts which are to be considered in determining the authority to issue such bonds are to be found and determined from public records other than those which the county board tire required to make as steps in the proceedings relating to the issue, then all purchasers are bound 1o take notice of the facts shown by such public records. In this case it: is said that the public records disclose that the territory comprising Grafton township and Shields township was formerly Center precinct, and that the public records show that the court house bonds had been issued and registered by the secretary and auditor of state; that the outstanding issue of bonds being thus shown, all persons dealing in them were bound to take notice of the fact, and that the rule of law enunciated in the cases of Dixon Co. v. Field, 111 U. S. 83, 1 Sup. Ct. 315; Lake Co. v. Graham, 130 U. S. 674, 9 Sup. Ct. 654; Nesbit v. Independent Dist., 114 U. S. 617, 12 Sup. 746; and Sutliff v. Commissioners, 147 U. S. 234, 13 Sup. Ct. 318, — supports this view. These cases cited were ones in which the issue was in excess of tin; constitutional limitation. In the present, case the issue of bonds under consideration was not in excess of 10 per cent, of the assessed valuation of the taxable property of the township. It is only by adding to the amount of these bonds the proportion of the court-house bonds payable by Gration township that an excessive issue, if any, is found. Such sum, however, does not violate any provision of the state constitution. The constitutional limitation on municipalities in Nebraska is not: as to the total bonded indebtedness for all purposes, but is a limitation upon the aggregate amount which may be issued for works of internal improvement. De Clerq v. Hager, 12 Neb. 185, 10 N. W. 697; State v. Babcock, 19 Neb. 223, 230, 27 N. W. 94, 98. A court house is not a work of internal improvement, within the meaning of the constitutional provision. Dawson Co. v. McNamar, 10 Neb. 276, 4 N. W. 991. The only limitation of law by which the amount of the prior issue; for court-house purposes becomes material for consideration in this ease is that found in the statute or legislative enactment before referred to. The rule; which applies to a constitutional limitation is not usually applicable when the limitation is onlv statutory. When the limitations are imposed by (he constitution itself, it may not be within the power of a legislature to dispense with them by the creation of a ministerial commission whose findings shall be taken in lieu of tin; facts; but, when the limitations are imposed hv statute only, the legislature, being the source of limitation, may create a board authorized to determine the question, and its findings will be conclusive in favor of bona fide purchasers. Simonton, Mun. Bonds, §§ 221-223; Lake Co. v. Graham, supra; Sherman Co. v. Simons, 109 U. S. 735, 3 Sup. Ct. 502. That the municipal officers issuing these bonds were required to ascertain as a condition precedent to their issue whether the amount thereof, together with prior unpaid issues, exceeded in the aggregate the statutory limit, I have no doubt. Were the pur-cbaser to examine the records of bond issues, lie would find none issued by Gratton township. But it is said in argument that he was bound by the facts shown by all records of a public nature; that he was bound to know that by the statute a county in Nebraska, when first organized, must be divided into precincts; that township organization can only be effected after precinct organization; that, as the law requires a record to be kept (and such record was kept) showing the names and boundaries of precincts and townships, he was bound to know that the territory comprising Gratton township was once a portion of Center precinct; and that, bound by this knowledge, he had notice that the bond's -were issued in excess of the statutory limit. To this I cannot assent, but regard the proper rule to be that, when the limit of issue is to be ascertained from records or data which are peculiarly within the knowledge and control of the officers of the municipality, or they have better access to the information than other persons, and can ascertain the amount with more certainty than strangers, then the bonds will be held valid in the hands of a bona fide holder. Rimonton, Mun. Bonds, § 224; West Plains Tp. v. Sage, 16 C. C. A. 553, 69 Fed. 943; Mutual Ben. Life Ins. Co. v. City of Elizabeth, 42 N. J. Law, 235. The fact of a change in the boundaries of Center precinct having been made, that upon adoption of township organization the territory comprising Center precinct became Gratton township, were facts peculiarly within the knowledge of the officers acting for the township, and, they having better access to the record information than purchasers of the bonds, I conclude that the defendant cannot have the benefit of this plea of excessive issue as against the plaintiff, who is a bona fide holder of the bonds. This conclusion renders it unnecessary to determine whether a part of the court-house bonds alluded to was an indebtedness of Gratton township within the meaning of the statute, imposing the limitation upon bond issues.

It is further urged that the bonds are void, even in the hands of plaintiff, for the reason that they were delivered in violation of a condition imposed in the proposition adopted by the voters of the township, which condition, as recited on the face of the bonds, was as follows:

“This bond is issued for the purpose of aiding the Nebraska and Western 'Railway Company in the construction of a railroad through said Gratton township; said railroad to pass into the comity of Holt from the east, through the said Gratton township, and having cars running thereon to the city of O'Neill on or before August 1st, 1890.”

