Wright v. East Riverside Irr. Dist.

138 F. 313, 70 C.C.A. 603, 1905 U.S. App. LEXIS 3782

• Court: Court of Appeals for the Ninth Circuit
• Decided: May 29, 1905
• Docket: No. 1,159
• Status: Published

Opinions

ROSS, Circuit Judge,

after stating the case as above, delivered the opinion of the court.

The law is well settled that bona fide purchasers of municipal bonds take with notice of the law under which such bonds are issued. The plaintiff in error must therefore be held to have known of the provisions of the act called the “Wright Act” (St. Cal. 1887, pp. 35, 36, 44, c. 34), sections 15,16, and 42 of which are as follows:

“See. 15. For the purpose of constructing necessary irrigating canals and works and acquiring the necessary property and rights therefor, and otherwise carrying out the provisions of this act, the board of directors of any such district must, as soon after such district has been organized as may be practicable, estimate and determine the amount of money necessary to be raised, and shall immediately thereupon call a special election, at which shall be submitted to the electors of such district possessing the qualifications prescribed by this act, the question whether or not the bonds of said district shall be issued in the amount so determined. Notice of such election must be given by posting notices in three public places in each election precinct in said district for at least twenty days, and also by publication of such notice in some newspaper published in the county, where the office of the board of directors of such district is required to be kept, once a week for at least three successive weeks. Such notices must specify the time of holding the election, the amount of bonds proposed to be issued, and said election must be held and the result thereof determined and declared, in all respects as nearly as practicable, in conformity with the provisions of this act governing the election of officers: provided, that no informalities in conducting such an election shall invalidate the same, if the election shall have been otherwise fairly conducted. At such election the ballots shall contain the words ‘Bonds —Yes’ or ‘Bonds — No,’ or words equivalent thereto. If a majority of the votes cast are ‘Bonds — Yes,’ the board of directors shall immediately cause bonds in said amount to be issued; said bonds shall be payable in gold coin of the United States, in installments as follows, to wit: At the expiration of eleven years not less than five per cent of said bonds'; at the expiration of twelve years not less than six per cent; at the expiration of thirteen years not less than seven per cent; at the expiration of fourteen years not less than eight per cent; at the expiration of fifteen years not less than nine per cent; at the expiration of sixteen years not less than ten per cent;_ at the expiration of seventeen years not less than eleven per cent; at the expiration of eighteen years not less than thirteen per cent; at the expiration of nineteen years not less than fifteen per cent; and for the twentieth year a percentage sufficient to pay off said bonds; and shall bear interest at the rate of six per cent per annum, payable semi-annually on the first day of January and July of each year. The principal and interest shall be payable at the office of the treasury of the district. Said bonds shall be each of the denomination of not less than one hundred dollars, nor more than five hundred dollars, shall be negotiable in form, signed by the president and secretary, and the seal of the board of directors shall be affixed thereto. They shall be numbered consecutively as issued, and bear date at the time of their issue. Coupons for the interest shall be attached to each bond signed by the secretary. Said bonds shall express on their face that they were issued by authority of this act, stating its title and date of approval. The secretary shall keep a record of the bonds sold, their number, the date of sale, the price received, and the name of the purchaser.

“Sec. 16. The board may sell said bonds from time to time, in such quantities as may be necessary and most advantageous, to raise money for the construction of said canals and works, the acquisition of said property and rights> and otherwise to fully carry out the objects and purposes of the act. Before making any sale the board shall, at a meeting by resolution, declare its intention to sell a specified amount of the bonds, and the day and hour and place of such sale, and shall cause such resolution to be entered in the minutes, and notice of the sale to be given, by publication thereof at least twenty days, in a daily newspaper published in each of the cities of San Francisco, Sacramento, and Los Angeles, and in any other newspaper, at their discretion. The notice shall state that sealed proposals will be received by the board, at their office, for the purchase of the bonds, till the day and hour named in the resolution. At the time appointed the board shall open the proposals, and award the purchase of the bonds to the highest responsible bidder, and may reject all bids; but said board shall in' no event sell any of the said bonds for less than ninety per cent of the face value thereof.”

“Sec. 42. The board of directors, or other officers of the district, shall have no power to incur „ any debt or liability whatever, either by issuing bonds, or otherwise, in excess of the express provisions of this act, and any debt or liability incurred, in excess of such express provisions, shall be and remain absolutely void.”

