When the charter of a municipal corporation requires that bonds
issued by it shall specify for what purpose they are issued, a bond
which purports
Page 145 U. S. 136
on its face to be issued by virtue of an ordinance the date of
which is given, but not its title or its contents, does not so far
satisfy the requirements of the charter as to protect an innocent
holder for value from defenses which might otherwise be made.
The Court stated the case as follows:
This was an action to recover the amount of certain coupons cut
from bonds issued by the City of Denison "for the reduction of and
cancellation of the outstanding city scrip, and for the improvement
of streets," etc.
The charter of the city, adopted March 7, 1873, conferred upon
it power (sec. 27)
"to borrow money on the credit of the city, and issue bonds
therefor, to an amount not to exceed $50,000. To make a loan
exceeding $50,000, the question must be submitted to the qualified
voters of the city, and, if sustained by a majority of the votes
polled, such loan shall be lawful. All bonds shall specify for what
purpose they were issued, and not be invalid if sold for less than
their par value. And when any bonds are issued by the city, a fund
shall be provided,"
etc. Sec. 28:
"To issue bonds in aid of any corporation or enterprise, either
manufacturing, railroad, or for other purposes, calculated to
advance the interests of the said city, and to borrow money for
that purpose, and to take stock therein, or in any of them:
provided,"
etc.
Pursuant to this charter, the city council, on August 9, 1873,
adopted the following ordinance:
"SEC 1. Be it ordained by the City Council of the City of
Denison that there shall be issued by the City of Denison bonds to
the extent of $20,000, and shall be known as 'Denison City Bonds.'
Said bonds shall mature in ten years from the date of their
issuance, and such bonds, or the proceeds thereof, shall be used
for the purpose of redeeming the outstanding city scrip or other
indebtedness, and the improvement of the streets, as may be
directed by the city council, and said bonds shall bear an annual
interest of ten percentum, payable semiannually, expressed by
coupons thereto attached, and shall be payable at the office of the
Importers' and Traders' National Bank of New York City. "
Page 145 U. S. 137
No reference was made in the bonds to the purpose for which they
were issued, but they contained the following paragraph:
"These bonds are issued by virtue of an ordinance passed by the
board of aldermen of said city on the 9th day of August, and
approved by the mayor on the 9th day of August, 1873."
It was stipulated upon the trial that
"if the failure to state the purpose for which the bonds were
issued more specifically than is contained in said bonds was such a
defect as deprived them of the quality of negotiable paper, and
visited all purchasers for value with notice, then the City of
Denison had a good defense to the suit; but, if not such a defect,
then plaintiff ought to recover as prayed for in his petition."
The court charged the jury that, by the charter, notice was
imputed to all persons purchasing bonds that the purpose for which
they were issued should be stated, and instructed them to return a
verdict for the defendant, which was done. The plaintiff thereupon
took out a writ of error from this Court.
Page 145 U. S. 139
MR. JUSTICE BROWN, after stating the facts in the foregoing
language, delivered the opinion of the Court.
This case involves the single question whether a requirement of
a charter that the bonds issued by a municipal corporation shall
specify for what purpose they are issued is so far satisfied by a
bond which purports on its face to be issued by virtue of an
ordinance, the date of which is given, but not its title or its
contents, as to cut off defenses which might otherwise be made.
We are of the opinion that it is not. It is the settled doctrine
of this Court that municipal corporations are merely agents of the
state government for local purposes, and possess only such powers
as are expressly given or implied, because essential to carry into
effect such as are expressly granted, 1 Dill.Mun.Corp. section 89;
Ottawa v. Carey, 108 U. S. 110;
that the bonds of such corporations are void unless there be
express or implied authority to issue them,
Wells v.
Supervisors, 102 U. S. 625;
Claiborne County v. Brooks, 111 U.
S. 400;
Concord v. Robinson, 121 U.
S. 165;
Kelley v. Milan, 127 U.
S. 139; that the provisions of the statute authorizing
them must be strictly pursued, and that the purchaser or holder of
such bonds is chargeable with notice of the requirements of the law
under which they are issued,
Ogden v. County of Daviess,
102 U. S. 634;
Marsh v. Fulton
Co., 10 Wall. 676;
South Ottawa v.
Perkins, 94 U. S. 260;
Northern Bank v. Porter Township, 110 U.
S. 608;
Hayes v. Holly Springs, 114 U.
S. 120;
Merchants' Bank v. Bergen County,
115 U. S. 384;
Harshman v. Knox County, 122 U. S. 306;
Coler v. Cleburne, 131 U. S. 162;
Lake County v. Graham, 130 U. S. 674.
It is certainly a reasonable requirement that the bonds issued
shall express upon their face the purpose for which they were
issued. In any event, it was a requirement of which the purchaser
was bound to take notice, and, if it appeared upon their face that
they were issued for an illegal purpose, they would be void. If
they were issued without any purpose appearing
Page 145 U. S. 140
at all upon their face, the purchaser took the risk of their
being issued for an illegal purpose, and if that proved to be the
case, they are as void in his hands as if he had received them with
express notice of their illegality. Ordinarily the recital of the
fact that the bonds were issued in pursuance of a certain ordinance
would be notice that they were issued for a purpose specified in
such ordinance,
Hacket v. Ottawa, 99 U. S.
86, and the city would be estopped to show the fact to
be otherwise,
Ottawa v. National Bank, 105 U.
S. 342. But where the statute requires such purpose to
be stated upon the face of the bonds, it is no answer to say that
the ordinance authorized them for a legal purpose if, in fact they
were issued without consideration and for a different purpose.
In this case, the bonds were not only issued for a purpose not
named in the ordinance,
viz., in aid of the Texas and
Atlantic Refrigerator Car Company, which had agreed to erect at
Denison slaughter houses, tanks, machinery, and other material of
the value of $15,000, but upon a consideration which had wholly
failed, the company having failed to comply with the terms of the
contract, and the bonds, so far as they were known to exist, were
cancelled.
In
Kansas v. School District No. 3, 34 Kan. 237, relied
upon by the plaintiff, the state sued a school district upon
certain school district bonds and their coupons. Upon the trial,
the defendant objected to the introduction of any evidence upon the
petition, upon the ground that the same did not state facts
sufficient to constitute a cause of action, and the court sustained
the objection and dismissed the action. One of the objections urged
by the defendant against the petition was that the bonds did not
state, as required by statute, the purpose for which they were
issued. The court held that the bonds were not void for that reason
because, under the allegations of the petition, they must be
considered as issued in good faith;
"that the school district received ample consideration for them,
and that the State of Kansas is an innocent and
bona fide
purchaser of them, for nothing appears to the contrary in the
petition, and all the allegations of the petition would tend to
indicate this."
This ruling,
Page 145 U. S. 141
however, is not inconsistent with the idea that if they had been
issued for an illegal purpose, the purchaser would have been
chargeable with notice of such illegality by reason of the omission
to state on the face of the bonds the purpose for which they were
issued.
In
Young v. Camden County, 19 Mo. 309, the act required
that county warrants should be written or printed in Roman letters,
without ornament, in order to prevent the issuing of paper by
county courts which could be used as a circulating medium. This was
held to be merely directory; but the case, though cited by the
plaintiff here, is not in point. The court held expressly that all
the words prescribed by the statute were in the warrants, and that
the introduction of other words did not vitiate them.
In view of the circumstances under which these bonds were
issued, the instruction to return a verdict for the defendant was
proper, and the judgment of the court below is therefore
Affirmed.
MR. JUSTICE BREWER dissented.
