Source: https://supreme.justia.com/cases/federal/us/173/255/
Timestamp: 2019-04-26 15:45:16+00:00

Document:
Although the bill of exceptions in this case does not state in so many words that it contains all the evidence, it sufficiently appears that it does contain all, and this Court can inquire on this record whether the circuit court erred in giving a peremptory instruction for the defendant.
"issued by the Board of County Commissioners of said Gunnison County in exchange at par, for valid floating indebtedness of the said county outstanding prior to September 2, 1882, under and by virtue of and in full conformity with the provisions of an act of the General Assembly of the State of Colorado, entitled 'An act to enable the several counties of the state to fund their floating indebtedness,' approved February 21, 1881; 'that all the requirements of law have been fully complied with by the proper officers in the issuing of this bond,' that the total amount of the issue does not exceed the limit prescribed by the Constitution of the State of Colorado, and that this issue of bonds has been authorized by a vote of a majority of the duly qualified electors of the said County of Gunnison, voting on the question at a general election duly held in said county on the seventh day of November, A.D. 1882,"
estop the county from asserting, against a bona fide holder for value that the bond so issued created an indebtedness in excess of the limit prescribed by the Constitution of Colorado.
This case is controlled by the judgment in Chafee County v. Potter, 142 U. S. 355, which the Court declines to overrule.
The plaintiff corporation was a bona fide holder, when this suit was brought, of some of the bonds sued for in it.
This action was brought by E. H. Rollins & Sons, a corporation of New Hampshire, to obtain a judgment against the Board of Commissioners of Gunnison County, Colorado, a municipal corporation of that state, for the amount of certain coupons of bonds issued by the defendant in 1882. At the close of the evidence, the defendant requested a peremptory instruction in its behalf. The circuit court charged the jury at some length, but concluded with a direction to find a verdict for the defendant, which was done, and a judgment in its favor was entered. That judgment was reversed in the circuit court of appeals, and the case is here upon writ of certiorari. 80 F. 692.
By the laws of Colorado, boards of county commissioners were authorized to examine, allow, and settle all accounts against their respective counties, and to issue county warrants therefor; to build and keep in repair the county buildings, to insure the same, and to provide suitable rooms for county purposes, and to represent the county, and have the care of county property, and the management of the business and concerns of the county in all cases where the law did not otherwise provide.
per annum, payable semiannually on the 1st days of March and September in each year at the county treasurer's office, or at the Chase National Bank in the City of New York at the option of the holder, upon the presentation and surrender of the annexed coupons as they severally became due.
"This bond is issued by the Board of County Commissioners of said Gunnison County in exchange at par, for valid floating indebtedness of the said county outstanding prior to September 2, 1882, under and by virtue of, and in full conformity with, the provisions of an act of the General Assembly of the State of Colorado entitled 'An Act to enable the several counties of the state to fund their floating indebtedness,' approved February 21, 1881, and it is hereby certified that all the requirements of law have been fully complied with by the proper officers in the issuing of this bond. It is further certified that the total amount of this issue does not exceed the limit prescribed by the Constitution of the State of Colorado, and that this issue of bonds has been authorized by a vote of a majority of the duly qualified electors of the said County of Gunnison voting on the question at a general election duly held in said county on the seventh day of November, A.D. 1882. The bonds of this issue are comprised in three series, designated 'A,' 'B,' and 'C,' respectively, the bonds of series 'A' being for the sum of one thousand dollars each, those of series 'B' for the sum of five hundred dollars each, and those of series 'C' for the sum of one hundred dollars each. This bond is one of series 'A.' The faith and credit of the County of Gunnison are hereby pledged for the punctual payment of the principal and interest of this bond."
To each bond were attached coupons for the semiannual interest, signed by the county treasurer.
On the first day of December, 1882, for the bonds of the county, with coupons attached, as above specified, the defendant board made an exchange with the parties then holding county warrants which before that time, in accordance with the statutes in such case made and provided, had been issued to them in settlement of claims presented by them against the county.
In every case when warrants were presented, they were exchanged for the bonds of the county at par for their face and interest. In each case, the blanks were filled out with the name of the party receiving the bonds or exchanging the warrants, and the blank for the place of payment filled in as the banking house of the Chase National Bank in the City of New York. Thereupon the bonds were signed by the chairman of the board of county commissioners, countersigned by the county treasurer, and attested by the county clerk with the seal of the county, and the coupons attached were also filled out, stating the place of payment to be in the City of New York at the banking house of the Chase National Bank, and stating also the number of the funding bond, and the series to which it was attached.
