BURTON, Circuit Judge,
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 [627]*627intrusted to them terminated with their formal execution; the act itself declaring that the bonds, thus apparently the formal contracts of the county”, “shall not be binding or cal id obligations 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, at which-time they shall be delivered to said railroad company.” The duty of the county judge with reference to these incomplete instruments pending compliance with the condition upon which they might become vital obligations, by delivery, was to “order that such bonds shall be deposited with a trustee or trust company, to be held in esc,row, and delivered to the said railroad company when it shall become entitled to the same by the construction of its road through such county.” This last statutory-duty was performed, and the bonds were “deposited” with a trustee, to be held in escrow and delivered when the condition authorizing delivery had been performed. That condition was that the railroad of the Louisville Southern Railroad Company should be completed “through” the county of Mercer, so that a train of cars should have passed over the same. The defense of the county is that the railroad was never constructed through the county, and that the trustee violated his duty, and delivered them before that condition had been complied with. The finding of fact touching immediately” upon compliance with this condition was “that the Louisville Southern .Railroad did not run from one line of the county of Mercer through to the opposite or to another line of the county, but that its railroad entered Mercer county on the line of said county next to Anderson county, and ran through said county fifteen miles to Harrodsburg, and from there to Burgin, where a junction was made with the Cincinnati Southern Railroad, making in all 19.72 miles of railroad in said county of Mercer; but this line of railroad did not reach the other or another line or boundary of the county by about two miles from the nearest point.” This finding seems to conclusively settle the question that the railroad company did not construct its railroad through the county. The requirement was that the road should be completed “through” the county”, — not through the county to Harrodsburg, or to Bur-gin. or to a junction with the Cincinnati Southern Railroad, but through the county entirely; that is, from one side or line to the opposite or another side or line. If the legislature had used the very common preposition “through” in any limited or unusual sense, it would appear in the context. That it was used with its ordinary meaning of “from one side to the opposite side” or another side, or “from one surface or limit to the other surface or limit,” seems to us very plain, from the whole tenor of the statute. That it was not used in the sense of “to” and “into” is plain, from the proviso of the same act, which brings the prepositions “to” and “through” into apposition, in the provision that “the subscription shall not be binding” “unless such railroad shall pass to or through the corporate limits of the town of Harrodsburg.” The argument that this was a substantial compliance with the condition does not meet with our assent. The object of the act was to [628]*628secure to Mercer county a railroad entirely through the county. To build to within two miles of the statutory requirement is not a substantial fulfillment of the provision. Whether this was an important or unimportant matter, it is not for us to say. The legislature had the undoubted authority to impose this condition, or any other it saw fit. Whether wisely or unwisely, the power to issue any bonds was made dependent on the performance of this condition. The provisions that they should not be valid until the performance of this condition, and that the stakeholder should not deliver them until this railroad should be constructed through the county, are imperative, and limit the power of the county and of this trustee to the issuance of bonds only when the requisite facts actually existed. These restrictions were intended to secure the actual completion of the railroad, and guard against the possible misapplication of the bonds to purposes not designed. Restrictions in acts of this kind, intended to guard the public from the negligence or crimes of tlieir officials, and to secure exact compliance with the terms upon which the power of taxation may be exercised in aid of railroad construction, are entitled to favorable consideration. The utterances of the supreme court upon the effect of restrictions and limitations in such legislation have been uniform, and announce a wise public policy. In Barnum v. Okolona, 148 U. S. 393, 13 Sup. Ct. 638, Mr. Justice Shiras, for the court, said:
“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 [629]*629well settled. Marsh v. Fulton Co., 10 Wall. 670; McClure v. Township of Oxford, 94 U. S. 429; Northern Bank v. Porter Tp., 110 U. S. 609, 4 Sup. Ct. 234; Barnett v. Denison, 145 U. S. 139, 12 Sup. Ct. 819; Barnurn v. Okolona, 148 U. S. 395, 13 Sup. Ct. 638; Citizens' Sav. & Loan Ass’n v. Perry Co., 156 U. S. 701, 15 Sup. Ct. 547.
