Steines v. Franklin County

48 Mo. 167

Opinion

WAGNER, Judge,

delivered the opinion of the court.

This was a petition in the nature of a bill in equity, brought by the appellants, who are citizens and tax-p'ayers of Franklin county, asking for a decree declaring a contract and certain orders of their County Court void, and requiring a cancellation and delivery of bonds issued under said contract, and for an injunction restraining their payment, sale or transfer, and restraining the assessment, levy or collection of a tax for the purpose of their payment.

The controversy springs out of a contract made by the County Court of Franklin county with Budd & Decker for the macadamizing and bridging of a certain road in that county from the town of Union, the county seat, to the west line of St. Louis county. The bonds received in payment of the work by the contractors were negotiable securities with coupons attached, and were mostly transferred before the institution of this suit.

There is nothing to show that the holders had any notice, or that any knowledge was brought home to them of any bad'faith or infirmity in the contract previous to the time the bonds were negotiated and transferred. The persons owning these securities were made parties to this suit, and must be treated as bona fide and innocent purchasers. As the bonds were negotiated before maturity, what has been said in the argument as to the bad faith and dishonest conduct of the officers and contractors can have no weight against the defendants, who innocently invested their money, provided the authority to issue the bonds actually existed.' The prevailing insanity of the people about running in debt and making expenditures for public improvements, the folly of county officers, and the arrant knavery of contractors and speculators, are considerations which might have application in a proceeding to restrain the issue or negotiation of the bonds, but- ought not to be allowed to authorize their repudiation when they have come into the possession of bona fide holders. The application on the part of the ■ appellants would have come with a better grace and with more persuasive equity had they filed their bill at the commencement of the work, and not waited till its completion before they moved in the matter. They were citizens of the county, they knew of the contract, they saw the heavy expenditures that were being made, and the amount of improvement as it was executed; and still the proceeding was not instituted till the work was completed, and the bonds in payment were issued and nearly all negotiated. The bill, so far as it asks- to enjoin the assessment, levy and collection of a tax for the purpose of paying the bonds, must be disregarded, as it is well settled that a bill in equity will not lie for such a purpose, the party having a complete remedy at law.

The two main questions to consider are whether the bonds were issued without authority, so as to be absolutely void, and whether, if such was the fact, they were rendered valid by subsequent authority and enactment. There were some minor matters presented, but they require no particular notice, as upon the two essential points above indicated the case must be decided.

The contract was originally made and the County Court proceeded under the authority of an act of the Legislature concerning roads and highways, approved February 16, 1865. The thirteenth section of the act declares that before any expenditures shall be made by County Courts for the purposes contemplated by the act, the County Courts may, for the purpose of information, submit the amount of the proposed expenditure to the voters (of the respective counties) at the next special or general election, and if a majority of the voters shall approve of such proposed appropriation, then the court may proceed and improve the roads as herein contemplated. If a majority shall vote against such appropriation, then nothing further shall be done therein within twelve months, and until another vote is taken as before set out, and such new vote shall determine the matters as provided. (Sess. Acts 1865, p. 117.)

It is admitted that the question was not submitted to the voters of .Franklin county, and that no election was had for the purpose of determining the matter. The court proceeded of its own motion, without consulting the people, and entirely ignored this provision of the law. As County Courts are only the agents of the county, with no powers except what are granted, defined and limited by law, like all other agents they must pursue their authority and act within the scope of their powers. (Wolcott v. Lawrence County, 26 Mo. 272; Ruggles v. Collier, 43 Mo. 353.)

