Source: https://supreme.justia.com/cases/federal/us/161/359/
Timestamp: 2019-04-26 04:11:39+00:00

Document:
with, and which was subsequently waived by the county. It received certificates for the stock so subscribed for, and still holds them. It paid interest upon its bonds as maturing, and refunded them by an issue of new bonds for like amount under legislative authority. Held that the bonds originally issued were binding and subsisting obligations of the county, and having been recognized as such by the county authorities by lifting them with new bonds under the refunding act, those funding bonds were valid and binding obligations upon the county in the hands of a bona fide holder for value before maturity.
Where there is a total want of power to subscribe for such stock and to issue bonds in payment, a municipality cannot estop itself from raising such a defense by admissions, or by issuing securities negotiable in form, nor even by receiving and enjoying the proceeds of such bonds. Where a municipality is empowered to subscribe with or without conditions as it may think fit, and where the conditions are such as it chooses to impose, there seems to be no good reason why it may not be competent for such municipality to waive such self-imposed conditions, provided, of course, such waiver is by the municipality acting as the principal, and not by mere agents or official persons.
This case came into the Circuit Court of Appeals for the Seventh Circuit at October term, 1894, on an appeal from a decree of the Circuit Court of the United States for the Southern District of Illinois.
The original action was a suit in equity brought in the Circuit Court of Saline County, Illinois, by the County of Saline as complainant against the Treasurer and Auditor of Public Accounts of the State of Illinois and the Collector of Taxes and Clerk of the County Court of Saline County, to restrain the levy and collection of the tax required to be levied by the said Auditor of Public Accounts of the State of Illinois to pay the interest on one hundred registered refunding bonds of the said county.
The appellants were, prior to the year 1883, bona fide holders for value and before maturity of certain bonds issued by the County of Saline to the Belleville and Eldorado Railroad Company and to the St. Louis and Southeastern Railway Company, respectively. These bonds ($75,000 in amount to the former and $25,000 in amount to the latter company, and bearing interest at the rate of eight percentum per annum, payable semiannually) were issued under authority of acts of the General Assembly of the State of Illinois passed in the years 1861 (Pr.Laws of Illinois 1861, p. 485) and 1869 (Pr.Laws Illinois 1869, vol. 3, p. 238), and pursuant to an election duly ordered and held according to law on the 9th day of October, 1869, and in payment of subscriptions to stock in said companies, respectively, dated January 15, 1870, duly authorized by said election, upon certain conditions, one of which was that said railroad should be commenced within one year and completed within three years from the date of subscription, and another of the conditions was that the St. Louis and Southeastern Railway should pass, and a depot be established, within one-half mile of the old courthouse in Raleigh, and within one-half mile of the church in Galatia.
These bonds to the St. Louis and Southeastern Railway Company were dated January 1, 1872, payable twenty years after date, with option of paying five years after date, and were issued and delivered to that company February 1, 1872, and were purchased in open market by the appellants, and for value, and without notice, prior to the year 1876. The railroad was never constructed within one-half mile of the old courthouse in Raleigh or within one-half mile of the church in Galatia, but was constructed in a different direction, and the said condition was in no sense complied with, but was waived by the board of commissioners of said county after July 2, 1870.
until October 20, 1877, and the bonds were issued and delivered on the 19th day of April, 1877, being dated March 9, 1877, and payable twenty years after the 1st day of January, 1873, with option of paying five years after date.
"No county, city, town, township or other municipality shall ever become subscriber to the capital stock of any railroad or private corporation, or make donations to or loan its credit in aid of such corporation; provided, however, that the adoption of this article shall not be construed as affecting the right of any such municipality to make such subscriptions where the same have been authorized, under existing laws, by a vote of the people of such municipalities prior to such adoption."
The bonds issued to the St. Louis and Southeastern Railway Company were valid obligations of the county in the hands of the appellants under the decisions of the supreme court in the cases of Insurance Company v. Bruce, 105 U. S. 328, and Oregon v. Jennings, 119 U. S. 74.
The bonds issued to the Belleville and Eldorado Railroad Company were void even in the hands of bona fide purchasers for value within the decision of German Savings Bank v. Franklin County, 128 U. S. 526.
