1. The bonds in question in this suit were issued under the
authority of the same act of the legislature as those mentioned in
the preceding case. The doctrines there held are reaffirmed.
2. A bond of the tenor following,
"Be it known that Humboldt Township, in the County of Allen and
State of Kansas, is indebted to the Fort Scott & Allen County
Railroad Company, or bearer, in the sum of $1,000, lawful money of
the United States, with interest at the rate of seven percent per
annum, payable annually on the first days of January in each year,
at the banking house of Gilman, Son & Co., in the City of New
York, on the presentation and surrender of the respective interest
coupons hereto annexed. The principal of this bond shall be due and
payable on the thirty-first day of December, A.D. 1901, at the
banking house of Gilman, Son & Co., in the City of New York.
This bond is issued for the purpose of subscribing to the capital
stock of the Fort Scott & Allen County Railroad, and for the
construction of the same through said township, in pursuance of and
in accordance with an act of the Legislature of the State of
Kansas, entitled 'An Act to enable municipal townships to subscribe
for stock in any railroad, and to provide for the payment of the
same,' approved Feb. 25, A.D. 1870, and for the payment of said sum
of money and accruing interest thereon, in manner aforesaid, upon
the performance of the said condition, the faith of the aforesaid
Humboldt Township, as also its property, revenue, and resources, is
"In testimony whereof, this bond has been signed by the chairman
of the Board of County Commissioners of Allen County, Kan., and
attested by the county clerk of said county, this twelfth day of
"Chairmen County Commissioners
"Attest: W. E. WAGGONER, County Clerk
is negotiable, and a bona fide
holder is entitled to
the rights of a holder of negotiable paper taken in the ordinary
course of business before maturity.
3. Although the election authorizing the issue of the bonds was
held within less
Page 92 U. S. 643
than thirty days after the day of the order calling it, they are
not thereby rendered invalid in the hands of a bona fide
holder for value, who, without any knowledge of the process through
which the legislative authority was exercised, relied upon the
recitals in them that they had been issued in accordance with law.
The recitals are conclusive in a suit brought by him against the
MR. JUSTICE STRONG delivered the opinion of the Court.
The first question certified from the court below is whether the
bonds to which the coupons in suit were attached are negotiable
bonds such as to entitle the plaintiff to the rights of a bona
holder of negotiable paper taken in the ordinary course
of business before maturity.
They are certificates of indebtedness to the railroad company or
bearer, each for $1,000, lawful money of the United States, payable
on a day certain, with interest at the rate of seven percent,
payable annually on the first days of January in each year at a
specified banking house on the presentation and surrender of the
respective interest coupons thereto annexed. If this were all,
there could be no doubt of their complete negotiability. But it is
said the subsequent language of the certificates controls the
absolute promise, and shows that payment was to be made only on a
contingency. This is argued from the recital contained in the
instrument and from what follows it. We quote:
"This bond is issued for the purpose of subscribing to the
capital stock of the Fort Scott & Allen County Railroad, and
for the construction of the same through the said township, in
pursuance of, and in accordance with, an act of the Legislature of
the State of Kansas entitled 'An Act to enable municipal townships
to subscribe for stock in any railroad, and to provide for the
payment of the same, approved Feb. 25, 1870,' and for the payment
of the said sum of money and accruing interest thereon, in manner
aforesaid, upon the performance of the said condition, the faith of
the aforesaid Humboldt Township, as also its property, revenue,
Page 92 U. S. 644
and resources, is pledged."
Relying upon this clause of the certificate, the township
contends that the construction of the railroad through the township
was a condition upon which the payment was agreed to be made. We
think, however, this is not the true construction of the contract.
The construction of the road, as well as the subscription for
stock, were mentioned in the recital as the reasons why the
township entered into the contract, not as conditions upon which
its performance was made to depend. It was for the purpose of
subscribing, and to aid in the construction of the road, that the
bond was given. The words, "upon the performance of the said
condition" cannot then refer to any thing mentioned in the recital,
for there is no condition there. A much more reasonable
construction is that they refer to a former part of the bond, where
the annual interest is stipulated to be payable at a banker's "on
the presentation and surrender of the respective interest coupons."
