Where, by legislative enactment, authority has been given to a
municipality, or to its officers, to subscribe for the stock of a
railroad company and to issue municipal bonds in payment, but only
on some precedent condition, such as a popular vote favoring the
subscription, and where it may be gathered from the enactment that
the officers of the municipality were invested with power to decide
whether that condition has been complied with, their recital that
it has been, made in the bonds issued by them and held by a
bona fide purchaser, is conclusive of the fact, and
binding upon the municipality, for the recital is itself a decision
of the fact by the appointed tribunal.
Assumpsit brought by the plaintiff below to recover the amount
due on the coupons attached to certain bonds, purporting to have
been issued by the Town of Coloma, through its proper officers, to
the Chicago & Rock River Railroad Company, in payment of a
subscription of $50,000 by the town to said company. The form of
the bond is as follows:
"
UNITED STATES OF AMERICA [$1,000"
"COUNTY OF WHITESIDE"
"
State of Illinois, Town of Coloma:"
"Know all men by these presents, that the Township of Coloma, in
the County of Whiteside, and State of Illinois, acknowledges itself
to own and be indebted to the Chicago & Rock River Railroad
Company, or bearer, in the sum of $1,000, lawful money of the
United States; which sum the said Town of Coloma promises to pay to
the Chicago & Rock River Railroad Company, or the bearer
hereof, on the first day of July, 1881, at the office of the
Treasurer of the County of Whiteside aforesaid, in the State of
Illinois, on the presentation of this bond, with interest thereon
from the first day of January, 1872, at the rate of ten percentum
per annum, payable annually at the office of the Treasurer of the
County of Whiteside aforesaid, on the presentation and surrender or
the annexed coupons."
"[U.S. $5 revenue stamp]"
"This bond is issued under and by virtue of a law of the State
of Illinois entitled 'An Act to incorporate the Chicago & Rock
River Railroad Company,' approved March 24, 1869, and in accordance
with a vote of the electors of said Township of Coloma,
Page 92 U. S. 485
at a regular election held July 28, 1869, in accordance with
said law, and under a law of the State of Illinois entitled 'An Act
to fund and provide for the paying of the railroad debts of
counties, townships, cities, and towns,' in force April 16, 1869;
and, when this bond is registered in the state auditor's office of
the State of Illinois, the principal and interest will be paid by
the state treasurer, as provided by said last-mentioned law."
"In witness whereof, the supervisor and town clerk of said town
have hereunto set their hands and seals this first day of January,
A.D. 1872."
"[Signed] M. R. ADAMS,
Supervisor [SEAL]"
"[Signed] J. D. DAVIS,
Town Clerk [SEAL]"
Recovery was resisted by the town, mainly upon the alleged
ground of a want of power in the officers of the town to issue the
bonds, because the legal voters of the town had not been notified
to vote upon the question of the town's making the subscription in
question.
On the trial of the case, judgment was rendered for the
plaintiff for the amount of the coupons, and interest after they
were due.
MR. JUSTICE STRONG delivered the opinion of the Court.
It appears by the record that the plaintiff is a
bona
fide holder and owner of the coupons upon which the suit is
founded, having obtained them before they were due, and for a
valuable consideration paid. The bonds to which the coupons were
attached were given in payment of a subscription of $50,000 to the
capital stock of the Chicago & Rock River Railroad Company, for
which the town received in return certificates of five hundred
shares, of $100 each, in the stock of the company. That stock the
town retains, but it resists the payment of the bonds, and of the
coupons attached to them, alleging that they were issued without
lawful authority.
Saying nothing at present of the dishonesty of such a defense
while the consideration for which the bonds were given is retained,
we come at once to the question, whether authority was shown for
the stock subscription, and for the
Page 92 U. S. 486
consequent issue of the bonds. At the outset, it is to be
observed that the question is not between the town and its own
agents; it is rather between the town and a person claiming through
the action of its agents. The rights of the town as against its
agents may be very different from its rights as against parties who
have honestly dealt with its agents as such, on the faith of their
apparent authority.
By an act of the Legislature of Illinois, the Chicago & Rock
River Railroad Company was incorporated with power to build and
operate a railroad from Rock Falls on Rock River to Chicago, a
distance of about one hundred and thirty miles. The tenth section
of the act enacted that,
"to aid in the construction of said road, any incorporated city,
town, or township, organized under the township organization laws
of the state, along or near the route of said road, might subscribe
to the capital stock of said company."
That the Town of Coloma was one of the municipal divisions
empowered by this section to subscribe fully appears, and also that
the railroad was built into the town before the bonds were issued.