The issue of bonds as above set forth was authorized by a vote of the qualified electors to be exchanged for warrants, and the amount thereof was spread upon the records of the county, as provided for by the Act of February 21, 1881, entitled "An act to enable the several counties of the state to fund their floating indebtedness." In all other respects, the terms and conditions of the act were fully complied with. The bonds were duly registered in the office of the auditor of the state.
In every case where bonds were issued and delivered to the payee or to any person for him, the parties received them in exchange for warrants, the amount of the bonds being the same as the amount of the warrants and interest thereon that had theretofore been issued by the county.
From the 1st day of December, 1882, and up until the 1st day of March, 1886, the county paid the interest on the bonds semiannually in accordance with their terms and of the coup as attached to them.
The defendant board made default in the payment of interest due on the 1st day of September, 1886, and made like default thereafter up to and including September 1, 1892.
of the coupons, with interest on the amount of each coupon as it became due.
The answer of the county contained a general denial of all the allegations of the complaint, and in addition set out eleven affirmative defenses, which were chiefly based upon the alleged fact that the county, in issuing the bonds set forth in the complaint, had attempted to incur an indebtedness not authorized by the Constitution of Colorado or by the statute referred to in the bonds.
"No county shall contract any debt by loan in any form, except for the purpose of erecting necessary public buildings, making or repairing public roads and bridges, and such indebtedness contracted in any one year shall not exceed the rates upon taxable property in such county, following, to-wit: Counties in which the assessed valuation of taxable property shall exceed five millions of dollars, one dollar and fifty cents on each thousand dollars thereof. Counties in which such valuation shall be less than five millions of dollars, three dollars on each thousand dollars thereof. And the aggregate amount of indebtedness of any county for all purposes, exclusive of debts contracted before the adoption of this constitution, shall not at any time exceed twice the amount above herein limited, unless when in manner provided by law, the question of incurring debt shall at a general election, be submitted to such of the qualified electors of such county as in the year last preceding such election shall have paid a tax upon property assessed to them in such county, and a majority of those voting thereon shall vote in favor of incurring the debt; but the bonds, if any be issued therefor, shall not run less than ten years, and the aggregate amount of debt so contracted shall not at any time exceed twice the rate upon the valuation last herein mentioned: provided that this section shall not apply to counties having a valuation of less than one million of dollars."
Laws Colo. 1877, p. 62.
of election in each election precinct in the county, prior to the said election, a certified list of the taxpayers in such county who shall have paid taxes upon property assessed to them in such county in the preceding year, and no person shall vote upon the question of the funding of the county indebtedness unless his name shall appear upon such list nor unless he shall have paid all county taxes assessed against him in such county in the preceding year. If a majority of the votes lawfully cost upon the question of such funding of the floating county indebtedness shall be for the funding of such indebtedness, the board of county commissioners may issue to any person or corporation holding any county warrant or warrants issued prior to the date of the first publication of the aforementioned notice, coupon bonds of such county in exchange therefor at par. No bonds shall be issued of less denomination than one hundred dollars, and if issued for a greater amount, then for some multiple of that sum, and the rate of interest shall not exceed eight percent per annum. The interest to be paid semi-annually at the office of the county treasurer, or in the City of New York at the option of the holders thereof. Such bonds to be payable at the pleasure of the county after ten years from the date of their issuance, but absolutely due and payable twenty years after date of issue. The whole amount of bonds issued under this act shall not exceed the sum of the county indebtedness at the date of the first publication of the aforementioned notice, and the amount shall be determined by the county commissioners, and a certificate made of the same and made a part of the records of the county, and any bond issued in excess of said sum shall be null and void, and all bonds issued under the provisions of this act shall be registered in the office of the state auditor, to whom a fee of ten cents shall be paid for recording each bond."
Laws of Colorado, 1881, pp. 85-87.
Although the bill of exceptions does not state, in words, that it contains all the evidence, the above entries sufficiently show that it does contain all the evidence. It is therefore proper to inquire on this record whether the circuit court erred in giving a peremptory instruction for the defendant.
"in exchange at par for valid floating indebtedness of the county outstanding prior to September 2, 1882, under and by virtue of and in full conformity with the provisions of an Act of the General Assembly of the State of Colorado entitled 'An act to enable the several counties of the state to fund their floating indebtedness,' approved February 21, 1881;"
of a majority of the duly qualified electors of the county voting on the question at a general election duly held in the county on the 7th day of November, 1882.
Do such recitals estop the county from asserting against a bona fide holder for value that the bonds so issued created an indebtedness in excess of the limit prescribed by the Constitution of Colorado? An answer to this question can be found in former decisions of this Court. It is necessary to advert to those decisions, particularly those in which the Court considered the effect of recitals importing compliance with constitutional provisions.