The bonds to the St. Louis and Southeastern Railway Company were issued before and those to the Belleville and Eldorado Railroad Company were issued after the decision of the Supreme Court of Illinois in the case of Town of Eagle v. Kohn, 84 Ill. 292, decided in 1876.
The County of Saline has always retained and now has the stock in said railway companies obtained by it for the bonds so issued to said railway companies, respectively; but such stock is now, and always has been, wholly worthless, and of no value.
and the purpose for which they are issued, and shall be of uniform design and style throughout the state, to be prescribed by the state auditor, whose imperative duty it shall be to devise and prepare such uniform style and draft adapted to the classes of bonds herein provided for, namely, the first class to consist of bonds of which only the interest is payable annually; the second class to consist of those of which the interest and five percentum of the principal are to be paid annually, and the third class to consist of a graduated series, the first grade made payable, principal and interest at the end of one year from the date of issue; the second at the end of two years, and thus to the end of the series, the class to be issued being at the option of the legal voters expressed as herein provided. In any case, the new bonds, or other evidences of indebtedness, authorized to be issued by this act, shall not be for a greater sum in the aggregate, than the principal and accrued or earned interest unpaid of such outstanding bonds or other evidences of indebtedness. And when such new bonds or other evidences of indebtedness shall have been issued, in order to be placed on the market and sold to obtain proceeds with which to retire outstanding bonds or other evidences of indebtedness, it shall be the duty of the state auditor, on the request of the corporate authorities issuing them, and at the expense of the corporation in whose behalf the issue is thus made, to negotiate the same at not less than par value, and on the best terms which can be obtained, provided always that any such county, city, town, township, school district or other municipal corporation issuing bonds under the provisions of this act, may, through its corporate authorities duly authorized, negotiate, sell or dispose of said bonds, or any part thereof at not less than their par value, without the intervention of the auditor of state, and provided further that no new bonds or other evidences of indebtedness shall be issued under this act, unless the same shall be first authorized, as hereinafter provided by a vote of a majority of the legal voters of such county, city, town, township, school district or other municipal corporation voting at some general election, or special election held for that purpose. "
"United States of America $1,000"
"State of Illinois, County of Saline, Funding Bond, issued under the Act of 1865, as Amended April 27, 1877, and June 4, 1879."
"Twenty years after date, for value received, the County of Saline promises to pay to the bearer hereof the sum of $1,000 in lawful money of the United States at the office of the Treasurer of the State of Illinois in the City of New York, with interest at the rate of six percent per annum, payable annually, as shown by and upon the surrender of the annexed coupons as they severally become due, shown by and upon the surrender of the annexed bond at any time after five years from date."
for the purpose of funding and retiring certain binding, subsisting, legal obligations of said county, which remain outstanding and unpaid, under the provisions of an Act of the General Assembly of the State of Illinois entitled"
"An act to enable counties, cities, towns, townships, school districts and other municipal corporations to fund, retire and purchase their outstanding bonds, and other evidences of indebtedness, and provide for the registration of new bonds, or other evidences of indebtedness, in the office of the auditor of public accounts,"
"approved February 13, 1865, and acts amendatory thereto, approved April 27, 1877, and June 4, 1879, and in pursuance of a vote of the majority of the legal voters of said county voting at an election legally called under said act, the 6th of November, 1883."
"We hereby certify that all requirements of said acts have been fully complied with in the issue thereof."
"In testimony whereof, we, the undersigned officers of said county, being duly authorized to execute this obligation on its behalf, have hereunto set our signatures this 1st day of July, A.D. 1885."
"Chairman of the County Board"
"[Seal.] W. E. Burnett, County Clerk"
"Date of bond: July 1, 1885. Payable twenty years after date. Redeemable five years after date. Interest payable July 1, annually. Principal and interest payable at the office of the State Treasurer of the State of Illinois in the City of New York and State of New York."