In the case of The City and County of St. Louis v. Alexander, 23 Mo. 483, where the law required the County Court to submit to the qualified voters of the county the question of subscribing stock to a railroad, it was decided that it was necessary that the sense of the qualified voters should he taken as to the propriety of the subscription, and that it would he illegal for the court to subscribe without such previous submission. It is contended that it was not imperative with the County Court tp submit the matter to a vote, but merely discretionary, as the language used is, “ may for the purpose of information.” But the preceding part of the sentence clearly negatives this construction, for it expressly provides that “before any expenditures shall be made by County Courts,” etc., “ they may, for information, submit the amount proposed to be expended to the voters; and, if a majority vote against it, then nothing further shall be done within one year.” As the tax-payers are the persons most deeply interested, it was obviously contemplated that they should be consulted as to the necessity, propriety and utility of the expenditure. It was not intended to vest in the County Court unlimited power over the property of the people of the entire county. A similar question to this arose and was decided by this court in the case of The Leavenworth & Des Moines R.R. Co. v. Platte County, 42 Mo. 171. The case depended upon the construction to be given to the act by which the company was chartered. One section in the act of incorporation gave the County Court a general power to subscribe stock, but by another section the power was expressly limited and made subject to the provisions o£ the general railroad law then in force, which provided that the County Court “ may, for information, cause an election to be held to ascertain the sense of the tax-payers ” as to such subscription. No such election was directed or held. In the decision of the case the court held the following language: “This [the election] was a necessary condition of the power to subscribe. That all the sections of an act are to be construed together is a well-settled rule of construction. The word ‘ may’ in this clause must be interpreted to mean ‘ shall.’ It is a power given to public officers, and concerns the public interest and the rights of third persons, who have a claim de jure that the power shall be exercised in this manner, for the sake of justice and the public good.” (Newberg Turnpike Co. v. Miller, 5 Johns. Ch. 113 ; Blake v. Portsmouth & Concord R.R. Co., 89 N. H. 435; Malcolm v. Rogers, 5 Cow. 193.) This principle is founded in justice, and was declared in an early day, that where the rights of third persons are involved, or the public good requires it, the word “may” will always be construed to meanshall.” In an old case the following ruling was had: “ Indictments on 14 Char. II, ch. 12, against churchwardens and overseers, for not making a rate to reimburse the constables. Exception was taken that the statute only puts it in their power to do so by the word ‘may,’ etc., but does not require the doing of it as a duty, for the omission of which they are punishable. Sed non allocatur; for where a statute directs the doing of a thing for the sake of justice or the public good, the word ‘ may ’ is the same as the word ‘ shall;’ thus 23 Henry VI says the sheriff may take bail; this is construed he shall, for he is compellable to do so.” (Rex v. Barlow, 2 Salk. 699 ; see also Cro. Jac. 134; Cro. Eliz. 655; 2 Inst. 118 ; Carth. 293 ; Skin. 370.)

I think, therefore, it is clear, both upon authority and principle, that the court did not act within the scope of its power, or pursue its authority in making the contract and issuing the bonds without submitting the proposition to take the sense of the voters.

But the point is further urged that, even if this be so, still the bonds are valid in the hands of innocent purchasers. It is quite certain that mere irregularities in the steps which led to the issu- anee of bonds will not affect them in the hands of third persons who purchased without notice, providing the power to issue them actually existed. Recent decisions in some of the States have asserted a contrary doctrine, and have gone far toward impairing the value of these securities, but we are not disposed to follow them. And in New York, where the law required that the subscription could only be made and the bonds issued by obtaining the written assent of a certain number of resident tax-payers and filing it with the county clerk, it has been held as a prerequisite to a. recovery that the bondholder was bound to prove affirmatively that the written assent of the required number of resident tax-payers was in point of fact obtained and filed in the county clerk’s office, and that the town was not bound by the representation of its officers, upon the face of the bonds, that such assent had been obtained and filed. (Starin v. Town of Genoa, 23 N. Y. 439 ; Gould v. Town of Sterling, id. 456.)

But the Supreme Court of the United States, in a series of adjudications, have established a different principle, and one which we believe is more in consonance with justice and reason. We have heretofore conformed our rulings on this subject with' the decisions of the national court, not on account of its paramount authority — for on this question it has none — but because' it inculcated an unbending principle of right and a rigorous morality. Whether any of the cases have gone sufficiently far to warrant the holding of these bonds binding and valid is now to be inquired into.