"no county, city, township, school district, or other municipal corporation shall be allowed to become indebted in any manner or for any purpose to an amount, including existing indebtedness, in the aggregate exceeding five percentum on the value of the taxable property therein, to be ascertained by the last assessment for state and county taxes previous to the incurring of such indebtedness."
"As, therefore, neither the constitution nor the statute prescribed any rule or test by which persons contracting with municipal corporations should ascertain the extent of their 'existing indebtedness,' it would seem that, if the bonds in question had contained recitals which, upon any fair construction, amounted to a representation upon the part of the constituted authorities of the city that the requirements of the Constitution were met -- that is, that the city's indebtedness, increased by the amount of the bonds in question, was within the constitutional limit -- then the city, under the decisions of this Court, might have been estopped from disputing the truth of such representations as against a bona fide holder of its bonds. The case might then, perhaps, have been brought within the rule announced by this Court in Town of Coloma v. Eaves, 92 U. S. 484, in which case we said, and now repeat, that:"
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 on 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."
"So, in the more recent case of Orleans v. Pratt, 99 U. S. 676, it was said that: 'Where the bonds on their face recite the circumstances which bring them within the power, the corporation is estopped to deny the truth of the recital.'"
"A recital that the bonds were issued under the authority of the statute and in pursuance of the city ordinance did not necessarily import a compliance with the constitution. Had the bonds made the additional recital that they were issued in accordance with the Constitution, or had the ordinance stated in any form that the proposed indebtedness was within the constitutional limit, or had the statute restricted the exercise of the authority therein conferred to those municipal corporations whose indebtedness did not at the time exceed the constitutional limit, there would have been ground for holding that the city could not, as against the plaintiff, dispute the fair inference to be drawn from such recital of statement as to the extent of its existing indebtedness."
bona fide holder, to question in face of a recital in the bonds of their existence were those connected with or growing out of the discharge of the ordinary duties of such of its officers as were invested with authority to execute them, and which the statute conferring the power made it their duty to ascertain and determine before the bonds were issued, not merely for themselves, as the ground of their own action, but equally as authentic and final evidence of their existence, for the information and action of all others dealing with them in reference to it. . . . The question of legislative authority in a municipal corporation to issue bonds in aid of a railroad company cannot be concluded by mere recitals, but, the power existing, the municipality may be estopped by recitals to prove irregularities in the exercise of that power, or, when the law prescribes conditions upon the exercise of the power granted, and commits to the officers of such municipality the determination of the question whether those conditions have been performed, the corporation will also be estopped by recitals which import such performance."
involved, is a determination and certificate as to each essential particular. But it still remains that there must be authority vested in the officers by law as to each necessary fact, whether enumerated or nonenumerated, to ascertain and determine its existence, and to guaranty to those dealing with them the truth and conclusiveness of their admissions. In such a case, the meaning of the law granting power to issue bonds is that they may be issued not upon the existence of certain facts, to be ascertained and determined whenever disputed, but upon the ascertainment and determination of their existence by the officers or body designated by law to issue the bonds upon such a contingency. This becomes very plain when we suppose the case of such a power granted to issue bonds, upon the existence of a state of facts to be ascertained and determined by some persons or tribunal other than those authorized to issue the bonds. In that case, it would not be contended that a recital of the facts in the instrument itself, contrary to the finding of those charged by law with that duty, would have any legal effect. So if the fact necessary to the existence of the authority was by law to be ascertained not officially by the officers charged with the execution of the power, but by reference to some express and definite record of a public character, then the true meaning of the law would be that the authority to act at all depended upon the actual objective existence of the requisite fact, as shown by the record, and not upon its ascertainment and determination by anyone, and the consequence would necessarily follow that all persons claiming under the exercise of such a power might be put to proof of the fact, made a condition of its lawfulness, notwithstanding any recitals in that instrument. This principle is the essence of the rule declared upon this point by this Court in the well considered words of Mr. Justice Strong in Town of Coloma v. Eaves, 92 U. S. 484, where he states (page 92 U. S. 491) that it is"
"where it may be gathered from the legislative enactment that the officers of the municipality were invested with the power to decide whether the condition precedent has been complied with"
of the fact, and binding upon the municipality, for the recital is itself a decision of the fact by the appointed tribunal."