If it be conceded that certain of the foregoing statutory provisions may be regarded as merely directory, such as that “the seal of the board of directors shall be affixed” to the bonds, that they “shall be numbered consecutively as issued,” and that the coupons attached to the bonds shall be “signed by the secretary,” still there is no ground whatever for holding that the signatures of the officers designated by the statute, and which it declares shall be affixed to the bonds which constitute the principal obligation, are not essential to their execution. And this is not only not disputed, but is virtually admitted, in the reply brief for the plaintiff in error. At all events, the decision of the Supreme Court in the case of Anthony v. County of Jasper, 101 U. S. 693, 25 E. Ed. 1005, is conclusive upon that proposition. That was an action upon interest coupons originally attached to bonds issued under the township aid act of Missouri (Wagner’s St. p. 243a, c. 22a, art. 3), section 4 of which is as follows:

“Before any bond hereafter Issued by any county, city, or incorporated town, for any purpose whatever, shall obtain validity, or be negotiated, such bond shall first be presented to the State Auditor, who shall register the same in a book or books provided for that purpose in the same manner as the state bonds are now registered, and who shall certify by indorsement on such bond that all the conditions of the laws have been complied with in its issue, if that be the case, and also that the conditions of the contract under which they were order.ed to be issued have also been complied with, and the evidence of that fact shall be filed and preserved by the auditor. But such certificate shall be prima facie evidence only of the facts therein stated, and shall not preclude or prohibit any person from showing or proving the contrary in any suit or proceedings to test or determine the validity of such bonds or the power of any county court, city, or town-council, or board of trustees, or other authority to issue such bonds, and the.remedy by injunction shall also lie at the instance of any tax-payer of the respective county, city, or incorporated town to prevent the registration of any bonds alleged to be illegally issued or founded under any provision of this act.”

On the 4th of June, 1872, the county court ordered that $50,000 of the bonds which had been voted should be issued, that the clerk have them registered according to law, and, when registered, that they be deposited in escrow with some responsible banker in St. Louis. John Purcell was the presiding justice of the court in March. He continued in office until September, 1872, when he resigned, and R. S.’ Merwin was appointed in his place October 21, 1872. The bonds there in question were sealed with the seal of the court, affixed by the clerk, and signed by Merwin, as presiding justice, and by the clerk, in October, 1872, but antedated as of March 28th. Merwin delivered them during the same month, with the first two coupons cut off, to the Union Savings Bank of St. Louis, for the use of Edward Burgess, a contractor for building the road. In November Burgess sold them to one Wilson at 55 cents on the dollar, and the bank gave them up to the purchaser on his order. Neither the other justice of the county court nor the court as a court consented to what was done by Merwin, and the railroad company never fully complied with the conditions of the vote authorizing the issue of the bonds. No registry of the bonds was ever made as required by the act of March 30, 1872, and they did not have upon them the certificate of registration. Anthony, the plaintiff below, was a purchaser for value of the bonds from which the coupons sued on were cut, and without any notice that they had been antedated, or were in any respect irregular or invalid. In affirming the judgment against Anthony the Supreme Court said:

“There can be no doubt that it is -within the power of a state to prescribe the form in which municipal bonds shall be executed in order to bind the public for their payment. If not so executed, they create no legal liability. Other circumstances may exist which will give the holder of them an equitable right to recover from the municipality the money which they represent; but he cannot enforce the payment, or put them on the market as commercial paper. The act now in question is, we think, of this character. It, in effect, provides that no bond issued by counties, cities, or incorporated towns shall be valid — that is to say, completely executed — until it has been countersigned or certified in a particular way by the State Auditor. For this purpose, after being executed by the corporate authorities, it must be presented to that officer, and he must inquire and determine whether all the requirements of the law authorizing its issue have been observed, and whether all the conditions of the contract in consideration of which it was to be put out have been complied with. To enable him to do this, evidence must be submitted, which he is required to file and preserve. If he is satisfied, the registry is made, and the requisite certificate indorsed on the bonds. This being done, the execution of the bond is complete, and, under the law, it may-then be negotiated; that is to say, put on the market as valid commercial paper. When the certificate is found on the bond, the purchaser need not inquire whether what has been certified to is true. As against a bona fide holder, the public is bound by what its authorized agents have done and stated in the prescribed form. Dealers in municipal bonds are charged with notice of the laws of the state granting power to make the bonds they find on the market. This we have always held. If the power exists in the municipality, the bona fide holder is protected against mere irregularities in the manner of its execution; but, if there is a want of power, no legal liability can be created. When the bonds now in question were put out, the law required that, to be valid, they must be certified to by the Auditor of State. In other words, that officer was to certify them before their execution was complete, so as to bind the public for their payment. We had occasion to consider in McGarrahan v. Mining Company, 90 TJ. S. 316, 24 L. Ed. 630, the effect of statutory requirements as to the form of the execution of patents to pass the title of lands out of the United States, and there say: ‘Each and every one of the integral parts of the execution is essential to the validity of a patent. They are of equal importance under the law, and one cannot be dispensed with more than another. Neither is directory, but all are mandatory. The question is not what, in the absence of statutory regulations, would constitute a valid grant, but what the statute requires.’ The same rule applies here. The object to be accomplished is the complete execution of a valid instrument, such as the law authorizes public officers to put out and bind for the payment of money the public organization they represent. For this purpose the law has provided that the instrument must not only be signed and sealed on behalf of the county court of the county, but it must be certified to or countersigned by the Auditor of State. Of this law all who deal in the bonds are bound to take notice. In order to recover in this case it became necessary for the plaintiff to prove that the bonds from which the coupons sued on were cut had been executed according to law. He did prove that they were signed by the presiding justice and clerk of the court, and were sealed with the seal of the court. This, before the act of March 30, 1872, would have been enough; but after that more was necessary. The public can act only through its authorized agents, and it is not bound until all who are to participate in what is to be done have performed their respective duties. The authority of a public agent depends on the law as it is when he acts. He has only such powers as are specifically granted; and he cannot bind his principal under powers that have been taken away by simply antedating his contracts. Under such circumstances a false date is equivalent to a false signature; and the public, in the absence of any ratification of its own, is no more estopped by the one than it would be by the other. After the power of an agent of a private person has been revoked, he cannot bind his principal by simply dating back what he does. A retiring partner, after due notice of dissolution, cannot charge his firm for the payment of a negotiable promissory note, even in the hands of an innocent holder,, by giving it a date within the period of the existence of the partnership-Antedating under such circumstances partakes of the character of a forgery, and is always open to inquiry, no matter who relies on it. The question; is one of the authority of him who attempts to bind another. Every person who deals with or through an agent assumes all the risks 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. In Bayley v. Taber, 5 Mass. 286-4 Am. Dec. 57, it was held that, when a statute provided that promissory-notes of a certain kind, made or issued after a certain day, should be utterly void, evidence was admissible on behalf of the makers to prove that the notes; were issued after that day, although they bore a previous date. It matters not that when the bonds were voted the registration law was not in force. Before they were issued it had gone into effect It did not change in any way the contract with the railroad company. The company was just as much entitled to its bonds when it complied with the conditions under, which they were voted after the law as it could have been before. All the Legislature-attempted to do was to provide what should be a good bond when issued-There was nothing changed but the form of the execution. Purchasers of municipal securities must always take the risk of the genuineness of the official signatures of those who execute the paper they buy. This includes not only the genuineness of the signature itself, but the official character of him who makes it. This plaintiff is charged with notice of the fact that Merwin was not the presiding justice of the county court until October, 1872, and that he could not have signed the bonds in his official capacity until that time. Had he signed them in March, he could not have bound the township for their payment. This is equivalent to notice that they were not in fact issued before March 30th, and that, consequently, they were not valid, because not certified by the Auditor of State.”

Accepting the contention of the plaintiff in error as correct, and treating the bonds to which the coupons sued upon in the present case were originally attached as having been issued the day they bear date, to wit, December 30,1890 — the day they were directed to be issued by the board of directors of the district — the difficulty in the way of sustaining them is that they were not signed by the then secretary, who was Van Arsdale. His lithographed signature was affixed to the coupons attached to the bonds, but he never signed the bonds, which, as has been said, was the principal obligation, and which the statute declares should be signed by the president and secretary of the board of directors of the district. The bonds in question were subsequently, and nearly two years after December 30, 1890, signed by McCully, as secretary, who had then succeeded Van Arsdale in that capacity; and with McCully’s signature affixed to the bonds and Van Arsdale’s lithographed signature affixed to the coupons attached thereto they were disposed of for value. Each bond, with the annexed coupons, constituted, but one instrument; the bond being the principal obligation and the coupons merely incidental. City of Kenósha v. Lamson, 9 Wall. 477,19 L. Ed. 725. As was said by the court below, both Van Arsdale and McCully could not be secretary at one and the same time, and each bond therefore showed upon its face that there was something wrong about it. As said by the Supreme Court in' the case of Anthony v. County of Jasper, supra:

“Purchasers of municipal securities must always take the risk of the genuineness of the official signatures of those who execute the paper they buy. This includes not only the genuineness of the signature itself, but the official character of him who makes it.”

Proper inquiry by the purchaser would have disclosed to him that McCully was not the secretary of the board of directors on December 30, 1890; and therefore, treating the bonds in question as having been then issued, as is contended by the plaintiff in error should be done, they were void and of no effect, because not signed by the secretary, as required by section 15 of the Wright act. On the other hand, treating the bonds as having been issued at the time of their disposal, and when McCully was in fact secretary, they equally failed to conform to those other essential provisions of the statute declaring that they shall bear date at the time of their issue, and be payable in installments at the various times therein fixed. In that view they are antedated, the direct and necessary effect of which is to make them payable within a shorter time than is provided by the statute for their payment, which provision is, as a matter of course, of the essence of the law, and not a matter of mere form. In either event, and in both cases, the purchaser was apprised by the face of the bond itself and the law under which it purported to be issued of its invalidity.

The judgment is affirmed.