1. The Act of Kansas approved March 2, 1872, Laws of Kansas,
1872, p. 110, does not require that the bonds issued pursuant to
its provisions by a county in aid of works of internal improvement
shall in all cases be deposited with the treasurer of state before
they are delivered to the auditor of state for registration and for
his certificate thereon, required by the fourteenth section.
Infra, p.
105 U. S.
742.
2. That certificate, as between the
bona fide holder
for value and the county, is conclusive that the bonds, which by
their terms purport to be issued under that act and which
absolutely and unconditionally covenant to pay a certain sum of
money at a time and place therein named, are negotiable as the
valid obligations of the county.
Page 105 U. S. 740
This case depends upon the construction of an Act of the
Legislature of Kansas approved March 2, 1872. Laws of Kansas, 1872,
p. 110.
The first section provides that the board of county
commissioners of any county, the mayor and common council of any
incorporated city, and the trustee, clerk, and treasurer of any
municipal township in the state may issue the bonds of such county,
city, or township, in any sum necessary, not greater than ten
percent, inclusive of all other bonded indebtedness, of the taxable
property of such county, city, or township for the purpose of
building bridges, free or otherwise, or to aid in the construction
of railroads or water power by donation thereto or the taking of
stock therein, or for other works of internal improvement. It also
declares that all counties may, in addition to the amount therein
authorized, issue bonds not exceeding $100,000.
The second section provides that the bonds so issued shall be
payable at such place in the City of New York as the officers
issuing the same may direct in not less than five nor more than
thirty years from the date thereof, with interest not to exceed ten
percent per annum, "all in the discretion of the officers issuing
the same," the interest to be payable semiannually, and evidenced
by coupons attached -- such bonds, if issued by a county, to be
signed by the chairman of the board of county commissioners and
attested by the county clerk.
The third section declares that before any bonds are issued, the
same shall be ordered by a vote of the qualified electors of the
municipality.
The eighth section provides, among other things, that if the
proposition voted for be to aid in the construction of a railroad
(either by donation thereto or the taking of stock therein) or
other work of internal improvement, that the proper officers of the
municipality shall at once subscribe upon the books of the railroad
company,
"specifically setting forth the conditions upon which such
subscription is made, the amount of such donation thereto, stock
taken therein, or bonds voted therefor."
The eleventh section, upon the construction of which the case
turned in the court below, is in these words:
Page 105 U. S. 741
"That if the proposition for which bonds were voted be to aid in
the construction of a railroad, or any bridge, or other work of
internal improvement, either by donation thereto or the taking of
stock therein, then, upon the subscription being made as
hereinbefore provided, the officers of such county, city, or
township [shall thereupon issue the bonds of such county, city, or
township] for the amount of such subscription, and shall forthwith
deliver the same, together with the original or a copy of the
subscription, setting forth its terms in full, to the treasurer of
state, which said bonds shall be held by the said treasurer of
state in escrow until the conditions in the terms of the said
subscription to such railroad or other work of internal improvement
shall be in all things fully complied with; that upon the
conditions of said subscription being in all things fully complied
with, then the treasurer of state shall deliver such bonds to the
parties entitled thereto, who shall have the same registered as
hereinafter provided,
provided that such bonds shall not
bear interest or be negotiable until after the delivery and
registration thereof,
and provided further that in case of
a failure to comply with the conditions in the terms of such
subscription, then such bonds shall be by the treasurer of state
cancelled and redelivered to the county, city, or township issuing
the bonds,
and provided further that this section shall
not apply where the people may have named some party as trustee in
their vote on the proposition, and the contractor may thereafter
agree to the same."
The twelfth section makes it the duty of the municipality
issuing the bonds to register the same in a book kept for that
purpose, showing the date, amount, maturity, and rate of interest,
and, if to aid in the construction of a railroad or other work of
internal improvement, of what railroad or other work of internal
improvement, and whether the same be a donation or for stock
therein, and at the same time transmit to the auditor of state a
certified statement, attested by the clerk, under the corporate
seal of the municipality, of the number, amount, character of the
bonds, to whom, and for what purpose, issued.