But it is upon the eleventh section of the act that the defendant
relies. That section is as follows:
"No such subscription shall be made until the question has been
submitted to the legal voters of said city, town, or township, in
which the subscription is proposed to be made. And the clerk of
such city, town, or township, is hereby required, upon presentation
of a petition signed by at least ten citizens who are legal voters
and taxpayers in such city, town, or township, stating the amount
proposed to be subscribed, to post up notices in three public
places in each town or township; which notices shall be posted not
less than thirty days prior to holding such election, notifying the
legal voters of such town or township to meet at the usual places
of holding elections in such town or township, for the purpose of
voting for or against such subscriptions. If it shall appear that a
majority of all the legal voters of such city, town, or township,
voting at such election, have voted 'for subscription,' it shall be
the duty of the president of the board of trustees, or other
executive officer of such town, and of the supervisor in townships,
to subscribe to the capital stock of said railroad company, in the
name of such city, town, or township, the amount so voted to be
subscribed, and to receive from such company the proper
Page 92 U. S. 487
certificates therefor. He shall also execute to said company, in
the name of such city, town, or township, bonds bearing interest at
ten percent per annum, which bonds shall run for a term of not more
than twenty years, and the interest on the same shall be made
payable annually, and which said bonds shall be signed by such
president or supervisor or other executive officer, and be attested
by the clerk of the city, town, or township, in whose name the
bonds are issued."
Sec. 12 provides
"It shall be the duty of the clerk of any such city, town, or
township, in which a vote shall be given in favor of subscriptions,
within ten days thereafter, to transmit to the county clerk of
their counties a transcript or statement of the vote given, and the
amount so voted to be subscribed, and the rate of interest to be
paid."
Most of these provisions are merely directory. But, conceding,
as we do, that the authority to make the subscription was, by the
eleventh section of the act, made dependent upon the result of the
submission of the question, whether the town would subscribe, to a
popular vote of the township, and upon the approval of the
subscription by a majority of the legal voters of the town voting
at the election, a preliminary inquiry must be how is it to be
ascertained whether the directions have been followed?, whether
there has been any popular vote, or whether a majority of the legal
voters present at the election did, in fact, vote in favor of a
subscription? Is the ascertainment of these things to be before the
subscription is made, and before the bonds are issued?, or must it
be after the bonds have been sold, and be renewed every time a
claim is made for the payment of a bond or a coupon? The latter
appears to us inconsistent with any reasonable construction of the
statute. Its avowed purpose was to aid the building of the railroad
by placing in the hands of the railroad company the bonds of
assenting municipalities. These bonds were intended for sale, and
its was rationally to be expected that they would be put upon
distant markets. It must have been considered that, the higher the
price obtained for them, the more advantageous would it be for the
company, and for the cities and towns which gave the bonds in
exchange for capital stock. Everything that tended to depress the
market value was adverse to
Page 92 U. S. 488
the object the legislature had in view. It could not have been
overlooked that their market value would be disastrously affected
if the distant purchasers were under obligation to inquire before
their purchase, or whenever they demanded payment of principal or
interest, whether certain contingencies of fact had happened before
the bonds were issued -- contingencies the happening of which it
would be almost impossible for them in many cases to ascertain with
certainty. Imposing such an obligation upon the purchasers would
tend to defeat the primary purpose the legislature had in view --
namely aid in the construction of the road. Such an interpretation
ought not to be given to the statute if it can reasonably be
avoided, and we think it may be avoided.
At some time or other, it is to be ascertained whether the
directions of the act have been followed, whether there was any
popular vote, or whether a majority of the legal voters present at
the election did in fact vote in favor of the subscription. The
duty of ascertaining was plainly intended to be vested somewhere,
and once for all; and the only persons spoken of who have any
duties to perform respecting the election, and action consequent
upon it, are the town clerk and the supervisor or other executive
officer of the city or town. It is a fair presumption, therefore,
that the legislature intended that those officers, or one of them
at least, should determine whether the requirements of the act
prior to a subscription to the stock of a railroad company had been
met. This presumption is strengthened by the provisions of the
twelfth section, which make it the duty of the clerk to transmit to
the county clerk a transcript or statement, verified by his oath,
of the vote given, with other particulars, in case a subscription
has been voted. How is he to perform this duty if he is not to
conduct the election, and to determine what the voters have
decided? If, therefore, there could be any obligation resting on
persons proposing to purchase the bonds purporting to be issued
under such legislative authority, and in accordance with a popular
vote, to inquire whether the provisions of the statute had been
followed, or whether the conditions precedent to their lawful issue
had been complied with, the inquiry must be addressed to the town
clerk or executive officer of the municipality
Page 92 U. S. 489
-- to the very person whose duty it was to ascertain and decide
what were the facts. The more the statute is examined, the more
evident does this become. The eleventh section (quoted above)
declared that if it should appear that a majority of the legal
voters of the city, town, or township, voting, had voted "for
subscription," the executive officer and clerk should subscribe and
execute bonds. "If it should appear," said the act. Appear when?