It is claimed, that the provision requiring the construction of the railroad through the township of Gratton, and having cars running thereon to the city of O’Neill by August 1, 1890, was a precedent condition to be fully performed before the authority existed for the delivery of the bonds; that, while the road was constructed, and cars running thereon to the city of O’Neill, by the time stated, the road had not been constructed through, but oniy about five miles into, said township, leaving six miles yet to be constructed before it would pass through the township. The fact of the nonconstruction through the entire breadth of the township was a physical one, of which pur-; chasers must lake notice; and, further, that the recitals in the bonds are only to the effect that the provisions of the enabling act have been complied with; that they do not import a compliance with the conditions imposed by the proposition voted upon. It may he conceded that the building of the road into the township and having cars running thereon to the city of O’Neill was not a full performance of the condition requiring the road to be constructed through the township; but was such condition one precedent to the authority to issue the bonds? 1 think not. The enabling act or statute under which the bonds were issued provides for municipalities aiding railroads and other improvements therein mentioned. It imposes no condition that the bonds shall not be issued until after the completion of the improvement to be aided, and by no rule of construction can it be said that the intent of the act was rather to reimburse the party constructing the improvement for the cost, in whole or in part, by requiring that the object for which the aid should be voted be fully secured before the bonds could issue. Kenicott v. Supervisors, 16 Wall. 452-466. Rut, while the enabling statute did'not impose any such condition, it was proper for the municipality in voting its aid to do so.

I do not think the provision as recited in the bond requiring the road to be built: through the township a condition necessary to he performed before the bonds could be legally issued. A statute of the state of Illinois, authorizing towns to aid in the construction of railroads by subscribing for stock and issuing bonds therefor, provided that the town might:, in the proposition, impose any conditions desired, and that the bonds should not he valid and binding until the conditions should have been complied with. In an action brought to recover on bonds issued by virtue of a proposition containing a provision that the railroad should he constructed through the town, and a depot erected therein (neither of which was done), the court, in the case of Town of Eagle v. Kohn, 84 Ill. 292-294, while holding the bonds void because of the declara!ory provision of the statute, says (speaking with reference to such conditions under statutes which did not declare the bonds invalid):

“Wo do not think it is to he regarded that the conditions named were prerequisite to the making of the subscription and issuing of the bonds, and that they were to be complied with before the subscription could he made, or the bonds issued; hut only that the subscription and the bonds were to he subject to tlie condition. There would he no want of power in making the subscription and issue of the bonds. As between the town and the railroad company, uoncorapliance with the condition would be a good defense against the railroad company.”

This, in my judgment, is a correct view of the effect of the conditions imposed in the present case, as shown by recital in bonds. I have no doubt that it was aot only competent for Gratton township to have provided that the bonds may have been issued in installments as the work progressed, or issued before the work was done; the township might also have provided (and did provide) in the proposition that the bonds should not be issued until the road was fully constructed. The condition, as contained in the proposition,'was:

“The proceeds of said bonds to he used in aid of the construction of a line of railroad passing into the county of Holt from the east and through the said township and to the city of O’Neill, in said county; such proceeds to he giren to the Nebraska, and Western Railway Company when it shall complete a line of said railroad and hare cars running thereon to the city of O'Neill on or before August 1st, 1890.”

But this is not the proposition as recited on the face of the bonds, and purchasers are not required to ascertain what conditions were contained in the proposition voted upon where such conditions are not shown on the face of the bonds, and the bonds, as in this case, recite a compliance with the law. Oregon v. Jennings, 119 U. S. 74, 7 Sup. Ct. 124. If the purchaser were to examine the proposition in this case, he would not be notified that the bonds were not to be issued and sold, but only that the proceeds of the bonds should not be delivered to the railway company until the road was constructed as provided. The fact that it was the proceeds of the bonds which were to be withheld would imply a prior sale. The' provision for constructing the road through the township as .recited in the bond, we think, was only declaratory of the enterprise which was to be aided. Even if the condition for building the road through the towmship as contained in the proposition and recited in the bonds be conceded to be a condition precedent to the issue, this would not render them void for want of power to issue. Burroughs, Bub. Sec. p. 50G, writing with reference to such condition, says:

“The illegality which constitutes the want of power in.this class of cases arises not merely from the fact that certain acts are conditions precedent to the issue, but from the declaration of the statute that they shall not be valid until the acts are done, or that they shall bo void if the acts- specified are not performed. It is the imperative command of the statute that stamps its impress of invalidity on the bonds.”

In Simonton, Mun. Bonds, § 283, it is said:

“It may be stated generally that such bonds, in the hands of a bona fide holder, without notice of the nonperformance of the conditions, are valid; and against him the fact of nonperformance cannot be set up as a defense, unless the prior condition was one which was required to be performed by the constitution of the state, or the statute expressly declared the bonds should be void, unless the conditions were fulfilled, in which latter case the bonds will be invalid. The bonds, however, in order to protect the innocent holder, when the prior conditions have not been performed, or their performance waived, must contain such recitals, — usually that they are issued pursuant to the enabling act, reciting it, that assures the holder that all prior conditions have been performed.”

In our opinion, the cases of Mercer Co. v. Provident Life & Trust Co., 19 C. C. A. 44, 72 Fed. 623, and Swan v. City of Arkansas City, 61 Fed. 478, referred to by counsel for defendant, are not in conflict with this view. We think the recitals on the face of the bonds of such a nature as to preclude the township from interposing the defense that the condition relative to the construction of the road through the township has not been complied with.

The defense that agents of the railroad company represented to the voters and petitioners that the road would be built as a transcontinental line, through the state into the coal fields of Wyoming to Ogden, Utah, which has not been done, was not urged on the argument, nor in the briefs of counsel. The bonds being negotiable secu-lilies, and the plaintiff a bona fide holder without notice, it does not require any citation of authorities to show that the defense is not available. The plaintiff not being a party to the proceeding brought to enjoin the collection of the tax levied to pay the bonds, the judgment in that case in no manner affected his rights-.

For the foregoing reasons, the several defenses pleaded are unavailing, and judgment should be entered for plaintiff for the amount due on the several coupons set forth in the petition.