The thirteenth section declares it to be the duty of the clerk
of each county, city, or township in the state, within sixty days
after the act took effect, and thereafter on the first day of
January and July of each year, and at such other times as the
auditor may request, to transmit to that officer a certified,
full,
Page 105 U. S. 742
and complete statement of the bonded indebtedness of every
description of said municipality, particularly setting forth the
nature of such bonds, and for what they were issued. From such
statement the auditor is required to make a faithful record of the
bonded indebtedness of the several counties, cities, and townships
of the state, noting therein all bonds subsequently issued, paid,
or cancelled, as the same may be reported to him.
The fourteenth section has an important bearing upon the case,
and is in these words:
"Within thirty days after the delivery of such bonds, the holder
thereof shall present the same to the auditor of state for
registration, and the auditor shall, upon being satisfied that such
bonds have been issued according to the provisions of this act, and
that the signatures thereto of the officers signing the same are
genuine, register the same in his office, in a book to be kept for
that purpose, in the same manner that such bonds are registered by
the officers issuing the same, and shall, under his seal of office,
certify upon such bonds the fact that they have been regularly and
legally issued, that the signatures thereto are genuine, and that
such bonds have been registered in his office according to law, for
which registration and certificate the auditor shall be entitled to
a fee of one dollar for each bond so registered, to be paid by the
holder thereof."
The remaining sections, among some things of an unimportant
character, provide that the auditor shall annually ascertain the
amount accrued and to accrue before the tax of the succeeding year
shall be levied and collected (for the final redemption of the
same), upon all bonds registered in his office, and certify the
amount thereof to the clerk of the county in which the bonds are
issued; that the clerk of the county shall thereupon proceed to
ascertain the amount of tax necessary to pay the interest and
create a sinking fund, in compliance with the auditor's
certificate; that the county treasurer shall, at the time of his
annual settlements with the state treasurer, pay over to the latter
moneys collected under the act, take duplicate receipts therefor,
one copy of which shall be filed with the auditor of state; that
the state treasurer, our of the moneys so received, shall pay off
the interest accrued upon such registered bonds, taking up the
interest coupons, which shall be cancelled and filed with the
auditor of state; that the moneys thus collected and remaining in
the hands of the state treasurer, after the payment of the interest
accrued, except that accruing for the current year, shall be
retained as a sinking fund for the final redemption of the bonds;
that when any registered bonds mature, the same shall be paid by
the state treasurer out of any money in his hands for that purpose,
and, when paid, cancelled
Page 105 U. S. 743
and filed with the auditor, who shall enter satisfaction in the
record of registration; that the treasurer and auditor of state
shall annually publish a detailed statement of the business
transacted by them under the act during the preceding year; and
that the state shall be deemed the custodian only of the taxes so
collected and credited to such municipality, in no manner liable on
account of such bond, but the tax and funds so collected to be
deemed pledged and appropriated to the payment of the interest and
principal of the registered bonds until fully satisfied, the state
treasurer to be liable on his official bond for the faithful
disbursement of all moneys so collected or received by him.
The case was, by stipulation of the parties, submitted for trial
to the court. There was a finding for the defendants. Judgment
having been entered thereon, Lewis brought this writ of error.
MR. JUSTICE HARLAN, after stating the facts, delivered the
opinion of the Court.
At an election held on the 27th of August, 1873, in the County
of Barbour, State of Kansas, the qualified voters gave their
sanction to a donation of $100,000 in bonds of the county, to aid
in the construction of the Nebraska, Kansas, and Southwestern
Railroad. By the terms of the proposition voted on, the bonds were
to be placed in the hands of the state treasurer, who was to
deliver to the railroad company one-half of them when the proposed
road should be constructed to Medicine Lodge, and the remainder of
them when
Page 105 U. S. 744
it should be completed through the county. A few days after the
election, they were signed, sealed, and attested by the proper
officers of the county, in conformity with the order of the board
of commissioners. They are dated Sept. 1, 1873, and payable to the
railroad company, or bearer, with interest, semiannually at the
rate of ten percent per annum, payable at the National Park Bank in
the City of New York. Each is signed by the chairman of the board
of county commissioners, is attested by the county clerk, and
purports upon its face to be
"one of a series of one hundred bonds of one thousand dollars
each, all of like tenor and date, . . . issued for the purpose of
aiding in the construction of the Nebraska, Kansas, and
Southwestern Railroad, through said Barbour County, in the State of
Kansas, under and in pursuance of an act of the legislature of the
state of Kansas, entitled"
"An Act to authorize counties, incorporated cities, and
municipal townships to issue bonds for the purpose of building
bridges, aiding in the construction of railroads, water power, or
other works of internal improvements, and providing for the
registration of such bonds, the registration of other bonds, and
the repealing of all laws in conflict therewith,"
"approved March 2, 1872."