Why plainly, before the subscription was made and the bonds were
executed; not afterwards. Appear to whom? In regard to this, there
can be no doubt. Manifestly not to a court, after the bonds have
been put on the market and sold, and when payment is called for,
but if it shall appear to the persons whose province it was made to
ascertain what had been done preparatory to their own action, and
whose duty it was to issue the bonds if the vote appeared to them
to justify such action under the law. These persons were the
supervisor and town clerk. Their right to issue the bonds was made
dependent upon the appearance to them of the performance of the
conditions precedent. It certainly devolved upon some person or
persons to decide this preliminary question, and there can be no
doubt who was intended by the law to be the arbiter. In
Commissioners v. Nichols, 14 Ohio St. 260, it was said
that
"A statute, in providing that county bonds should not be
delivered by the commissioners until a sufficient sum had been
provided by stock subscriptions, or otherwise, to complete a
certain railroad, and imposing upon them the duty of delivering the
bonds when such provision had been made, without indicating any
person or tribunal to determine that fact, necessarily delegates
that power to the commissioners, and, if delivered improvidently,
the bonds will not be invalidated."
In the present case, the person or persons whose duty it was to
determine whether the statutory requisites to a subscription and to
an authorized issue of the bonds had been performed were those
whose duty it was also to issue the bonds in the event of such
performance. The statute required the supervisor or other executive
officer not only to subscribe for the stock, but also, in
conjunction with the clerk, to execute bonds to the railroad
company in the name of the town for the amount of the subscription.
The bonds were required to be signed by
Page 92 U. S. 490
the supervisor or other executive officer, and to be attested by
the clerk. They were so executed. The supervisor and the clerk
signed them, and they were registered in the office of the auditor
of the state, in accordance with an act, requiring that, precedent
to their registration, the supervisor must certify under oath to
the auditor that all the preliminary conditions to their issue
required by the law had been complied with. On each bond, the
auditor certified the registry. It was only after this that they
were issued. And the bonds themselves recite that they "are issued
under and by virtue of the act incorporating the railroad company,"
approved March 24, 1869, "and in accordance with the vote of the
electors of said Township of Coloma, at a regular election held
July 28, 1869, in accordance with said law." After all this, it is
not an open question, as between a
bona fide holder of the
bonds and the township, whether all the prerequisites to their
issue had been complied with. Apart from and beyond the reasonable
presumption that the officers of the law, the township officers,
discharged their duty, the matter has passed into judgment. The
persons appointed to decide whether the necessary prerequisites to
their issue had been completed have decided, and certified their
decision. They have declared the contingency to have happened, on
the occurrence of which the authority to issue the bonds was
complete. Their recitals are such a decision, and beyond those a
bona fide purchaser is not bound to look for evidence of
the existence of things
in pais. He is bound to know the
law conferring upon the municipality power to give the bonds on the
happening of a contingency; but whether that has happened or not is
a question of fact, the decision of which is by the law confided to
others -- to those most competent to decide it -- and which the
purchaser is, in general, in no condition to decide for
himself.
This we understand to be the settled doctrine of this Court.
Indeed, some of our decisions have gone farther. In the leading
case of
Knox v.
Aspinwall, 21 How. 544, the decision was rested
upon two grounds. One of them was that the mere issue of the bonds,
containing a recital that they were issued under and in pursuance
of the legislative act, was a sufficient basis for an assumption by
the purchaser that the conditions
Page 92 U. S. 491
on which the county (in that case) was authorized to issue them
had been complied with, and it was said that the purchaser was not
bound to look farther for evidence of such compliance, though the
recital did not affirm it. This position was supported by reference
to
The Royal British Bank v. Torquand, 6 Ell. & Bl.
327, a case in the Exchequer Chamber, which fully sustains it, and
the decision in which was concurred in by all the judges. This
position taken in
Knox v. Aspinwall has been more than
once reaffirmed in this Court. It was in
Moran
v. Miami County, 2 Black 732; in
Mercer
County v. Hacket, 1 Wall. 83; in
Supervisors v.
Schenk, 5 Wall. 784; and in
Mayor v.
Muscatine, 1 Wall. 384. It has never been
overruled, and whatever doubts may have been suggested respecting
its correctness to the full extent to which it has sometimes been
announced, there should be no doubt of the entire correctness of
the other rule asserted in
Knox v. Aspinwall. That, we
think, has been so firmly seated in reason and authority that it
cannot be shaken. What it is has been well stated in sec. 419 of
Dillon on Munic. Corp. After a review of the decisions of this
Court, the author remarks,
"If, upon a true construction of the legislative enactment
conferring the authority (
viz., to issue municipal bonds
upon certain conditions), the corporation, or certain officers, or
a given body or tribunal, are invested with power to decide whether
the condition precedent has been complied with, then it may well be
that their determination of a matter
in pais, which they
are authorized to decide will, in favor of the bondholder for
value, bind the corporation."