Such presentation and surrender is the only condition mentioned in
the instrument. But that stipulation presents no such contingency
as destroys the negotiability of the instrument. It is what is
always implied in every promissory note or bill of exchange -- that
it is to be presented and surrendered when paid. As well might it
be said that a note payable on demand is payable upon a
contingency, and therefore nonnegotiable, as to affirm that one
payable on its presentation and surrender is for that reason
destitute of negotiability.
The next question certified is whether the bonds are invalid
because of the fact that the election was held within less than
thirty days after the day of the order calling for it.
The act of the legislature under which the bonds purport to have
been issued (passed in 1870) is the act under which the bonds
considered in the case of Marcy v. Township of Oswego,
p. 92 U. S. 637
issued. We held in that cause that by its provisions the board of
county commissioners, who caused the bonds to be issued, were
constituted the authority to determine whether the conditions of
fact, made by the statute precedent to the exercise of the
authority granted to execute and issue the bonds, had been
performed, and that their recital in the bonds issued by them was
conclusive in a suit against the
Page 92 U. S. 645
township brought by a bona fide
holder. In so ruling,
we but decided what had often before been decided and what ought to
be regarded as a fixed rule. Applying it to the solution of the
question now before us, it is plain that the bonds are not invalid
because all the notice of the popular election was not given which
the legislative act directed. The election was a step in the
process of execution of the power granted to issue bonds in payment
of a municipal subscription to the stock of a railroad company. It
did not itself confer the power. Whether that step had been taken
or not, and whether the election had been regularly conducted with
sufficient notice, and whether the requisite majority of votes had
been cast in favor of a subscription and consequent bond issue were
questions which the law submitted to the board of county
commissioners, and which it was necessary for them to answer before
they could act. In the present case, the board passed upon them and
issued the bonds, asserting by the recitals that they were issued
"in pursuance of and in accordance with the act of the
legislature." Thus the plaintiff below took them without knowledge
of any irregularities in the process through which the legislative
authority was exercised, and relying upon the assurance given by
the board that the bonds had been issued in accordance with the
law. In his hands, therefore, they are valid instruments.
The third question certified is answered by what was decided in
the case of Marcy v. Township of Oswego, supra,
92 U. S. 637
which we have already referred. There is no essential difference
between this case and that. The assessment rolls of the township
may have been proper evidence for the consideration of the board of
county commissioners when they were inquiring what the value of the
taxable property of the township was; but the bonds are not invalid
in the hands of a bona fide
holder by reason of their
having been voted and issued in excess of the statutory limit, as
shown by the rolls. Whatever may be the right of the township as
against those who issued the bonds, it cannot set up against a
holder of the bonds that the amount issued was
too large, in the face of the decision of the board, and their
recital that the bonds were issued pursuant to and in accordance
with the act of 1870.
Page 92 U. S. 646
MR. JUSTICE MILLER, with whom concurred MR. JUSTICE DAVIS and
MR. JUSTICE FIELD, dissenting.
We have had argued and submitted to us, during the present term,
some ten or twelve cases involving the validity of bonds issued in
aid of railroads by counties and towns in different states.
They were reserved for decision until a late day in the term,
and the opinions having been delivered in all of them within the
last few weeks, I have waited for what I have thought proper to say
by way of dissent to some of them until the last of these judgments
are announced, as they have been to day.
I understand these opinions to hold, that, when the constitution
of the state, or an act of its legislature, imperatively forbids
these municipalities to issue bonds in aid of railroads or other
similar enterprises, all such bonds issued thereafter will be held
void. But if there exists any authority whatever to issue such
bonds, no restrictions, limitations, or conditions imposed by the
legislature in the exercise of that authority can be made
effectual, if they be disregarded by the officers of those
That such is the necessary consequence of the decision just
read, in the cases from the State of Kansas, is too obvious to need
argument or illustration. That state had enacted a general law on
the subject of subscriptions by counties and towns to aid in the
construction of railroads, in which it was declared that no bonds
should be issued on which the interest required an annual levy of a
tax beyond one percent of the value of the taxable property of the
municipality which issued them.
