Source: https://supreme.justia.com/cases/federal/us/72/772/
Timestamp: 2019-04-19 15:01:03+00:00

Document:
An Illinois statute, passed in 1849, authorized the "county court" of counties wishing to subscribe to stock in railroads, to make subscriptions and to issue bonds. But the statute provided that no subscription should be made or bonds issued whereby any debt should be created by the county court, except after an election to be held in a mode prescribed in the statute, and after at such election two-thirds of the qualified voters of the county had voted to have it.
"No county under this organization shall possess or exercise any corporate powers, except such as are enumerated in this act, or shall be specially given by law, or shall be necessary to the exercise of the powers so enumerated or given. "
"The powers of a county as a body politic can only be exercised by the board of supervisors thereof, or in pursuance of a resolution by them adopted."
"The board of supervisors of each county in this state shall have power . . . to perform all other duties, not inconsistent with this act, which may be required of or enjoined on them by any law of this state relating to the county courts."
One of the counties of Illinois -- Marshall County -- had adopted the township organization which this statute of 1851 authorized before the 28th day of February, 1853, and was on that day so organized and acting.
In this state of the statute law and of facts, Schenck brought assumpsit in the Circuit Court for Northern Illinois against the Board of Supervisors of this same Marshall County, to recover interest which had become due September 12, 1865, on the coupons of certain bonds issued nine years before, signed by the board of supervisors of the said county, for stock in the Western Air-Line Railroad. The narr. was in the ordinary form.
Special plea that on the 28th day of February, 1853, the County Court of Marshall County ordered an election, to vote for and against a subscription &c. That such election was held under said order; that the board of supervisors, on the 14th of November, 1854, acting by authority of said election, subscribed; that the bonds and coupons were issued in payment of the said subscription; that no election was ever held by order of the board of supervisors, and that the said Marshall County had been organized and was acting under the Township Organization Law since prior to 28th of February, 1853, all of which appeared from the public records of said county. The plea alleged, therefore, that the bonds and coupons had been issued without authority of law, and were void.
General demurrer and judgment on it against the supervisors of the county for the amount of the coupons declared on.
The county now brought the case to this Court; the error complained of being that the circuit court had overruled the demurrer, instead of sustaining it, and the question being, whether the bonds were void in the hands of bona fide holders before maturity, because the election which authorized their issue was called by the County Court of Marshall County, instead of the board of supervisors of the county, notwithstanding that all the subsequent proceedings as was admitted were regular, and the county had, for seven or eight years, levied and collected taxes to pay the interest upon them, and had paid the interest as it fell due, until the default stated in the declaration of this case.
Counties in the State of Illinois may purchase or subscribe for shares in the capital stock of any railroad company incorporated or organized under any law of the state in any sum not exceeding one hundred thousand dollars.
Pursuant to that law the corporation defendants, on the twelfth day of September, 1856, issued, as alleged in the first count of the declaration, thirty bonds, each for one thousand dollars, payable to the Western Air Line Railroad Company, or order, in twenty years from date, with interest coupons annexed, stipulating for the payment to bearer of interest annually, at the rate of six percentum per annum. Same count alleged that the plaintiff, on the first day of July, 1857, became the legal holder of those bonds, with the coupons thereto attached, by due endorsement and delivery.
Present suit, which was an action of assumpsit, was brought by the plaintiff to recover one year's interest on those bonds, which fell due on the twelfth day of September, 1865, nine years after the bonds were issued and eight years after the plaintiff became the holder of the same, for value, and in the usual course of business.
The authority of counties to purchase or subscribe for such shares and issue such bonds is subject to certain conditions or regulations, one of which is, that a majority of the qualified voters of the county must first vote for such subscription or purchase. Provision is also made for proper notice to the electors of the time and place of the meeting for that purpose, and the requirement is that the notice must specify the company in which stock is proposed to be subscribed, the amount proposed to be taken, the time the bonds are to run, and the rate of interest the bonds are to bear.
Defendants appeared and filed a special plea, and rested their defense entirely upon the allegations of that plea. Substance of the defense was that the bonds were issued without authority and were invalid, because the election to procure the consent of a majority of the qualified voters of the county was ordered to be held by the county court of the county, and not by the board of supervisors of the county, as required by law; but they admitted, among other things, that the election was properly conducted, and that the returns were duly made, and that the proceedings, in all other respects, were regular and correct.
Replication of the plaintiff alleged that the bonds and coupons were executed and delivered in payment of a like number of shares of the stock in the railroad company; that the shares of the stock were received by the defendants in payment for the bonds, and that the defendants have ever since held and owned the same, and by virtue thereof have participated in the election of the officers of the company, and in all other benefits and advantages attending such ownership. He also alleged that the transfer of the bonds to him was for a valuable consideration, and without notice of any defect in the preliminary proceedings, and that the defendants, having paid the interest annually accruing on the bonds to the amount of six thousand dollars, have thereby ratified and confirmed the same as binding and obligatory.
Defendants demurred, and the plaintiff joined in demurrer. Circuit court overruled the demurrer, and rendered judgment for the plaintiff, and the defendants removed the cause into this Court.