This is a very cautious statement of the doctrine. It may be
restated in a slightly different form. Where legislative authority
has been given to a municipality, or to its officers, to subscribe
for the stock of a railroad company, and to issue municipal bonds
in payment, but only on some precedent condition, such as a popular
vote favoring the subscription, and where it may be gathered from
the legislative enactment that the officers of the municipality
were invested with power to decide whether the condition precedent
has been complied with, their recital that it has been, made in the
bonds issued by them and held by a
bona fide purchaser, is
conclusive of the fact, and binding upon the municipality; for the
recital is itself a decision of the fact
Page 92 U. S. 492
by the appointed tribunal. In
Bissell v.
Jeffersonville, 24 How. 287, it appeared that the
common council of the city were authorized by the legislature to
subscribe for stock in a railroad company, and to issue bonds for
the subscription, on the petition of three-fourths of the legal
voters of the city. The council adopted a resolution to subscribe,
reciting in the preamble that more than three-fourths of the legal
voters had petitioned for it, and authorized the mayor and city
clerk to sign and deliver bonds for the sum subscribed. The bonds
recited that they were issued by authority of the common council,
and that three-fourths of the legal voters had petitioned for the
same, as required by the charter. In a suit subsequently brought by
an innocent holder for value to recover the amount of unpaid
coupons for interest, it was held inadmissible for the defendants
to show that three-fourths of the legal voters of the city had not
signed the petition for the stock subscription. A similar ruling
was made in
Van Hostrop v. Madison
City, 1 Wall. 291, and in
Mercer
County v. Hacket, 1 Wall. 83.
The same principle has recently been asserted in this Court
after very grave consideration, and it must be considered as
settled. In
St. Joseph's Township v.
Royers, 16 Wall. 644, it is stated thus:
"Power to issue bonds to aid in the construction of a railroad
is frequently conferred upon a municipality in a special manner, or
subject to certain regulations, conditions, or qualifications; but
if it appears by their recitals that the bonds were issued in
conformity with these regulations, and pursuant to those conditions
and qualifications, proof that any or all of these recitals were
incorrect will not constitute a defense for the corporation in a
suit on the bonds or coupons, if it appears that it was the sole
province of the municipal officers who executed the bonds to decide
whether or not there had been an antecedent compliance with the
regulation, condition, or qualification, which it is alleged was
not fulfilled."
There is nothing in the case of
Marsh v.
Fulton, 10 Wall. 676, to which we have been
referred, at all inconsistent with the rule thus asserted. In that
case, there were no recitals in the bonds, and there was no
decision that the conditions precedent to a subscription, or to the
gift of authority to subscribe, had been performed. The question
was therefore open.
Page 92 U. S. 493
What we have said disposes of the present case without the
necessity of particular consideration of the matters urged in the
argument of the defendant below. It was inadmissible to show what
was attempted to be shown, and even if it had been admissible, the
effort to assimilate the case to
Marsh v. Fulton would
fail. There the subscription was for the stock of a different
corporation from that for which the people had voted; here it was
not.
Judgment affirmed.
MR. JUSTICE BRADLEY delivered the following concurring
opinion:
I dissent from the opinion of the court in this case, so far as
it may be construed to reaffirm the first point asserted in the
case of
Knox County v. Aspinwall; to-wit, that the mere
execution of a bond by officers charged with the duty of
ascertaining whether a condition precedent has been performed is
conclusive proof of its performance. If, when the law requires a
vote of taxpayers, before bonds can be issued, the supervisor of a
township, or the judge of probate of a county, or other officer or
magistrate, is the officer designated to ascertain whether such
vote has been given, and is also the proper officer to execute, and
who does execute, the bonds, and if the bonds themselves contain a
statement or recital that such vote has been given, then the
bona fide purchaser of the bonds need go back no farther.
He has a right to rely on the statement as a determination of the
question. But a mere execution and issue of the bonds without such
recital is not, in my judgment, conclusive. It may be
prima
facie sufficient, but the contrary may be shown. This seems to
me to be the true distinction to be taken on this subject; and I do
not think that the contrary has ever been decided by this Court.
There have been various dicta to the contrary, but the cases, when
carefully examined, will be found to have had all the prerequisites
necessary to sustain the bonds, according to my view of the case.
This view was distinctly announced by this Court in the case of
Lynde v. County of
Winnebago, 16 Wall. 13. In the case now under
consideration, there is a sufficient recital in the bond to show
that the proper election was held and the proper vote given, and
the bond was executed by the officers whose duty it
Page 92 U. S. 494
was to ascertain these facts. On this ground, and this alone, I
concur in the judgment of the court.
MR. JUSTICE MILLER, MR. JUSTICE DAVIS, and MR. JUSTICE FIELD,
dissented.