Bonds issued by a city to complete a local improvement, which
did not pledge the city's general credit but were expressly payable
only out of certain special assessments on land of the improvement
district and were therefore nonnegotiable, were bought by the
plaintiff from a prior purchaser, in reliance on advice of his
attorneys, on recitals in the bonds giving assurance of their
validity and soundness and on a certificate issued by the mayor,
clerk, and treasurer of the city representing that no legislation
was pending in respect of the creation of the improvement district,
the construction of the improvement, or the issue of bonds, which
was false. In making the purchase, the attorneys had before them a
transcript of the proceedings showing that the assessments were in
excess of the original estimate of cost -- a fact which rendered
the assessments void under the state law, as was subsequently
adjudged
Page 276 U. S. 537
by the state courts in a suit by a landowner against the city,
pending when the certificate was issued. The bonds were therefore
worthless.
Held:
1. That plaintiff had no cause of action against the city for
negligence or misrepresentation. P.
276 U. S. 542.
2. He was charged through the transcript when he bought the
bonds with notice of the invalidating facts, and must be held to
have known the law. P.
276 U. S.
541.
3. His position was not strengthened by the fact that the city's
officials also misunderstood the law, nor by the recitals
reflecting their opinion as to the legal effect of the bonds.
Id.
4. Actionable negligence cannot be predicated on the failure of
the city's officer properly to exert their power and perform their
duties in respect of the estimate, assessment, and contract for
construction of the improvement. Such failure was not a breach of
any duty owed by the city to plaintiff.
Id.
5. The certificate was issued without legal authority by
officers not empowered to define the improvement district, make the
assessment, issue or sell the bonds, or bind the city to pay for
such improvements, nor authorized to make any statement or give any
assurance in respect of such matters.
Id.
18 F.2d 860 affirmed.
Certiorari, 275 U.S. 515, to a judgment of the circuit court of
appeals which affirmed the district court in dismissing an action
against the city for negligence and false representations.
Page 276 U. S. 538
MR. JUSTICE BUTLER delivered the opinion of the Court.
Petitioner sued in the United States Court for the District of
Idaho to recover damages alleged to have been sustained by reason
of respondent's negligence and false representations in respect of
certain local improvement bonds. Respondent demurred to the
complaint; the district court held that it failed to state a cause
of action and dismissed the case. The circuit court of appeals
affirmed. 18 F.2d 860. The petition to this Court for a writ of
certiorari stated that the decision below conflicts with the
decisions of this Court and of the Circuit Courts of Appeals for
the Third and Eighth Circuits.
276 U. S. 275 U.S.
515.
Page 276 U. S. 539
Respondent created a district for the construction of a sewer to
be paid for by assessments against the lands therein according to
resulting benefits. The statutes require the city engineer to make
estimates of the cost of such improvements, provide that no
contract shall be made for any work for a price in excess of the
estimate, and direct the city council to pass an ordinance defining
the boundaries of the district, describing the work, and showing
the estimated cost. Idaho C.S. 1919, ยงยง 3879 and 4129. The
engineer's estimate was $118,300. Assessments were made for that
amount; and, pursuant to ordinance adopted December 6, 1920, bonds
for $117,000 were issued. The validity of these is not questioned.
It was found that the estimate was too low, and an ordinance was
passed stating that the assessments first made were not sufficient
to pay the cost and expenses of the work. Additional assessments
amounting to $49,500 were made, and, pursuant to ordinance of
January 10, 1921, respondent executed and, on March 8, 1921,
delivered to a purchaser additional bonds for $43,000. On that day,
the mayor, clerk, and treasurer of respondent issued a certificate
under its seal stating that no litigation was pending or threatened
in respect of the creation of the district, the construction of the
sewer, or the issue of the bonds.
A transcript of the proceedings and that certificate were
submitted to the attorneys, who are acting for petitioner in this
case, for examination as to the validity of the bonds. And they, it
is alleged, relying upon the recitals in the bonds and the
statements in the certificate, gave a written opinion that the
bonds were valid. The complaint alleges that, on July 13, 1921,
petitioner, relying upon such recitals, certificate, and opinion,
purchased three of these bonds. And petitioner says that the
statement in the certificate was material because no suit to enjoin
the making of special assessments or to set them aside may be
brought after the expiration of thirty days from
Page 276 U. S. 540
the making of the assessment. Section 4137, C.S. 1919. The
certificate was false. One Lucas, an owner of property in the
district, had brought suit against the city and its officers to
have the assessments in excess of the engineer's estimate declared
illegal and to enjoin their collection. The trial court granted the
relief sought; the Supreme Court held that the city was limited and
bound by the original estimate, and affirmed the judgment.
