West Plains TP. v. Sage

69 F. 943, 16 C.C.A. 553, 1895 U.S. App. LEXIS 2448

• Court: Court of Appeals for the Eighth Circuit
• Decided: September 16, 1895
• Docket: No. 531
• Status: Published

Opinions

SANBORN, Circuit Judge,

after $tating the facts as above, delivered t he opinion of the court,

May a municipal corporation make a false certificate and official record that its negotiable bonds were issued for a lawful purpose, and, after they have been bought by innocent purchasers for value in reliance upon this certificate or record, defeat them by the plea that the certificate and record were'false, and that the bonds were in fact issued for an unlawful purpose? This is the question presented by the first objection to this judgment. It is that although the official record of the meetings of the township board that issued these bonds, and the recitals made by that board in the bonds themselves, show that they were issued for the lawful purpose of refunding an outstanding indebtedness of the township in accordance with the provisions of sections 1, 2, and 3 of chapter 50 of the Laws of Kansas of 1879, yet they were in fact issued for the unlawful purpose of procuring the erection of a sugar factory. Defenses of this character are1 unfortunately not novel. In answer to a like plea, in National Life Ins. Co. v. Board of Education of City of Huron, 10 C. C. A. 637, 62 Fed. 778, 784, this court said:

“Nor is it any defense to such bonds, as against bona fide purchasers, that the citizens and officers of a municipal corporation, with the intention to use the proceeds of the bonds for an unlawful purpose, took the necessary steps to issue them for a lawful purpose, certified on the face of the bonds that they were issued for such lawful purpose, and then appropriated the proceeds to the unlawful purpose. Corporations are as strongly bound to an adherence to truth'in their dealings with mankind as are individuals, and they cannot, by their representations or silence, induce others to part with their money or property, and then repudiate the obligations for which the money was expended, and which their statements represented to be valid.”

Omaha Bridge Cases, 10 U. S. App. 101, 189, 2 C. C. A. 174, and 51 Fed. 309; Paxson v. Brown, 10 C. C. A. 135, 61 Fed. 874, and cases cited; Moran v. Commissioners, 2 Black, 722; Hackett v. Ottawa, 99 U. S. 86, 90; Ottawa v. National Bank, 105 U. S. 342, 345; Zabriskie v. Railroad Co., 23 How. 381.

The plaintiff in error, in the records of the meetings of its township board in which the bonds were directed to be issued, in the call for and the form of the vote at the election which authorized their issue, and in the bonds themselves, declared that they were issued for the lawful purpose of refunding the outstanding indebtedness of the township. The defendánts in error purchased and paid for them with no notice that they were issued for any other purpose, and in the full belief that these declarations were true. It is no defense for this township, against the action of an innocent purchaser who has invested his money in these bonds, that the township board, and the voters of the township who authorized the board to issue them, .knew that the township had no indebtedness to refund, and that all these records and declarations were false, and were made to evade the law. Against a bona fide purchaser the township is estopped to deny that these bonds were issued to refund its outstanding indebtedness.

But counsel for the plaintiff in error contends that the defendants in error were not bona fide purchasers. No claim is made that they had any actual notice that the bonds were not issued and used for the purpose shown by the redials they contain. The contention is that the copy of the proposition of the sugar company to build a factory for §15,000 in refunding bonds, and the copy of the agreement of the sugar company to do so (which contains a receipt for 15 refunding bonds), which have been found in the same book in which the records of the meetings of the township board were recorded, charge all purchasers of these bonds with constructive notice that the records of the meetings of the hom'd and the recitals in the bonds were false, and that the bonds were issued for an unlawful purpose. This position is untenable. The recitals in the bonds themselves are fatal to it. They declare that the bonds were issued for a lawful purpose. Each bond contains a, recital that it was issued by virtue of, and in accordance with, the provisions of the statutes, for refunding the indebtedness of municipal corporations to which we have referred, and the further recital that “all acts, conditions, and things required to be done precedent to and in the issuing of said bonds have been done, happened, and performed in regular and due form as required by law.” The township board was the governing body of this township. It had been authorized by a vote of the electors to issue these bonds to refund the indebtedness of this township. It was vested by the statutes with the power, and the duty was imposed upon it, to determine the existence and amount of the indebtedness for which the bonds should issue. It found the scrip held by Gould to be an outstanding indebtedness of the township, and directed these bonds to be issued to refund it. They issued them. They inserted a recital in them that they were issued for that purpose. Every member of the township board signed the bonds which contained this recital as an officer of the township. The subsequent purchase of these bonds by the plaintiffs in error for value made the estoppel of the township to deny this recital complete. No proposition is now better settled than that “where the municipal bod\ has lawful authority to issue bonds or negotiable securities, dependent only upon the adoption of certain preliminary proceedings, and the adoption of those preliminary proceedings is certified on the face of (tie bonds by the body to which the law intrusts the power, and'upon which it imposes the duty, to ascertain, determine, and certify this fact before or at the time of issuing the bonds, such a certificate will estop the municipality, as against a bona fide purchaser of the bonds, from proving its falsity to defeat them.” National Life Ins. Co. v. Board of Education of City of Huron, 10 C. C. A. 637, 62 Fed. 792, and cases there cited; City of Cadillac v. Woonsocket Inst. for Sav., 7 C. C. A. 574, 578, 58 Fed. 935. Moreover, the copies of the offer and agreement of the sugar company in the record book of the board would not have been constructive notice of the attempted fraud and malfeasance of the township officers in the absence of these recitals. The presumption is that township officers tell the truth in their record, and perform their official duties. To charge a purchaser with notice that these bonds were unlawfully issued on account of the copies of this proposition and agreement found in the record hook, would require him to presume from them that all these officers liad violated their official oaths and made the official records of their meetings a tissue of falsehood. No purchaser of the bonds was charged by these copies with any such notice. They constituted no part of the official record of the meetings of the board, and they were not referred to therein. No one was bound to go further than to examine the record of those meetings. That record exhibited a perfect compliance with the statutes; and the copies of those statements outside the record charged a purchaser who knew nothing of them with no constructive notice of anything, whether they appeared in the same book with the records of the board or elsewhere.