There is nothing upon the face of the bonds indicating that the
donation was otherwise than absolute and unconditional.
They were left by the county officers with one Hutchinson, to be
deposited with the treasurer of state, as required by the terms of
the proposition upon which the people had voted. But they were
never so deposited, and by Hutchinson were procured to be
registered by the auditor of state, and then fraudulently put in
circulation.
An endorsement was made upon each bond as follows:
"STATE OF KANSAS,
ss:"
"I, D. W. Wilder, Auditor of the State of Kansas, do hereby
certify that this bond has been regularly and legally issued; that
the signatures thereto are genuine, and that the same has been duly
registered in my office according to law."
"In witness whereof I have hereunto set my hand and affixed my
seal of office, at Topeka, this nineteenth day of November,
1873."
"D. W. WILDER,
Auditor"
Page 105 U. S. 745
Lewis purchased the bonds and coupons before the maturity of any
of the coupons, and (according to our interpretation of the facts
specifically found) without notice of any fraud in their execution
or issue unless, as claimed by the county commissioners, such
notice was furnished by the terms of the act above mentioned. He
brought the present action against the board of commissioners of
the county to recover the coupons due Sept. 1, 1875, March 1, 1876,
and Sept. 1, 1876. The defense, which was sustained in the court
below, is placed upon the ground that the bonds were issued in
plain violation of that act, and that all persons, whether
purchasers in good faith or not, were required to take notice of
the fact that they were not binding obligations of the county.
We have carefully considered the reasons upon which the judge of
the circuit court based the conclusion that the county was not
liable upon the bonds even in the hands of a
bona fide
purchaser for value. His opinion seems to proceed upon these
grounds: that under the act of 1872 it was a condition precedent
that the bonds should not bear interest nor be negotiable until
they should pass through the hands of the state treasurer, he alone
being invested with authority to determine when they were to be
delivered to the parties entitled thereto, for the purposes of
registration; that the requirement of that condition was manifest
from the statute, of the terms of which all were bound to take
notice; that although the bonds, on their face, disclosed no
conditions whatever for their delivery, the purchaser should have
ascertained whether, prior to their registration, they had, in the
first instance, been deposited with that officer as escrows, and
that he could not take the certificate of the auditor as conclusive
evidence that the statute had been pursued; that as the bonds were
not placed in the hands of the treasurer, they never had the
quality of negotiability, and could not, therefore, have been
rightfully registered, nor their regularity and legality certified
by the auditor under his seal of office; and since the conditions
affixed by the popular vote had never been performed by the
construction of the proposed road, the bonds were not the valid
obligations of the county.
We are unable to concur in some of the views expressed by
Page 105 U. S. 746
the learned judge, especially in his conclusion that the bonds
are not enforceable against the county. The fundamental proposition
upon which that conclusion seems to rest is that bonds executed
under the act of 1872 could not, consistently with its purpose and
language, be registered and issued, even when the subscription was
payable immediately and without conditions, unless in the first
instance they be delivered to the treasurer of state, and be by him
delivered to the party entitled thereto. This interpretation is
not, we think, justified by any fair construction of the act. Under
some circumstances, distinctly disclosed upon its face, it is not
at all necessary that they be delivered to the treasurer in order
that they may be registered and become the valid obligations of the
municipality in whose name they are issued. The last proviso of the
eleventh section expressly declares that that section -- the only
one which refers to the custody of the bonds by the state treasurer
--
"shall not apply when the people have named some party as
trustee in their vote upon the proposition, and the contractor
[that is, as we suppose, the railroad company proposing to do the
work of construction] may thereafter agree to the same."
If the people, on one side, and the company, on the other, agree
upon a trustee to hold the bonds until certain contingencies happen
or certain terms or conditions are performed, the statute
explicitly declares the eleventh section shall not apply. Again,
suppose the people had voted -- as, it would seem, that under secs.