The converse is embraced in the proposition, and is equally true. If the officers authorized to issue bonds upon a condition are not the appointed tribunals to decide the fact which constitutes the condition, their recital will not be accepted as a substitute for proof. In other words, where the validity of the bonds depends upon an estoppel, claimed to arise upon the recitals of the instrument, the question being as to the existence of power to issue them, it is necessary to establish that the officers executing the bonds had lawful authority to make the recitals, and to make them conclusive. The very ground of the estoppel is that the recitals are the official statements of those to whom the law refers the public for authentic and final information on the subject.
maximum limit beyond which those counties can incur not further indebtedness under any possible conditions: provided, that in calculating that limit debts contracted before the adoption of the Constitution are not to be counted. The statute, on the other hand, charges the purchaser with knowledge of the fact that the county commissioners were to issue bonds at par, in exchange for such warrants of the county as were themselves issued prior to the date of the first publication of the notice provided for; that the only limitation on the issue of bonds in the statute was that the bonds should not exceed in amount the sum of the county indebtedness on the day of notice aforesaid; that, while the commissioners were empowered to determine the amount of such indebtedness, yet the statute does not refer that board, for the elements of its computation, to the constitution, or to the standards prescribed by the constitution, but leaves it open to them, without departing from any direction of the statute, to adopt solely the basis of the county warrants. The recitals of the bonds were merely to the effect that the issue was 'under, and by virtue of, and in full compliance with' the statute, 'that all the provisions and requirements of said act have been fully complied with by the proper officers in the issuing of this bond,' and that the issuing was 'authorized by a vote of a majority of the duly qualified electors,' etc., no express reference being made to the constitution, nor any statement made that the constitutional requirements had been observed. There is therefore no estoppel as to the constitutional question, because there is no recital in regard to it. Carroll County v. Smith, 111 U. S. 556."
it is not within the power of a legislature to dispense with them, either directly or indirectly, by the creation of a ministerial commission whose finding shall be taken in lieu of the facts. In the case of Sherman County v. Simons, 109 U. S. 735, and others like it, the question was one of estoppel as against an exaction imposed by the legislature, and the holding was that the legislature, being the source of exaction, had created a board authorized to determine whether its action had been complied with, and that its finding was conclusive to a bona fide purchaser. So also, in Oregon v. Jennings, 119 U. S. 74, the condition violated was not one imposed by the constitution, but one fixed by the subscription contract of the people."
were issued, and required them to spread a certificate of that determination upon the records of the county. The recital in the bond to the effect that such determination has been made, and that the constitutional limitation had not been exceeded in the issue of the bonds, taken in connection with the fact that the bonds themselves did not show such recital to be untrue, under the law estops the county from saying that it is untrue. Town of Coloma v. Eaves, 92 U. S. 484; Town of Venice v. Murdock, 94 U. S. 494; Marcy v. Township of Oswego, 94 U. S. 637; Wilson v. Salamanca, 99 U. S. 499; Buchanan v. Litchfield, 102 U. S. 278; Northern Bank v. Porter Township, 110 U. S. 608."
"We think this case comes fairly within the principles of those just cited, and that it is not governed by Dixon County v. Field and Lake County v. Graham, but is distinguishable from them in the essential particulars above noted."
of examining the records of indebtedness provided for in the statute of Colorado in order to ascertain whether the bonds increased the indebtedness of the county beyond the constitutional limit, and that the recitals in the bonds did not estop the county to prove by the records of the assessment and the indebtedness that the bonds were issued in violation of the constitution. In those cases,"
"in which this Court has held a municipal corporation to be estopped by recitals in its bonds to assert that they were issued in excess of the limit imposed by the constitution or statutes of the state, the statutes, as construed by the court, left it to the officers issuing the bonds the determine whether the facts existed which constituted the statutory or constitutional condition precedent, and did not require those facts to be made a matter of public record. Marcy v. Oswego, 92 U. S. 637; Humboldt v. Long, 92 U. S. 642; Dixon County v. Field, 111 U. S. 83; Lake County v. Graham, 130 U. S. 674, 130 U. S. 682; Chaffee County v. Potter, 142 U. S. 355, 142 U. S. 363. But if the statute expressly requires those facts to be made a matter of public record, open to the inspection of everyone, there can be no implication that it was intended to leave that matter to be determined and concluded, contrary to the facts so recorded, by the officers charged with the duty of issuing the bonds."
be estopped to plead that limit. 130 U. S. 130 U.S. 682, 130 U. S. 683. In Chaffee County v. Potter, on the other hand, the bonds contained an express recital that the total amount of the issue did not exceed the constitutional limit, and did not show on their face the amount of the issue, and the county records showed only the valuation of property, so that, as observed by Mr. Justice Lamar in delivering judgment:"
"The purchaser might even know -- indeed, it may be admitted that he would be required to know -- the assessed valuation of the taxable property of the county, and yet he could not ascertain by reference to one of the bonds and the assessment roll whether the county had exceeded its power, under the Constitution, in the premises."