The leading case is The Commissioners of Knox County v. Aspinwall et al., 21 How. 539. The Legislature of Indiana passed an act authorizing Knox county to subscribe for stock in the Ohio & Mississippi Railroad Company, on condition that a majority of the voters of the county decided in favor of such subscription at an election to be held for'that'purpose. An election was held, and a majority vote was cast for the subscription, and- the board of commissioners made the subscription and issued and delivered bonds in payment thereof. These bonds were negotiated, and the holders brought suit to enforce the payment. The suit was resisted on the ground that there was a- want of authority to execute the bonds in question, because there was an omission to comply with the requirement of the statute in respect to the notices to be given. That the election was held and a majority vote obtained for the subscription was not denied, but it was alleged that the notices of election were irregular and defective.

But in answer to this the court decided that where the board subscribed for the stock and issued the bonds, purporting to act in compliance with the statute, it was too late to call in question the existence or regularity of the notices in the suit against them by the holders of the bonds, who were innocent holders, in this collateral way; that in such a suit, according to the true interpretation of the statute, the board were the proper judges whether or not a majority of the votes in the county had been cast in favor of the subscription to the stock; and that, as the bonds on their face comported with the law under which they were issued, the purchaser was not bound to look further for evidence of a compliance with the condition to the grant of power. But this judgment must be taken with reference to the facts in the case. In arriving at their conclusion the court say: “The case assumes that the requisite notices were not given at the election, and hence that the vote has not been in conformity with the law. This view would seem to be decisive against the authority on the, part of the board to issue the bonds, were it not for a question that underlies it, and that is, who is to determine whether or not an election has been properly held and a majority of the votes of the county cast in favor of the subscription ? Is it to be determined by the court in this collateral way, in every suit upon the bond or coupon attached, or by the board of commissioners as a duty imposed on it before making the subscription ? The court is of opinion that the question belonged to this board. The act makes it the duty of the sheriff to give the notices of election for the day mentioned, and then declares that if a majority of the votes shall be given in favor of the subscription the county board shall subscribe the sto.ck. The right of the board to act in an execution of the authority is placed upon the fact that a majority of the votes had been cast in favor of the subscription, and. to have acted without first ascertaining it would have been a clear violation of duty ; and the ascertainment of the fact was necessarily left to the inquiry and judgment of the board itself, as no other tribunal was provided for the purpose. This board was one, from its organization and general duties, fit and competent to be the depository of the trust thus confided to it. The persons composing it were elected’ by the county, and it was already invested with the highest functions concerning its general police and fiscal interests.

“ We do not say that the decision of the board would be conclusive in a direet proceeding to inquire into the facts previously to the execution of the power, and before the rights and interests of third parties had attached; but after the authority has been executed, the stock subscribed, and the bonds issued and in the hands of innocent holders, it would be too late, even in a direct proceeding, to call it in question ; much less can it be called in question to the prejudice of a bona fide holder of the bonds in this collateral way.”

In Bissell et al. v. The City of Jeffersonville, 24 How. 287, the common council of the city of Jeffersonville, in Indiana, had authority to subscribe for stock in a railroad company, and to issue bonds for such subscription, upon the pet; lion of three-fourths of the legal voters of the city. Under one of these acts the common council determined that threo-fourths had so petitioned, and under a subsequent act, authorizing them to revise the subject, they again came to the same conclusion, and issued the bonds. Duly certified copies of the proceedings of the common council were exhibited to the plaintiffs at the time they received the bonds, and upon the bonds themselves it was recited that three-fourths of the legal voters had petitioned for the subscription. The court held that jurisdiction of the subject-matter on the part of the common council was made to depend upon the question whether the petitioners, wdiose names were appended, constituted three-fourths of the legal voters of the city, and the common council were made by the laws of the tribunal to decide, that question; and therefore, when the city was sued upon the-bonds by innocent holders for value, it was too late to introduce- parol testimony to show that the petitioners did not constitute tbree-fourths of the legal voters of tbe city.