State of Illinois, do hereby certify that the within bond has been registered in this office this day, pursuant to the provisions of an act entitled"
"An act to enable counties, cities, towns, townships, school districts and other municipal corporations to fund, retire and purchase their outstanding bonds and other evidences of indebtedness, and to provide for the registration of new bonds, or other evidences of indebtedness, in the office of the auditor of public accounts,"
"approved February 13, 1865, and acts amendatory thereto, approved April 27, 1877, and June 4, 1879. I further certify that the aggregate equalized valuation of property assessed for taxation in said county for the year 1885 were certified to this office as follows: Real estate, $1,362,931. Personal property, $477,340. In testimony whereof, I have hereunto subscribed my name and affixed the seal of my office the day and year aforesaid."
The County of Saline appointed an agent to solicit the exchange of bonds, and obtained from the appellants and cancelled the old bonds respectively held by them, and issued to them the funding bonds in lieu thereof. The County of Saline thereafter, until the year 1890, paid the annual interest on such new issue of bonds.
"First. Is the County of Saline estopped by the recital in the funding bonds to assert that the bonds issued to the St. Louis and Southeastern Railway Company and to the Belleville and Eldorado Railroad Company, respectively, and for which the funding bonds were exchanged, were not binding, subsisting, legal obligations of said county?"
"Second. Are the funding bonds so issued by the County of Saline legal, valid, and binding obligations upon said county in the hands of a bona fide holder for value before maturity?"
cause, which is a suit in equity instituted by the County of Saline to restrain officers of the law from levying and collecting a tax as required by law to pay the interest upon the funding bonds, to grant the relief asked only upon condition that the County of Saline pay to the holders the amount of the valid bonds issued to the St. Louis and Southeastern Railway Company which were exchanged for the funding bonds?"
Under the authority of certain acts of the General Assembly of the State of Illinois, and in pursuance of an election duly ordered and held according to law, and in payment of a subscription to stock in the St. Louis and Southeastern Railway Company, the County of Saline issued bonds to the amount of $25,000 bearing interest at the rate of eight percent, to the said railway company, bearing date January 1, 1872, payable twenty years after date. These bonds were delivered to the railway company February 1, 1872, and were purchased in open market by the appellants, for value, and without notice of any defense, prior to the year 1876.
The contract of subscription contained a condition that the said St. Louis and Southeastern Railway should pass, and a depot be established within one-half mile of the old courthouse in Raleigh and within one-half mile of the church in Galatia. The railroad was not constructed within the prescribed limits, but was constructed in said county in a different direction, and compliance with the said condition was waived by the board of commissioners of said county.
"any county, township, city or town shall have the right, when making any subscription or donation to any railroad company, to prescribe the conditions upon which such bonds and subscriptions or donations shall be made, and such bonds, subscriptions or donations shall not be valid and binding until such conditions precedent shall have been complied with."
"No county, city, town, township or other municipality shall ever become subscribers to the capital stock of any railroad or private corporation, or make donation to or loan its credit in aid of such corporation, provided however that the adoption of this article shall not be construed as affecting the right of any such municipality to make such subscriptions where the same have been authorized, under existing laws, by a vote of the people of such municipalities prior to such adoption."
The validity of these bonds so issued to the St. Louis and Southeastern Railway Company was continually recognized by the County of Saline by the payment of interest thereon, and by the refunding of the same into new bonds of the county in July, 1885, and the said county has always retained, and now has, the stock in said railway company.
recitals upon its bonds, or upon the ground that the conditions imposed, of which purchasers had no notice, have not been performed."
Similar conclusions were reached in the case of Oregon v. Jennings, 119 U. S. 74, where, citing Insurance Co. v. Bruce, it was held that bonds issued by the Town of Oregon, a municipal corporation of the State of Illinois, in compliance with a vote of the people held prior the adoption of the Illinois Constitution of 1870, in pursuance of a law providing therefor, were valid, although a condition as to the completion of the road was not complied with, because the recitals in the bonds were made by officers entrusted under the statute with the duty of determining whether the condition had been complied with, and the town was thereby estopped from asserting the contrary. The doctrine of the case of County of Jasper v. Ballou, 103 U. S. 745, is applicable. There it was held in a case arising, like this one, in the State of Illinois that when the people of a county, at an election held under a refunding act, voted to issue new bonds to exchange for old ones, such a vote recognized the original bonds as binding and subsisting obligations, and that the county was therefore estopped from setting up that they were invalid because voted for at an election called by the board of supervisors instead of by the county court, and that where at an election held according to law, the people of a county authorized their proper representatives to treat certain outstanding county obligations as properly authorized by law for the purpose of settling with the holders, and the settlement has been made, the validity of the obligations can be no longer questioned. There, as here, there was lawful power in the county to issue the original bonds, but there was an irregularity in the election's having been called for by the wrong officers.