1, 2, and 3, they might have done -- for a donation, or a
subscription of stock, to be paid in bonds deliverable at once,
without any conditions or terms whatever. Could it be claimed that
the bonds must of necessity have been delivered to the treasurer of
state? If so, for what purpose could he have received them? What
ends could have been subserved by his custody of them when to their
delivery no conditions were attached? When should he in such case
have delivered them to the parties entitled thereto? If, in the
case supposed, the company, under the agreement with the county and
under the vote of the people, became entitled at once to the bonds
for the purpose of having them registered, and the required
certificate of the auditor endorsed thereon, it cannot be that the
legislature intended the parties to perform
Page 105 U. S. 747
the idle ceremony of passing them through the hands of the
treasurer, to be by him immediately surrendered to the proper
parties. That officer, in the case put, has no duty to perform,
such as the act imposes when conditions are attached to a
subscription. For these reasons, we are of opinion that the
eleventh section, insofar as it requires a delivery of bonds to
him, has no application except in cases where, to the subscription
of stock or to the donation are annexed conditions to be complied
with before that officer may rightfully surrender the bonds
entrusted to him. The object of that section is to prescribe a mode
in which the people of a county may, if they pursue the statute, be
protected in some degree against a premature delivery of county
bonds by local officers in advance of the performance of conditions
imposed by the popular vote.
If we are correct in this view, it follows that the purchaser of
those bonds was not informed, by the statute, that they belonged to
that class which were imperatively required to be deposited, in the
first instance, with the state treasurer and by him held until the
conditions upon which they were to be delivered were fully
performed.
But it remains for us to consider the important practical
question as to the rights of the parties, in view of the admitted
fact that the proposition approved by popular vote did in terms
provide for the ultimate delivery of the bonds only upon certain
conditions -- bonds therefore which ought to have been, but were
not, delivered by the county officers to the state treasurer to be
held until the prescribed conditions were performed. The
determination of this question, so far as it involves the good
faith and diligence of the parties, is somewhat complicated by the
absence of any finding as to whether the subscription was in fact
made on the books of the company "specifically setting out the
conditions" upon which it was made (sec. 9), or whether the
original or a copy of the subscription was in fact delivered or
even transmitted to the treasurer of state (sec. 11), or whether
the officers of the county themselves made a record of the bonds in
a book kept for that purpose (sec. 12), or whether they transmitted
to the state auditor a certified statement, attested by the county
clerk, "of
Page 105 U. S. 748
the number, amount, and character of the bonds so issued, to
whom issued, and for what purpose" (sec. 12). We cannot, therefore,
certainly know what facts would have been ascertained by the
purchaser had he resorted to all those sources of information -- an
investigation upon which, for reasons hereafter to be stated, he
was not required to enter. We have in the special finding only the
fact that the county, under the order of the board of
commissioners, executed bonds payable to the railroad company or
bearer, and purporting to have been issued under and in pursuance
of the act of 1872, and that the bonds were left by the county
officers with Hutchinson for delivery to the state treasurer, when
the statute required the county authorities themselves to deliver
the bonds to that officer.
Now it is to be observed that the bonds do not upon their face
indicate that they were deliverable upon the performance of certain
conditions. They are made payable unconditionally to bearer at a
designated place and at a specified time. By the act of the county
officers entrusting the bonds to one upon whom no official
responsibility rested, he was enabled to represent himself to the
auditor as presumptively the owner, because the bearer, of the
bonds. But these facts, it is insisted, are of no consequence in
view of the statutory provision, declaring in effect that bonds, of
the kind here in suit "shall not bear interest or be negotiable"
until after their delivery by the state treasurer to the parties
entitled thereto. Whatever force might be conceded to this argument
looking alone to the requirements of the eleventh section of the
act, we are of opinion that more consequence is to be attached to
the action of the auditor of state, under the fourteenth section,
than seems to have been done by the court below. The presumption is
that the legislature, while aiming to guard local communities
against the fraudulent conduct of their officers, did not intend to
withdraw all protection to the
bona fide purchasers of
municipal securities which those officers were authorized to
execute, and which they might put into circulation or negligently
permit to get into circulation. Hence, as we think, the requirement
as to the registration of bonds issued under the act, and the duty
of the state auditor, upon registration, to attest their regularity
and legality by a certificate under his seal of office.