The objection that the act under which these bonds were issued gave no authority to the township to issue negotiable bonds is, in our opinion, untenable. In the cases of Merrill v. Monticello, 138 U. S. 673, 11 Sup. Ct. 441; Hill v. Memphis, 134 U. S. 198, 10 Sup. Ct. 562, and Brenham v. Bank, 144 U. S. 173, 12 Sup. Ct. 559, cited in support of this objection, and in the cases referred to in the opinions in those cases, none of the acts there under consideration authorized the municipal bodies to issue bonds at all; and the extent to which those decisions go is to hold that the power to issue negotiable bonds is not to be implied from the limited power to borrow money or to incur indebtedness. The act under consideration in this case authorized this township to “issue new bonds,” without any restriction as to their negotiability. This grant of power to a municipal body to issue bonds must be interpreted to give that body power to issue municipal bonds in the usual form of such securities. The usual— nay, it may almost be said the universal—form of such securities is that of a negotiable bond payable to bearer; and, in our opinion, it was bonds in this form, and in no other, that the legislature of Kansas had in mind and intended to give this township power to issue by this act. City of Cadillac v. Woonsocket Inst. for Sav., 7 C. C. A. 574, 576, 58 Fed. 935; Ashley v. Supervisors, 60 Fed. 55, 66, 8 C. C. A. 455.

To the suggestion that the bonds were required to be payable in the name of the holder of the indebtedness compromised, the answer is that there is no such express provision or restriction in the act. The only provision on this subject is that “it shall be the duty of the proper officers to issue such bonds * * to the holder of such indebtedness in the manner prescribed in this act.” It goes without saying that the issue to the holder of such indebtedness of bonds payable to bearer would be as exact and complete a compliance with this provision as to issue to him bonds payable to himself.

To the argument that the intention of the legislature must have been that the bonds should be payable to the order of the holder of the indebtedness compromised, and not to bearer, because the act required the county clerks to keep a record of all bonds issued in their respective counties, the date, number, and amount thereof, to whom and on what account issued, and when the same became due, and that these county clerks could only learn to whom such bonds were issued in case the bonds themselves were payable to the order of the party to whom they were issued, it is a complete answer that the record of tbe township clerk, which in this case shows, as it should show in every case, the facts which the county clerk is hound to record, is the best evidence of those facts,—the evidence upon which the county clerk is bound to rely in preference to the floating bonds, many of which may never be presented to him. And it goes without saying that the record of the township clerk could show with equal facility and truth to whom the bonds were issued, whether they were payable to bearer or to the order of the holder of the prior indebtedness.