The doctrine of these cases was reasserted and enforced in Moran v. Commissioners of Miami County, 2 Black, 722. In Mercer County v. Hasket, 1 Wall. 83, the facts were these; By act of the Assembly, passed in 1852, the Legislature of Pennsylvania authorized the commissioners of Mercer county, in that State, to subscribe to the stock of the Pittsburg & Brie Railroad, which road, if built, would pass through their county and benefit it. The act, however, contained this proviso: “ Provided, that the subscription shall be made subject to the following restrictions, limitations and conditions, and in no other manner or way whatever, viz: all such subscriptions shall be made by the county commissioners, and shall be made by them after, and not before, the amount of such subscription shall have been designated, advised, and recommended by a grand jury of said county.” The grand jury only “recommended that the commissioners of Mercer county subscribe to the capital stock of the Pittsburg & Erie Railroad, to such an amount and under such-restrictions as may be required by the act of the Assembly, by authorizing them to subscribe to an amount not exceeding ¡$>150,000.” Under this recommendation the commissioners subscribed the stock and issued bonds. The bonds declared on their face that the faith, credit and property of the county were solemnly pledged under the authority of certain acts of Assembly, and that, in pursuance of said acts, the bonds were signed by the commissioners of the county. An attempt was made to defeat the payment of these bonds after they were passed to the hands of innocent purchasers, but the court rejected this defense. Mr. Justice Grier, speaking for the whole bench, said: “ They are on their face complete and perfect, exhibiting no defect in form or substance, and the evidence offered is to show that the recitals on the bonds are not true; not that no law exists to authorize their issue, but that the bonds were not made in pursuance of the acts of Assembly authorizing them. We have decided, in the case of Commissioners of Knox County v. Aspin-wall, that where the bonds on their face import a compliance with the law under which they were issued, the purchaser is not bound to look further. The decision of the board of commissioners may not be conclusive in a direct proceeding to inquire into the facts before the rights and interests of other parties had attached, but after the authority had been executed, the stock subscribed, and the bonds issued and in the hands of innocent holders, it would be too late, even in a direct proceeding, to call it in question.” (Van Hostrup v. Madison City, 1 Wall. 291; Meyer v. City of Muscatine, id. 385.) In Supervisors v. Schenck, 5 Wall. 772, the suit was brought upon certain bonds of Marshall county, Ill. The statute under which the bonds were issued gave the counties authority to purchase or subscribe for shares in railroad companies, subject to certain conditions or regulations, one of which was that a majority of the qualified voters of the eounty must first vote for such subscription or purchase. In 1851 the Legislature passed a statute called “the township organization law, ” which, after its adoption by tfy-e counties, transferred certain powers in reference to the counties to a board of supervisors instead of the County Court. Among these powers was a right to call an election for the purpose of ascertaining the sense of the voters in relation to a subscription for stock. On the 28th day of February, 1853, the County Court of Marshall county ordered an election to vote for and against a subscription. The election was held under that order, and a majority of the voters cast their ballots in favor of the subscription. Previous to the 28th day of February, 1853, the county had adopted the township organization statute, and was on that day so organized and acting.. The board of supervisors, on the 14th of November, 1854, acting by authority of the election, made the subscription and issued bonds and coupons in payment thereof. The bonds were transferred for value, without any notice of want of authority to execute the same, and for nine years the board of supervisors annually levied and collected the necessary taxes and paid the interest on them. The only defense was that no election had ever been held by order of the board of supervisors. But the court were of the .opinion, and so decided, that the levy of the tax and the payment of interest by the proper county authorities validated the bonds in the hands of bona fide holders for value, though in their origin they were issued irregularly in virtue of a popular vote, ordered by the County Court instead of the board of supervisors, the vote and other proceedings having been in all respects, other than the source of the order, regular.

We will now briefly refer to a few of the decisions rendered by the court in this State, which mainly coincide with the views taken by the Supreme Court of the United States.