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]*630been, 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.
[631]*631But it is argued that the Kentucky enabling- act is peculiar, and that the absence of recitals in bonds issued thereunder is immaterial, inasmuch as the circumstances attending the execution of these bonds were such as that there could be no recitals on the face of the bonds importing performance of conditions which were to be complied with after their formal execution and deposit in escrow. This was the view entertained by Judge Barr, who, upon this ground, held that the decision of the trustee, before delivering them to the railroad company, that all precedent conditions had been complied with, precluded the county from contradicting that decision after the bonds had passed into the hands of innocent purchasers. To support this position it is necessary to construe this enabling act as not only empowering the trustee; to ascertain and determine whether all conditions subsequent to such deposit had been performed, but that such determination should estop the county, as against an innocent purchaser of the bonds, although no such determination appeared on the bond, either through a recital or indorsement. Certainly none of the numerous opinions of the supreme court affords any express authority for such an interpretation of this act. A careful examination of the opinions of that court will, it is confidently believed, show that, where railroad construction bonds have been issued in violation of the law under which authority was granted, the municipality has never been held estopped to defend upon that ground, unless representations appeared on the bonds themselves importing full compliance with the conditions imposed by the enabling act. The estoppel has been a consequence of recitals or indorse-ments made by officials empowered to decide the facts recited, and which a purchaser was authorized to rely upon as speaking the truth. The rule which we deduce from the long line of the decisions made by that court as to the application of the doctrine of estoppel to municipal bonds is that where bonds are issued by a municipal corporation under a special and limited authority, imposing restrictions and conditions, but authorizing officials of such municipality to execute and issue such bonds when the conditions precedent imposed have been complied with, and it can fairly and reasonably be gathered from the act that the officials so authorized to execute the bonds were also empowered to ascertain and determine that the requisite facts and circumstances did exist, or all conditions precedent had been complied with, and this determination or decision has been embodied in the recitals of the bonds, a purchaser without other notice, and for value, would have a right to rely upon the truth of the representations appearing on the bond, and need make no further inquiry. Coloma v. Eaves, 92 U. S. 484; Dixon Co. v. Field, 111 U. S. 93, 4 Sup. Ct. 315; German Sav. Bank v. Franklin Co., 128 U. S. 526, 9 Sup. Ct. 159; Citizens’ Sav. & Loan Ass’n v. Perry Co., 156 U. S. 701, 15 Sup. Ct. 547. The principle is that when bonds, on their face, affirmatively import a compliance with the conditions upon which they might lawfully issue, a defense based upon a contradiction of the [632]*632recitals thus made by an official empowered by tlie law to decide the facts recited will not be permitted, when the bond has come to the hands of a bona fide holder for yalue. This doctrine does not apply as between a railroad company receiving such bonds in violation of law, and the municipality itself; nor has it ever been applied in favor of a holder who was not an innocent purchaser for value. Dill. Mun. Corp. § 519; Chambers Co. v. Clews, 21 Wall. 317-321. False recitals have never been held conclusive as between the original parties, or in favor of purchasers with notice, for the obvious reason that an essential element to an estoppel in pais is that the representation should mislead and deceive one who had a right to rely upon the truth of the representation. It would seem to follow, from the reasons upon which an estoppel is said to arise, that if bonds are issued without recitals, but in violation of law or authority, there exists no reason why they should not be open to defense when action' is brought even by one who bought without actual knowledge that they had been issued without performance of precedent conditions. In such case the purchaser buys at his peril, and cannot rely upon his mere ignorance, nor upon the mere fact that the bonds had been issued, and were found in circulation. Marsh v. Fulton Co., 10 Wall. 676; Buchanan v. Litchfield, 102 U. S. 278; Merchants’ Exch. Nat. Bank v. Bergen Co., 115 U. S. 384, 6 Sup. Ct. 88; Daviess Co. v. Dickinson, 117 U. S. 657, 6 Sup. Ct. 897; German Sav. Bank v. Franklin Co., 128 U. S. 526, 9 Sup. Ct. 159; Carroll Co. v. Smith, 111 U. S. 556, 4 Sup. Ct. 539; Chambers Co. v. Clews, 21 Wall. 317-321; Citizens’ Sav. & Loan Ass’n v. Perry Co., 156 U. S. 701, 15 Sup. Ct. 547; Barnett v. Denison, 145 U. S. 135, 12 Sup. Ct. 819.