I. Bonds to the amount of one hundred thousand dollars were issued by the defendants, of which the bonds specified in the declaration were a part, and the railroad company, at the same time, transferred stock to them in the same amount. Decision of the circuit court in overruling the demurrer is the only error assigned in the record, and the single question presented in the case is whether the bonds specified in the declaration, and which were endorsed and delivered before maturity, are void in the hands of the plaintiff, who is the holder for value, and without notice of any defect in the proceedings, because the order for the election in which the majority of the qualified voters of the county voted to subscribe for the stock of the railroad company and purchase the shares, was made by the county court, and not by the supervisors of the county.
votes were given on the fifth day of April, 1853, and that the board of supervisors of the county, on the fourteenth day of November, 1854, made an order, and recorded it, that the county do subscribe one hundred thousand dollars to the stock of the company named in the bonds, and that the board on the same day passed another order to empower the chairman of the board to make the subscription, and that he made the subscription and purchased the shares on the following day.
These admissions of the plea or answer are followed by others of equal importance, to-wit that the chairman and clerk of the board did afterwards issue, by the order of the board, the bonds of the county, as alleged in the declaration, and that the same were duly delivered to the railroad company, in payment for a like number of the stock shares of the company.
None of the other provisions of the prior law are repealed, nor is there any change in the regulations, except that the order for the election is required to be made by the board of supervisors, and not by the county court of the county. The objection is that the order in this case was made as under the prior law, but the notices, in regular form, were duly published, and the election was held, and the board of supervisors of the county ratified the proceedings by subscribing for the stock, issuing the bonds, accepting the shares in payment of the same, and by participating ever after in the election of the officers of the company and in the management of its affairs, as owners to that extent of the stock of the company.
their own property, and have voluntarily enjoyed all the benefits of absolute legal ownership, without any complaint or any attempt to enjoin the proceedings.
Preliminary proceedings looking to such a subscription by a municipal corporation may often be enjoined for defects or irregularities before the contract is perfected, in cases where the corporation will be held to be forever concluded, if they remain silent and suffer the shares to be purchased, the bonds to be issued, and the securities to be exchanged. Nothing of the kind was attempted in this case, and the defendants have never rescinded, or attempted to rescind, the contract, and have never returned or offered to return the evidences of their ownership of the shares in the stock of the company, but have annually acknowledged the validity of the bonds by voting taxes for the payment of the accruing interest, and have actually paid the same to the amount of six thousand dollars.
All of the acts of the board of supervisors of the county in making the subscription, purchasing the shares, issuing the bonds, and exchanging the securities, appear to have been open and well known to the corporation, and yet they constantly suffered themselves to be represented in the choice of officers and in the management of all the affairs of the railroad company, and have voluntarily voted taxes for the payment of the yearly interest on the bonds, and actually paid the same, as admitted in the special plea.
Direct decision to the same effect was also made by that court in Keithsburg v. Frick, [Footnote 11] which is the latest reported decision upon the subject. Views of the court in that case were that the acts of the supervisors in issuing the bonds and putting them upon the market, and by levying taxes and paying interest for a series of years, estopped the county from setting up any irregularity in their issue, and this Court has, in repeated instances, affirmed the same doctrine.
Leading case in this Court is that of Knox County v. Aspinwall, [Footnote 12] which was very fully considered by the court. Alleged defect in that case was that the notices of the election, as required by law, had not been given in any form, but the decision was that the question as to the sufficiency of the notice, and the ascertainment of the fact whether the majority of votes had been cast in favor of the subscription, was necessarily left to the inquiry and judgment of the county board, as no other tribunal was provided for the purpose. Intimation of the court was that their decision might not be conclusive in a direct proceeding to inquire into the facts previously to the execution of the power, and before the rights and interests of third parties had attached. But the court held that after the authority had been executed, the stock subscribed, the bonds issued, and in the hands of innocent holders, it was too late, even in a direct proceeding, to call the power in question; much less, say the court, can it be called in question to the prejudice of a bona fide holder of the bonds in a collateral way.
Prior decisions of the state court were in accordance with the decisions of this Court, and as those decisions were supposed to be correct expositions of the law of the state at the period when these bonds were issued, the latter adjudications cannot control the judgment in this case.
Statutes, 1072; Prettyman v. Tazewell, 19 Ill. 406; Johnson v. Stark Co., 24 id. 75; Butler v. Dunham, 27 id. 474.
Rogers v. Burlington, 3 Wall. 663.
Story on Agency, ed. 1863, § 239; Fleckner v. United States Bank, 8 Wheat. 363; N.Y. & N.H. R. Co. v. Schuyler, 34 N.Y. 49.
Hoyt v. Thompson, 19 N.Y. 218.
Bank of United States v. Dandridge, 12 Wheat. 70.
Mills v. Gleason, 11 Wis. 490; Angell & Ames on Corporations, 8th ed., § 237, 304; 2 Kent's Commentaries 11th ed. 348; Bissel v. Railroad, 22 N.Y. 264.
Johnson v. Stark Co., 24 Illinois, 90.
62 U. S. 21 How. 544.
65 U. S. 24 How. 299.
Moran v. Miami Co., 2 Black 725.
Gelpcke v. Dubuque, 1 Wall. 203.
Savings Co. v. New London, 29 Conn. 174; Tash v. Adams, 10 Cushing 252.
Stoney v. Life Ins. Co., 11 Paige Ch. 635; F. & M. Bank v. B. & D. Bank, 16 N.Y. 129; Goodman v. Simonds, 20 How. 365; Thompson v. Lee Co., 3 Wall. 327.
Swift v. Tyson, 16 Pet. 18.

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