"142 U.S. 142 U. S. 363. The case at bar does not fall within Chaffee County v. Potter, and cannot be distinguished in principle from Dixon County v. Field or from Lake County v. Graham. The only difference worthy of notice is that in each of these cases, the single fact required to be shown by the public record was the valuation of the property of the county, whereas here, two facts are to be so shown -- the valuation of the property and the amount of the county debt. But as both these facts are equally required by the statute to be entered on the public records of the county, they are both facts of which all the world is bound to take notice, and as to which therefore the county cannot be concluded by any recitals in the bonds."
It thus appears that in the Sutliff case, the Court neither modified nor intended to modify, but distinctly recognized, the principle announced in Chaffee County v. Potter -- namely that the recital in the bonds that the debt thereby created did not exceed the limit prescribed by the constitution estopped the county from asserting as against a bona fide holder for value that the contrary was the fact.
this case and as enforced by its peremptory instruction to find for the defendant, cannot be approved without overruling that case. It was expressly decided in the Chaffee County case that the statute under which the bonds there in suit (the bonds here in suit being of the same class) authorized the county commissioners to determine whether the proposed issue of bonds would in fact exceed the limit prescribed by the constitution and the statute, and that the recital in the bond to the effect that such determination had been made, and that the constitutional limitation had not been exceeded, taken in connection with the fact that the bonds themselves did not show such recital to be untrue, estopped the county, under the law, from saying that the recital was not true. We decline to overrule Chaffee County v. Potter, and upon the authority of that case, and without reexamining or enlarging upon the grounds upon which the decision therein proceeded, we adjudge that as against the plaintiff the County of Gunnison is estopped to question the recital in the bonds in question to the effect that they did not create a debt in excess of the constitutional limit, and were issued by virtue of, and in conformity with, the statute of 1881, and in full compliance with the requirements of law.
"The testimony contained in the present record shows, we think, without contradiction that the plaintiff was a bona fide holder when the suit was brought of at least five of the bonds which are involved in the present controversy, because it holds the title of Joseph Stanley, who was himself an innocent purchaser of said bonds, before maturity, for the price of ninety-eight cents on the dollar. The rights which Stanley acquired by virtue of such purchase inure to the plaintiff by virtue of its purchase of the bonds from Stanley in June, 1892, and this without reference to any knowledge which the plaintiff may have had at the latter date affecting the validity of the securities.
A bona fide holder of commercial paper is entitled to transfer to a third party all the rights with which he is vested, and the title so acquired by his endorsee cannot be affected by proof that the endorsee was acquainted with the defenses existing against the paper. Commissioners v. Clark, 94 U. S. 278, 94 U. S. 286; Hill v. Scotland County, 34 F. 208; Daniel on Negotiable Instruments, 4th ed., § 803, and cases there cited."
The remaining five bonds owned by the plaintiff corporation were also purchased from Stanley, who received them directly from the county in exchange for warrants that he owned and held. There is no reason why, upon the surrender of county warrants for county bonds, he was not entitled to the benefit of the rule above declared as to the conclusiveness of the recital in the bonds, or why he may not be regarded as much an innocent holder of the bonds exchanged for county warrants as of the other bonds purchased by him in open market. There is no proof that at the time of such exchange, he had or was chargeable with knowledge or notice that the debt created by the bonds exceeded the constitutional limit. Consequently, in taking the bonds in exchange, he was entitled, for the reasons heretofore given, to rely upon the truth of the recitals contained in them. When the board of county commissioners, proceeding under the act of 1881, offered to exchange county bonds for the warrants held by him, he was entitled, under the circumstances disclosed, to assume it to be true, as recited in the bonds, that the constitutional limit was not being exceeded.
in good faith. Indeed, it is entirely competent for a state to provide by statute that all obligations, in whatever form, executed by a municipality existing under its laws, shall be subject to any defense that would be allowed in cases of nonnegotiable instruments. But, for reasons that everyone understands, no such statutes have been passed. Municipal obligations executed under such a statute could not be readily disposed of to those who invest in such securities.
It follows that the circuit court erred in directing the jury to return a verdict for the defendant.
What has been said renders it unnecessary to consider various questions arising upon exceptions to specific rulings in the circuit court as to the admission and exclusion of evidence and as to those parts of the charge to which objections were made. Those rulings were inconsistent with the principles herein announced.
Reversed, and the cause is remanded for further proceedings consistent with this opinion.

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 § 803