In the cases under consideration this provision of the statute
was wholly disregarded. I am not sure that the relative amount of
the bonds, and of the taxable property of the towns, is given in
these cases with exactness; but I do know that in some of the cases
tried before me last summer in Kansas it was shown that the first
and only issue of such bonds exceeded in amount the entire value of
the taxable property of the town, as shown by the tax list of the
year preceding the issue.
This Court holds that such a showing is no defense to the bonds,
notwithstanding the express prohibition of the legislature.
Page 92 U. S. 647
It is therefore clear that, so long as this doctrine is upheld,
it is not in the power of the legislature to authorize these
corporations to issue bonds under any special circumstances, or
with any limitation in the use of the power, which may not be
disregarded with impunity.
It may be the wisest policy to prevent the issue of such bonds
altogether. But it is not for this court to dictate a policy for
the States on that subject.
The result of the decision is a most extraordinary one. It
stands alone in the construction of powers specifically granted,
whether the source of the power be a state constitution, an act of
the legislature, a resolution of a corporate body, or a written
authority given by an individual. It establishes that of all the
class of agencies, public or private, whether acting as officers
whose powers are created by statute or by other corporations or by
individuals, and whether the subject matter relates to duties
imposed by the nation, or the state, or by private corporations, or
by individuals, on this one class of agents, and in regard to the
exercise of this one class of powers alone, must full, absolute,
and uncontrollable authority be conferred on them, or none. In
reference to municipal bonds alone, the law is, that no authority
to issue them can be given which is capable of any effectual
condition or limitation as to its exercise.
The power of taxation, which has repeatedly been stated by this
court to be the most necessary of all legislative powers, and least
capable of restriction, may by positive enactments be limited. If
the constitution of a state should declare that no tax shall be
levied exceeding a certain percent of the value of the property
taxed, any statute imposing a larger rate would be void as to the
excess. If the legislature should say that no municipal corporation
should assess a tax beyond a certain percent, the courts would not
hesitate to pronounce a levy in excess of that rate void.
But when the legislature undertakes to limit the power of
creating a debt by these corporations, which will require a tax to
pay it in excess of that rate of taxation, this court says there is
no power to do this effectually. No such principle has ever been
applied by this court, or by any other court, to a state, to
Page 92 U. S. 648
the United States, to private corporations, or to individuals. I
challenge the production of a case in which it has been so
In the Floyd Acceptance
7 Wall. 666, in which the Secretary of War
had accepted time drafts drawn on him by a contractor, which, being
negotiable, came into the hands of bona fide
before due, we held that they were void for want of authority to
accept them. And this case has been cited by this court more than
once without question. No one would think for a moment of holding
that a power of attorney made by an individual cannot be so limited
as to make any one dealing with the agent bound by the limitation,
or that the agent's construction of his power bound the principal.
Nor has it ever been contended that an officer of a private
corporation can, by exceeding his authority, when that authority is
express, is open and notorious, bind the corporation which he
professes to represent.
The simplicity of the device by which this doctrine is upheld as
to municipal bonds is worthy the admiration of all who wish to
profit by the frauds of municipal officers.
It is that wherever a condition or limitation is imposed upon
the power of those officers in issuing bonds, they are the sole and
final judges of the extent of those powers. If they decide to issue
them, the law presumes that the conditions on which their powers
depended existed, or that the limitation upon the exercise of the
power has been complied with, and especially and particularly if
they make a false recital of the fact on which the power depends in
the paper they issue, this false recital has the effect of creating
a power which had no existence without it.