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.”
[633]*633Does the act under wliicb these bonds were issued so far depart from the statutes construed in the cases cited as to warrant us in holding that, a purchaser need make no further inquiry than would lead him to information that the trustee had made such a decision as that found by the circuit court, and that, if he buys without any inquiry, he is only obliged to prove by evidence extraneous to the bond that such a decision was in fact made? Unless this act can be construed as making the power of the county to issue these bonds dependent, not on the actual construction of this railroad through the county, but upon the decision of this trustee that it had been so constructed, the whole foundation for The argument disappears. This is the test to be applied to every case, even where recitals are relied upon to defeat a defense. In Ihe leading case of Dixon Co. v. Field, 111 U. S. 93, 4 Sup. Ct. 315, the rule for construction of such enabling act is thus stated by Mr. .Justice Matthews:
"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 [634]*634decide as to whether there had been a compliance with this condition, and 'that his decision should be conclusive. Undoubtedly, the commercial value of such bonds would be much, improved if the mere fact of their issuance should, in favor of innocent holders-, be conclusive evidence of both the authority to issue them and the regularity of the exercise of that power. This, however, is not the law. If the legislature, by providing that these bonds should be negotiable, meant to cut off all defenses, by the decision of the county judge as to facts antecedent to the deposit in escrow, and by the decision of the trustee as to all facts subsequent to such deposit, it is most remarkable that it did not provide for some in-dorsement of that decision on the bonds. As it is, the fact that he ever made such a decision depends upon evidence in pais, and is subject to all the dangers of such evidence. The argument based on the inconvenience of making proof, in every action on such bonds, of the fact of the completion of the railroad, amounts to little, in arriving at the meaning of this act, if the litigant in such a suit is driven to make proof of a decision by the trustee by evidence equally difficult to preserve. But this provision authorizing the issuance of “negotiable bonds” must not be construed alone, nor merely in connection with the provision that the trustee should deliver them when the railroad was completed. There are many considerations which lead us to the conclusion that, while it was undoubtedly the duty of this custodian to inform himself as to the existence of the facts which would justify him in making a delivery of these bonds, yet that information was only for the purpose of enabling him to prudently discharge his duty, and protect himself and the parties interested from the consequence of an illegal and unauthorized delivery. The power of this depositary to receive, hold, and deliver these bonds came from the enabling act alone. He was not constituted the agent of either the railroad company or the county, though he was designated by an order of the county judge. This depositary need not have been a person at all. A corporate trust company might have been designated. Neither residence, citizenship, nor interest in or knowledge of the locality was essential to the competency of the appointee. The relation, therefore, that this depositary bore to the county, is not of such ft character as to lead to the presumption that it was intended that he should conclude the county through any agency for or relation to it. The bonds were not to be “delivered” to him, but “deposited” with him. Delivery is just as essential to the existence of a bond, note, or other negotiable instrument as it is to a deed. 1 Daniel, Neg. Inst. § 63 et seq.; Young v. Clarendon Tp., 132 U. S. 353, 10 Sup. Ct. 107. Though they had been prepared and signed, they were absolute nullities until delivered, and they could not take effect as bonds until an authorized delivery. When prepared and signed by the county judge and clerk, and sealed, the power of these officials ceased. They could not perfect them by delivery, because the statute gave them no such power. What the county judge then did was to deposit them with the depositary provided under the statute. This was not a delivery, and the [635]*635bonds continued imperfect obligations until a delivery wliich could only be made by the custodian when the railroad was completed. The power to perfect them as bonds arose only when the condition mentioned had been performed. A delivery before the railroad was begun would not have completed the making of these bonds, for the power was to deliver them when