Flagg et al. v. The City of Palmyra, 33 Mo. 440, was an application for a mandamus to compel the city council of Palmyra to levy a tax to pay the annual interest on certain bonds which the city had issued to aid in the construction of the Quiney & Palmyra Railroad. The enabling act of the Legislature, under which a subscription.was made, provided that before any such subscription should be made the city council should call an election of the qualified voters of the city, to vote for or against the making of such subscription, for the number of shares, to be specified in the notice of the election; said election to be held on the same notice, and the votes received, counted and returned in the same manner as in the case of. election of the mayor and councilmen of the city; and if a majority of the qualified voters, voting at said election, should be in favor of the subscription, the same should be made by the city council, and the stock so subscribed for should be under the control of the city council in all respects .as stock owned by individuals. In the return to the alternative writ it was not denied that an election was held, and that a majority voted for the subscription; but it was stated that no call and notice of an election was given, as required by law, and that the votes were not received, counted and returned by the city council, as required by the act. This return was traversed, and the court below found for the relator. In what the informality or irregularity in the proceedings consisted the report .of the case does not inform us. But the vote which gave the city council jurisdiction is conceded. The judgment of the Circuit Court was affirmed, and the judge, in delivering the opinion of this court, said: “In this case, if the bonds have been issued by the city of Palmyra in apparent compliance with the law, and themselves give us no evidence of’a want of performance of the prerequisites to their issuance, and no actual notice of any such defect is traced to the bondholders, we will not hold the bondholders to be affected by a failure of the officers of the city of Palmyra to perform all that was by the law required of them, in anticipation of and preparation for the issuing of these bonds. Being issued in apparent conformity to the law, the public (any of whom might acquire the bonds) is entitled to view them as issued in actual conformity to the law, and to suppose that all the acts required of the people and officers of the city of Palmyra, in reference to the bonds, have been duly performed.”

This language is exceedingly broad; and if it is construed as applicable only to the facts in the case, it is sustained by numerous cases. But if it is intended to assert that a court or a city council, who have power under certain circumstances to make contracts and issue bonds, may disregard these circumstances or conditions entirely, and then issue bonds purporting to be in pursuance of authority which will be binding, and against which no defense can be made, we dissent from it.

In The Hann. & St. Jo. R.R. Co. v. Marion County, 36 Mo. 294, we held that where a county, acting under authority it supposed t-o be valid, subscribed to the stock of a railroad company in good faith, issued its coupon notes in payment of such subscription, and for a series of years voted the stock and paid its coupons, and such notes passed into the hands of innocent and bona fide purchasers, it was estopped from asserting that such notes were illegally issued. And to the same purport see Barrett v. Schuyler County, 44 Mo. 197.

The language used in the cases, that where the bonds on their face import a compliance with the law under which they were issued the purchaser is not bound to look further, must be taken as used with respect to the facts in those cases. By an examination it will be seen that on every one of them the qualified voters had voted to confer the authority, and that some mere irregularities had existed as to the manner of giving the notices or casting up the vote. These irregularities could not be expected, nor were they necessary to be known to the purchasers. The only matter in which they were concerned was to know whether the power to issue the bonds existed. The taking and obtaining the majority vote in this ease was the prerequisite — the essential thing which gave the investiture of authority and conferred jurisdiction. The court possessed no power except what it derived from law, and that was only to initiate the proceedings by which the power might be called forth. The real authority came from the voters at the polls. If they sanctioned the measures and authorized the expenditure, the court could then proceed and carry out their will, otherwise not. Till the votes were taken and a majority of them were cast in favor of the proposition, the court had no authority over the subject-matter, and their action was a total nullity. A record which imparts absolute verity may always be impeached for want of authority or jurisdiction in the court rendering it; and so may the acts of an agent who has acted without authority, where there has been no express or implied ratification by the principal.

In Gelpcke v. City of Dubuque, 1 Wall. 175, Justice Swayne says : “When a corporation has power under any circumstances to issue negotiable securities, the bona fide holder has a right to presume they were issued under the circumstances which give the requisite authority, and they are no more liable to be impeached for any informality in the hands of such a holder than any other commercial paper.”