This remarkable result is always defended on the ground that the
paper is negotiable, and the purchaser is ignorant of the
falsehood. But in the Floyd Acceptance Cases,
held, and it was necessary to hold so there, that the inquiry into
the authority by which negotiable paper was issued was just the
same as if it were not negotiable, and that if no such authority
existed, it could not be aided by giving the paper that form. In
County Bond Cases,
it seems to be otherwise.
In that case, the court held that the party taking such
Page 92 U. S. 649
was bound to know the law as it affected the authority of the
officer who issued it. In County Bond Cases,
principle of law is not expressly contradicted, it is held that the
paper, though issued without authority of law, and in opposition to
its express provisions, is still valid.
There is no reason, in the nature of the condition on which the
power depends in these cases, why any purchaser should not take
notice of its existence before he buys. The bonds in each case were
issued at one time, as one act, of one date, and in payment of one
subscription. All this was a matter of record in the town where it
So also, the valuation of all the property of the town for the
taxation of the year before the bonds were issued is of record both
in that town and in the office of the clerk of the county in which
the town is located. A purchaser had but to write to the township
clerk or the county clerk to know precisely the amount of the issue
of bonds and the value of the taxable property within the township.
In the matter of a power depending on these facts, in any other
class of cases, it would be held that, before buying these bonds,
the purchaser must look to those matters on which their validity
They are all public, all open, all accessible -- the statute,
the ordinance for their issue, the latest assessment roll. But in
favor of a purchaser of municipal bonds, all this is to be
disregarded, and a debt contracted without authority, and in
violation of express statute, is to be collected out of the
property of the helpless man who owns any in that district.
I say helpless advisedly, because these are not his
agents. They are the officers of the law, appointed or elected
without his consent, acting contrary, perhaps, to his wishes.
Surely if the acts of any class of officers should be valid only
when done in conformity to law, it is those who manage the affairs
of towns, counties, and villages, in creating debts which not they,
but the property owners, must pay.
The original case on which this ruling is based is
Knox County v.
21 How. 539. It has, I admit, been
frequently cited and followed in this court since then, but the
reasoning on which it was founded has never been examined or
defended until now -- it has simply been followed. The case
Page 92 U. S. 650
of the Town of Coloma v. Eaves, supra,
p. 92 U. S. 484
the first attempt to defend it on principle that has ever been
made. How far it has been successful I will not undertake to say.
Of one thing I feel very sure -- that if the English judges who
decided the case of Royal British Bank v. Tarquand,
authority of which Knox County v. Aspinwall
were here today, they would be filled with astonishment at this
result of their decision.
The bank in that case was not a corporation. It was a joint
stock company in the nature of a partnership. The action was
against the manager as such, and the question concerned his power
to borrow money. This power depended in this particular case on a
resolution of the company. The charter or deed of settlement gave
the power, and, when it was exercised, the court held that the
lender was not bound to examine the records of the company to see
if the resolution had been legally sufficient.
That was a private partnership. Its papers and records were not
open to public inspection. The manager and directors were not
officers of the law, whose powers were defined by statute, nor was
the existence of the condition on which the power depended to be
ascertained by the inspection of public and official records made
and kept by officers of the law for that very purpose.
In all these material circumstances that case differed widely
from those now before us.
It is easy to say, and looks plausible when said, that if
municipal corporations put bonds on the market, they must pay them
when they become due.
But it is another thing to say that when an officer created by
the law exceeds the authority conferred upon him, and in open
violation of law issues these bonds, the owner of property lying
within the corporation must pay them, though he had no part
whatever in their issue, and no power to prevent it.
This latter is the true view of the matter. As the corporation
could only exercise such power as the law conferred, the issuing of
the bonds was not the act of the corporation. It is a false
assumption to say that the corporation put them on the market.
If one of two innocent persons must suffer for the
Page 92 U. S. 651
act of the township or county officers, it is clear that he who
could, before parting with his money, have easily ascertained that
they were unauthorized, should lose, rather than the property
holder, who might not know any thing of the matter, or, if he did,
had no power to prevent the wrong.