Another objection to this judgment is that these bonds were unauthorized, because the act under which they were issued was, in so far as it authorizes municipal townships to issue refunding bonds, in violation of section 16, art. 2, of the constitution of the state of Kansas, which provides that, “no bill shall contain more than one subject, which shall be clearly expressed in its title,” because the subject of refunding the indebtedness of municipal townships was not expressed in its title. The title of the bill ivas: “An act to enable counties, municipal corporations, boards of education of any city, and school districts, to refund their indebtedness.” The contention is that townships are not municipal corporations proper, but quasi municipal corporations, like counties, boards of education, and school districts; and, inasmuch as the title of the bill especially mentioned these quasi municipal corporations, the presumption is that no quasi municipal corporations were referred to by the term “municipal corporations.” This argument is more ingenious and plausible than convincing. It goes without saying that there is a marked difference between the powers and duties of municipal corporations proper, such as incorporated cities and villages, and those of quasi municipal corporations, such as counties and townships. Nevertheless, where this distinction is immaterial, quasi municipal corporations are thought of, spoken of, and treated as municipal corporations. In the thought and speech of lawyers, legislators, and courts, they are treated as a species of the genus municipal corporations. Ordinarily, the term “municipal corporations” is used to distinguish public political corporations from private corporations, and it generally includes within its meaning all public political corporations, whether municipal or quasi municipal. The object of the constitutional provision under consideration is to require the title of a bill to give notice to the legislature of the subject treated in it. There was nothing to call the attention of the legislators to the rather nice distinction between municipal and quasi municipal corporations in the enactment of this law, which confessedly empowers some classes of both municipal and quasi municipal corporations to refund their indebtedness; and it is more probable that the term “municipal corporations” in the title to this bill, gave notice to the legislature that the bill treated of authority for all public political corporations of the state to refund their indebtedness, than that it gave notice to them that it excluded municipal townships from the exercise of that authority.

This view is strengthened by a glance at some of the language used by the legislature and by the supreme court of the state of Kansas in treating of these townships.

In the General Statutes of Kansas of 1868 (chapter 110, art. 1) this provision is found:

“Each organized township in the state shall be a body politic and corporate, and, in its proper name, sue and be sued; may appoint all necessary agents and attorneys in that behalf, and may make all contracts that may be necessary and convenient for the exercise of its corporate powers.”

In section 1, c. 168, of the Laws of Kansas of 1885, the legislature provided that:

“The township trustee, clerk and treasurer of each municipal township in the state shall constitute a board of commissioners of highways, and township auditing board for the respective townships.”

In section 1, c. 235, of the Laws of 1887, the legislature provided that:

“Any municipal township in any county in this state is hereby authorized to provide and secure to the inhabitants thereof, within such township, parks and cemeteries in the manner and form hereinafter designated.”

In Riley v. Township of Garfield, 38 Pac. 564, the supreme court of Kansas, in speaking of a township in that state, said: “That township is, as a public municipal corporation, the successor of Garfield county.”.

It is difficult to come to the conclusion that a legislature that had declared townships to be bodies corporate, and had repeatedly called them “municipal townships,” would not have been notified that they were referred to by the term “municipal corporations.” Moreover, the article of the constitution under consideration should not be enforced in a narrow or technical spirit. Unless it clearly appears that the subject under consideration was not so expressed in the title that the legislature was thereby notified of its proposed consideration, the law ought not to be stricken down by the court as unconstitutional. Travelers’ Ins. Co. v. Township of Oswego, 7 C. C. A. 669, 676, 59 Fed. 58; City of Eureka v. Davis, 21 Kan. 580; Philpin v. McCarty, 24 Kan. 402; State v. Barrett, 27 Kan. 217; Commissioners of Cherokee Co. v. State, 36 Kan. 337, 13 Pac. 558; In re Pinkney, 47 Kan. 94, 27 Pac. 179.

In view of the common use of the term “municipal corporations” to distinguish public from private corporations, of the declaration of the legislature of Kansas that townships in that state are bodies corporate, of the repeated use by the legislature of the term “municipal township” to describe one of them, and of the reference to one of them as a “public municipal corporation” by the supreme court of that state, it is not so clear that the legislature was not notified by the term “municipal corporations” in this title that municipal townships would be considered in the bill, that any portion of this law should be declared unconstitutional.

Finally, it is argued that these bonds are void because chapter 50, supra, authorized the refunding of indebtedness that had matured or was maturing at the date when it took effect, on March 10,. 1879, only, and that the township of West Plains was not then in existence, and the defendants in error were charged with notice of that fact. But the supreme court of the state of Kansas has held that this statute authorized the refunding of any indebtedness, whether it was created prior or subsequent to the passage of the act. Riley v. Township of Garfleld, 38 Pac. 560. In the absence of any question of commercial law, and of any question involving a violation of the national constitution, laws, or treaties, the federal courts follow the construction of state statutes given by the highest judicial tribunal of the state in the interest of uniformity of decision and harmony of action between the national and state systems of jurisprudence. Traveler’s Ins. Co. v. Township of Oswego, 7 C. C. A. 669, 673, 674, 59 Fed. 58, and cases there cited. Moreover, independent consideration of this question has led us to the same conclusion reached by the supreme court of Kansas.

The judgment below must be affirmed, and it is so ordered.