it was finished, and the act itself provided expressly that until then the bonds should not be valid, thus affirming the imperfect character of the bonds until a delivery, was lawfully made. Young v. Clarendon Tp., cited above. The imperfect character of the bonds, until the condition precedent had been performed, is further made manifest by the direction of the act that they should “be held in escrow and delivered to the said railroad company when it shall become entitled to them by the construction of its road through such county.” This term, “in escrow,” is one strictly applicable to deeds; and a direction that such imperfect obligations, executed subject to conditions and restrictions, by a maker having no general authority to issue such paper, should be held in escrow, implies that the term was used just as it would be used if the subject-matter of the deposit was a deed. As used, the term implied the state or condition of a deed conditionally held by a third person, to be delivered and to take effect upon the happening of a condition. Bout. Law Diet.; Black. Law Dict. When a deed is delivered as an escrow, nothing passes by the deed, unless the condition is performed. Calhoun Co. v. American Emigrant Co., 93 U. S. 124; 6 Am. & Eng. Enc. Law, 867; Taylor v. Craig, 2 J. J. Marsh, 449.
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 [636]*636trustee to deliver as if the subject of the escrow had been a deed. We are to remember that these bonds were imperfet obligations, there having been no delivery when placed in escrow. The question first presented to an intending buyer is this: Have these bonds become executed, valid obligations, by delivery? The authority of this trustee to make delivery depended upon the same principles that determine such authority in other contracts, “and is not aided by the doctrine that, when once lawfully made, negotiable paper has a more liberal protection than other contracts in the hands of innocent holders.” The Floyd Acceptances, 7 Wall. 666-680. “The authority to contract must exist, before any protection as an innocent purchaser can be claimed by the holder.” Marsh v. Fulton Co., 10 Wall. 683. But, aside from any distinction between the effect of a wrongful delivery of a deed and of commercial paper upon the title of an innocent purchaser, it seems very clear that the express declaration of the fourth section of the act that these bonds should not be valid obligations until the railroad had been -completed through the county, and by the further provision that they should be held in escrow until that event, settles conclusively that the legislature did not mean that the power of the county to so obligate itself should depend upon the mere opinion of the custodian, but upon the actual, objective existence of the requisite fact. The whole scope and tenor of the act leads to the conclusion that the legislature intended to protect the county against any misapplication of these bonds, and therefore limited its power so that the bonds only became its obligations when the contract between the railroad company and the county should become complete. The machinery devised indicates that the purpose was that the railroad should not part with its stock certificates until it had recéived payment therefor. And, to secure the county against failure to complete the road, all power to issue bonds was made dependent upon its actual construction. To secure the railroad in obtaining the bonds when actually earned, it was provided that when a favorable vote had been cast, and the subscription made, the bonds should be prepared and formally executed, and placed in the hands of a stakeholder, to be delivered when the railroad company had performed its agreement. To secure the county against the possible breach of duty by this custodian, his holding was to be in escrow, and his power to deliver withheld until the actual performance of all precedent conditions. To further protect the county against an unauthorized delivery of the bonds, the act, in plain terms, provided that they should not be valid obligations until the completion of the road. That the custodian was required to give a bond for the due discharge of his trust by no means implies that the county was to look to this bond in case of an unauthorized delivery. The bond was no'more for the benefit of one party than the other. A wrongful delivery, or a fraudulent use of them, might, irrespective of a defense, if sued upon the bonds, involve a costly litigation. It was eminently reasonable that the custodian of such securities, negotiable in form, should give security to protect both parties against negligence, [637]*637conversion, embezzlement, or any willful refusal to faithfully perform the trust.
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.