Lucas v. City of Nampa, 41 Idaho, 35. Petitioner avers
that, under this decision, his bonds are worthless.
He insists that respondent was negligent in failing to have a
proper estimate and valid assessments made and in causing the false
certificate to be issued, and that the damages claimed were caused
by the negligence and misrepresentation. The suit is for tort. The
demurrer was rightly sustained unless the complaint shows that a
breach by respondent of some duty it owed petitioner caused the
damage claimed.
Each bond states that respondent acknowledges itself to be
indebted and promises to pay bearer the sum stated; it contains
recitals to the effect that all the things by law required in
respect of the creation of the district, the construction of the
sewer, and the issue of the bond in order to make it a valid
obligation of the city have been done. It states that the total
cost of the work has been assessed, and that the assessments are
liens upon the land; that provision has been made for, and the city
guarantees, the collection of assessments sufficient to pay
accruing interest and principal at maturity. But, as required by
statute, each bond declares that the holder shall have no claim
against the city except for the collection of the assessments, that
his remedy in case of nonpayment shall be confined to their
enforcement, and that the interest and principal shall be payable
out of that fund, and not otherwise. The bonds are not negotiable.
United States Mortgage Co. v. Sperry, 138 U.
S. 313,
138 U. S. 343.
It is clear
Page 276 U. S. 541
that respondent's faith or credit is not pledged, and that the
value of the bond depends upon the validity and worth of the
assessments. The transcript furnished the examining attorneys
showed that the engineer's estimate was too low, and that the bonds
in question were based on assessments in excess of that amount.
Petitioner treats the transcript and false certificate as if
furnished to him. He is charged, as of the time he bought the
bonds, with notice of the invalidating facts, and is held to have
known the law. His position is not strengthened by the fact that
respondent's officers, as well as the examining attorneys, were
mistaken as to the validity of the additional assessments and
subsequent proceedings. Recitals that merely reflect opinion as to
the legal effect of the bonds or of the statements therein are not
actionable and furnish no support for petitioner's claim.
The bonds were void, as held in the
Lucas case, because
issued upon assessments made in excess of the engineer's estimate.
On the facts disclosed by the complaint, actionable negligence
cannot be predicated on the failure of respondent's officers
properly to exert their powers and perform their duties in respect
of the estimate, assessment, and contract for construction of the
sewer. Such failure was not a breach of duty owed by respondent to
petitioner. He had no relation to the matter until long after the
bonds had been issued and sold to another. The facts showing their
invalidity were disclosed by the transcript and known to the
attorneys on whom he relied long before he purchased them. The
complaint is not grounded on anything subsequently occurring.
It remains to be considered whether petitioner may recover by
reason of the certificate issued March 8, 1921, falsely stating
that there was no suit in respect of the creation of the district,
the construction of the sewer, or the issue of the bonds. No law
required or authorized the making of any certificate. The statutes
do not contemplate
Page 276 U. S. 542
any such statement. It is not a part of or material to the
prescribed proceedings. The city council is the governing body of
the city, but it did not make or authorize the statement. The
officers who signed the certificate were not authorized to define
the improvement district, make the assessment, issue or sell the
bonds, or to bind the respondent to pay for such improvements. It
cannot reasonably be said that they are impliedly authorized to
make any statement or give assurance in respect of such
matters.
This action is not based on contract. Recovery is not claimed on
the ground that respondent was empowered to pay for the work out of
funds belonging to it, or upon any promise that it would do so. As
no actionable negligence or misrepresentation is shown, the lower
courts rightly held that no cause of action is stated in the
complaint. We find no conflict between the decision of the circuit
court of appeals in this case and the decisions referred to in the
petition for this writ.
Judgment affirmed.
|
276
U.S. 536|
*
Peake v. New Orleans, 139 U.
S. 342;
District of Columbia v. Lyon,
161 U. S. 200;
Barber Asphalt Paving Co. v. City of Harrisburg, 64 F.
283;
Barber Asphalt Paving Co. v. City of Denver, 72 F.
336;
City of Mankato v. Barber Asphalt Paving Co., 142 F.
329;
Bates County, Mo. v. Wills, 239 F. 785;
Oklahoma
City v. Orthwein, 258 F. 190.