These bonds are placed upon the footing of commercial paper, and that is giving them the highest characteristics of negotiable securities. But one who takes a negotiable promissory note or bill of exchange, purporting to be made by an agent, is bound to inquire as to the power of the agent. Where the agent is appointed and the power conferred, but the right to exercise the power has been made to depend upon the existence of facts of which the agent may naturally be supposed to be in an especial manner cognizant, the bona fide holder is protected because he is presumed to have taken the paper upon the faith of the representation of the agent as to those facts. But the holder has no such protection in regard to the existence of the power itself. It is precisely this principle that underlies all the decisions on this question, giving this species of paper its firmest support. The holder has only to see that the power authorizing the issue of the bonds exists ; but where the right to exercise the power depends upon certain facts, he may rely upon the representation as to the existence of those facts, because they are peculiarly within the cognizance of the agent issuing them. Therefore, where the voters have conferred the power by a vote, the requisite number of votes cast and the regularity of the election are all matters within the knowledge of the County Courts or city councils, and the purchasers may well rely upon the truth of their representations touching the premises. As no election was ever ordered and no vote taken in this case, the court had no jurisdiction whatever, and acted wholly without authority, and hence the bonds were void.

The next point of inquiry is whether the act of the Legislature approved March 21, 1868, cured the unauthorized action of the County Court and validated the new bonds issued. That act contains the following provisions:

‘ ‘ Section 1. In all cases where the County Courts have heretofore laid out, surveyed, and commenced the building and have built macadamized or other roads, or have thrown upembank-ments, built bridges and culverts, or other necessary work, in their respective counties, the County Courts are hereby authorized to borrow money on the credit of the county, and to issue the bonds of the county with coupons attached; but said bonds shall not be of a denomination of less than one hundred or more than one thousand dollars, and shall not run exceeding twenty years, nor bear interest at a higher rate than ten (10) per cent., for the purpose of paying for the work done and contracted for in their respective counties.

“ Sec. 2. Said bonds may be made transferable in such manner as the County Court may direct; and the courts shall be authorized to levy a sufficient amount of revenue annually to pay the accruing interest on bonds authorized by this act; and for that purpose may, if it should be necessary, levy a special tax.”

After the adoption of this last act the County Court took up the original bonds and issued others in lieu thereof. These bonds purport upon tbeir face to be issued “ under, and pursuant to an order of the County Court of said county, and by authority of an act of the General Assembly of the State of Missouri, approved March 21,1868, entitled ‘An act to authorize County Courts to issue bonds for the purpose of paying for the building of bridges and macadamized roads heretofore contracted for and built.’ ”

If'the act imparts the requisite authority to issue the bonds for the purpose contemplated, I have no doubt about the power of the court to make the exchange in the mode pursued. That the act was framed and passed with a view to meet this very case is unquestionable. It is also- true that curative and confirmatory acts are generally specific and particular. But in this State it could not be special without violating the constitutional provision prohibiting special enactments. Its generality, therefore, is not an insuperable objection, no other reason against it being shown. That the Legislature had the power is, in my opinion, beyond dispute. The case is not distinguishable from The Hann. & St. Jo. R.R. v. Marion County, 36 Mo. 294. In that case a subscription was made by the County Court under an act that was supposed to be invalid, and we held that a subsequent ratification of the subscription by the court, under an act authorizing the same, would make the contract binding although it had been originally void. The act simply confers the right to do a particular thing, and may be construed as an original power.

So it has been recently adjudged that where a debt was contracted by a city, which was void because not authorized by the statutory law of the State, it was made valid by a subsequent statute recognizing the validity of the debt as contracted. (The City v. Lawson, 9 Wall. 477.) This whole subject was recently examined at length by this court in the ease of Barton County v. Walser, 47 Mo. 189, and it is unnecessary to repeat here the views therein offered. The counties are not full corporations in the absolute and unqualified sense of that term, but rne're political subdivisions for governmental purposes ; and the County Courts act under the direction of the statute, in such manner and according to such terms as may be prescribed by the Legislature. Such being the ease, it was within the undoubted province of the Legislature to grant the power and clothe the court with'the authority to issue bonds in payment for the work.

The Circuit Court found for the defendants, and I think its judgment should be affirmed.

Affirmed.

Judge Bliss concurs. Judge Currier not sitting.