refunding act, the second question put to us by the circuit court of appeals must, as respects said new bonds, be answered in the affirmative.
"That was a suit against the Town of Eagle, brought by innocent holders for value to recover on coupons cut from bonds issued by the town to a railroad company, December 1, 1870, in payment of subscription to stock in pursuance of a vote of the people of the town had November 2, 1869. In that vote, certain conditions as to time had been prescribed upon which the bonds should be issued. Those conditions had not been complied with. The question arose in the case whether the declaration of the statute that the bonds should not be valid and binding until such conditions precedent should have been complied with was to be confined in its operation to the railroad company to which the bonds should have been issued, or whether it extended to innocent holders for value. The court held that although the statute did not declare that the bonds should be void, its declaration that they should not be valid and binding until the conditions precedent should have been complied with was an imperative and peremptory declaration; that the bonds should not be valid and binding until the conditions named should have been complied with, even in the hands of innocent holder without notice, and it declared the bonds to be invalid in the hands of the plaintiffs. This interpretation of section 7 of the Act of April 16, 1869, accompanied all bonds subsequently issued into the hands of whoever took them, whether a bona fide holder or not. This Court must recognize this decision of the Supreme Court of Illinois as an authoritative construction of the statute made before the bonds were issued, and to be followed by this Court. "
If the present case stood only on the footing of the original conditional contract of subscription, we would be compelled to follow the holding of the Supreme Court of Illinois, and to hold that the original bonds were uncollectible even by innocent holders. But we have here an additional feature not present in the case of German Savings Bank v. Franklin County or in the case of Town of Eagle v. Kohn, and that is found in the fact that, in the year 1885, in pursuance of the Illinois Funding Bond Act, approved February 13, 1865, as amended by Acts approved April 27, 1877, and June 4, 1879 (Laws of Illinois 1879, p. 229), and in pursuance of a vote of a majority of the legal voters of Saline County as prescribed in said statutes, new bonds were issued, and registered in manner as directed in the law, and were delivered to the holders of the original bonds, which latter were surrendered and cancelled. The County of Saline thereafter, until the year 1890, paid the annual interest on such new issue of bonds.
While it is true that the mere exchange of new bonds for old ones, and the payment of interest on the former by the county authorities would not estop the county from challenging the validity of the new as well as that of the old bonds, yet we think it was competent for the county, in such a state of facts as here existed, by a vote of its people to waive the condition attached to the original subscription, and to estop itself from declining to be bound by the new negotiable securities. It must be admitted as well settled law that where there is a total want of power to subscribe for stock and to issue bonds in payment, a municipality cannot estop itself from raising such a defense by admissions, or by issuing securities negotiable in form, nor even by receiving and enjoying the proceeds of such bonds. So too it may be admitted that even where the power to subscribe for stock and to issue bonds in payment was validly granted, yet where the right to exercise the power has been subjected to conditions prescribed by the legislature, the municipality cannot dispense with or waive such conditions.
may well waive a condition made by itself, and not a condition upon the exercise of the power. Such a waiver is not an attempt to ratify a void contract, but is rather an admission that the condition has been complied with in an equitable sense.
If these views are sound in respect to the bonds issued to the Belleville and Eldorado Railroad Company, they apply with stronger reason to the bonds issued to the St. Louis and Southeastern Railway Company, because the subscription to the stock of the latter company and the issue of bonds in payment took place before the decision of the case of Town of Eagle v. Kohn, and in circumstances, as we have seen, that rendered those bonds valid independently of the subsequent vote by Saline County to refund.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.