Page 105 U. S. 749
The state treasurer may improperly surrender bonds deposited
with him for delivery only upon the performance of specified
conditions. But such delivery would not render them binding upon
the municipality in whose name they are executed. The holder is
under a necessity by the statute to do something more. He is
required to present them for registration to another officer, the
auditor of the state, in whose office (if the county authorities
obey the statute) is kept a record of the number, amount, and
character of the bonds, to whom issued, and for what purpose. And
that officer is not under a duty to admit the bonds to registration
simply because asked to do so and without making inquiry as to
their regularity and legality. Unless satisfied that they are
issued in accordance with the provisions of the act, he is bound to
deny the application for registration. But, if satisfied that the
provisions of the state have been pursued, he is required to
register the bonds and certify upon each one, under his seal of
office, that it has been regularly and legally issued. To him,
therefore, is committed, by the state, the important function of
finally determining whether the law has been, in all respects,
obeyed, and consequently whether the bonds have been regularly and
legally issued. His determination necessarily involves an
investigation as to every fact essential to their validity.
Purchasers in good faith, although required to know what the
statute contains, are not bound, under such circumstances as are
here disclosed, to go behind the auditor's certificate and find out
whether he has ascertained all the facts or whether he has
correctly and honestly passed upon the questions arising upon an
application for registration. The investigation which the statute
authorized him to make involved the inquiry whether the bonds were
of the class which should have passed through the hands of the
treasurer, and also whether the conditions upon which they were
deliverable had been performed. Purchasers have the right to assume
-- having no notice to the contrary -- that he has in these
respects discharged his duty. The registration acts in some of the
states, while imposing like duties upon state auditors and
requiring them (when the facts justified them in so doing) to
certify upon municipal bonds that they have
Page 105 U. S. 750
been issued in compliance with law, expressly declare such
certificates to be
prima facie evidence only of the facts
stated, and shall not prevent proof to the contrary in any suit
involving the validity of the bonds, or the power and authority of
the municipality in whose name they are executed to issue them.
Anthony v. County of Jasper, 101 U.
S. 693. But the statute in question contains no such
provision. The Legislature of Kansas confers upon the auditor of
state full authority to ascertain and determine whether bonds
presented for registration have been issued in accordance with
the
brk:
statute, and, if satisfied such is the fact, it is made his duty
to certify upon the bonds that they have been regularly and legally
issued. Had it appeared upon the face of bonds that they were
deliverable upon certain terms, and therefore belonged to the class
which should pass through the hands of the state treasurer, and if
the purchaser in such a case be held to have taken the bonds
subject to the statutory requirement that they were not negotiable
unless they had been in the first instance actually delivered by or
in behalf of the county officers to the state treasurer, and by the
latter surrendered to the proper parties, it is clear no such
condition can be attached to the purchase by appellant. For the
bonds here in suit do not disclose the conditional nature of the
subscription, nor that they belonged to the class which, as a
condition precedent to their negotiability, must have been
delivered to the state treasurer. That these facts are not
disclosed upon the face of the bonds is the fault of the county,
and it is estopped, as against a
bona fide purchaser, to
deny that they are of the class which might have been delivered, at
once, and without going through the hands of the state treasurer,
to the auditor of state, and been registered and certified as
regularly and legally issued. In such a case, at least, the action
and certificate of the auditor of state must be deemed conclusive
evidence as between the county and a
bona fide purchaser
that the bonds were regularly and legally issued, and therefore
negotiable in the fullest sense of that word. If such be not the
construction of the registration act, it is difficult to perceive
of what practical value is the auditor's certificate, or what the
legislature intended by the requirement that he should, after
Page 105 U. S. 751
examination into the facts, attest the regularity and legality
of the bonds. If the determination of that officer in this case
operates hardly upon the people of the county, the result must be
attributed to the legislation in question as well as to the
negligence of the state and county officers. What we have said is
in harmony with the settled doctrines of this Court upon the
subject of negotiable securities issued by municipal corporations,
as announced in numerous cases with which the profession is
familiar, and which need not be here cited.
There are other questions in the case. But they are of minor
importance, and it seems to be unnecessary to consider them.
Judgment reversed and cause remanded with directions to
enter a judgment in favor of the plaintiff below.
