Court Opinion

ID: 8867572
Source: CourtListenerOpinion
Date Created: 2022-11-26 18:10:54.202981+00
Date Added: 2024-06-11T17:06:03.369434
License: Public Domain

GILBERT, Circuit Judge
(dissenting). I am unable to agree with the majority of the court in holding that the city of Santa Cruz is not estopped to dispute the validity of its bonds. The outstanding indebtedness which, under the authority of the act of March 1, 1893, the city attempted to refund, comprised a bonded indebtedness of the city amounting to $271,000, and a liability for $89,000 upon the first mortgage • bonds of the City Water Company of Santa Cruz, which had been issued by that company before the purchase of its property by the city, and the payment of which had been assumed by the city. The power to refund the city’s own bonded indebtedness was clearly within the letter and the spirit of the act. The $89,000 of the first mortgage bonds of the water company, while it represented an outstanding indebtedness of the city, for which it was liable, and for the payment of which it might have borrowed money under proper proceedings therefor, and the refunding of which was within the spirit of the provisions of the act, was, nevertheless, not evidenced by the city’s “bonds and warrants,” and was, therefore, not within the letter of the law. To that extent the proposed application of funds which were to be realized upon the sale of the refunding bonds was illegal. The case presented is not a case where, either by the constitution or by the statute of the state, the city lacked the power to refund its indebtedness. The invalidity of the refunding bonds resulted from the proposed misapplication of a portion of the proceeds thereof. The underlying principles which are involved must not be permitted to become obscured by reason of the fact that the city of Santa Oruz was, by its agents, defrauded of the proceeds of the refunding bonds, and never, in fact, received any portion thereof. The real question is whether a city, after procuring money on its bonds, which were issued for an unlawful purpose, but which the city certified were issuéd for a purpose which was lawful, and for which statutory authority existed, can deny its obligation as against an innocent purchaser. The case comes precisely within the principles announced in Hackett v. Ottawa, 99 U. S. 86, 25 L. Ed. *395363. in that ease the city of Ottawa contended that its bonds were fold for the reason that they had been issued for a loan which was not for a municipal purpose, but for a donation to a private corporation in no wise connected with, or under the control of, the city. In that case, as in this, the ordinances of the city disclosed the purpose for which it was proposed to borrow money upon the city’s credit. The court said:
“The bonds in suit, by (heir recital of the titles oí the ordinances under which they were issued, in effect assured the purchaser that they were to be used for municipal purposes, with the previous sanction, duly given, of a majority of the legal voters of the ci(y. If he would have been bound, under some circumstances, to take notice, at his peril, of the provisions of the ordinances, he was relieved from any responsibility or duty in that regard by reason of the representation, upon the face of the bonds, that tlie ordinances under which they were issued were ordinances ‘providing for a loan for municipal purposes.’ Such a representation, by tlie constituted authorities of the city, under its corporate seal, would naturally avert suspicion oí liad faith upon their part, and induce tlie purchaser to omit an examination of the ordinances themselves. It was, substantially, a declaration by the city, with the consent of a majority of its legal voters, that purchasers need not examine (lie ordinances, since'their Title indicated a loan for municipal purposes. The city is, therefore, estopped, by its own representations, to say, as against a bona lide holder of the bonds, ihat they were not issued or used for municipal or corporate purposes.”
In the present case the opinion of the majority of the court seems to have been influenced by the fact that by the charter of the city of Hanta Cruz a public record of its ordinances is required to be kept in books accessible to the public, and by the further fact that the cicy^fcimeers, who were impliedly authorized to issue the refunding boijds, were not expressly empowered to make any certificate or representation to prospective purchasers in respect to the character mil the indebtedness for the payment of which the refunding bonds were issued. As far as tlie first consideration is concerned, it is suiiicienf to say that the charters of all municipal corporations, require .similar public records of their proceedings, and that such was undoubtedly the case with, the city of Ottawa; yet in Hackett v. Ottawa the court deemed that fact immaterial to the question which was before it, held that a purchaser of bonds was not bound to inspect such records, and disposed of the case upon the general principles of estoppel applicable to all cases. Neither can any distinction between that case and the case at bar be predicated upon the fact that the act of March 1, 1893, under which the refunding bonds of tlie city of Santa Cruz were issued, conferred no express power upon the officers of tlie city to certify to any particular fact in connection with ¡he proceedings on which the bonds were issued, or to make any recitals whatever upon the bonds. The proceedings were bad under a statute that not only conferred authority to refund the bonded indebtedness, but imposed a duty upon the city to determine whether the occasion had arisen to refund, and, if so-, to determine wherein the bonded indebtedness consisted, and the nature and amount thereof. Under this authority the city determined that the water company’s bonds -were a portion of its bonded debt,, and, as such, subject to be refunded.- The officers of the city of Santa Cruz who executed the refunding bonds were the officers whose duty it was *396to issue them. Before doing so, they were obliged to determine for themselves that the antecedent steps had been taken which were indispensable to the issuance thereof, and they were empowered by an ordinance of the city to recite upon the bonds the facts usually recited upon such instruments, — the facts upon which the purchaser was authorized to proceed, and on which he might rely, as was done in the Ottawa 'Case. The bonds were executed under the seal of the city, and were signed by the mayor and the city clerk. These were the officers whose duty it was to sign such instruments. Said the court in Town of Coloma v. Eaves, 92 U. S. 484, 488, 23 L. Ed. 579:
“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.”
Tbe bonds in question in the present case contain the recital that they were issued "for the purpose of refunding the bonded indebtedness of said city,” in pursuance of the act of March 1, 1893, “and in pursuance of, and in conformity with," the'■•eoiistitution of the state of California, and the ordinances of the city of' Sahtti Cruz, and in pursuance of, and in conformity with, a vote of moré than two-thirds of all the qualified electors of said city,” etc., ancrmon-tained the certificate “that all acts, conditions, and things required by law to be done precedent to and in the issue of said bonds have been properly done, happened, and performed, in legal and due form, and as required by law.” Here is a distinct certificate that the bond was issued for the purpose of refunding the bonded indebtedness of the city. This recital was expressly authorized by an ordinance of the city before the bonds were issued. It was a representation of fact, and not of law. In that respect the case stands upon a ground entirely distinct from that which controlled decision in the cases which are relied upon by the majority of the court to sustain their conclusion in this case, viz. Dixon Co. v. Field, 111 U. S. 83, 4 Sup. Ct. 315, 28 L. Ed. 360, and Sutliff v. Commissioners, 147 U. S. 230, 13 Sup. Ct. 318, 37 L. Ed. 145. In those cases there was absence of statutory authority for the issuance of the bonds. In Dixon Co. v. Field it was ruled that under the constitution of Nebraska there must be authority of law by statute of the legislature for every issue of bonds in aid of a railroad or other internal improvement. In the absence of such statute, it was held that bonds were issued without warrant of law. The court said:
“All parties are equally bound to know tbe law; and a certificate reciting tbe actual facts, and that thereby the bonds were conformable to the law, when, judicially speaking, they are not, will not make them so, nor can it work an estoppel upon the county to claim the protection of the law.”
In Sutliff v. Commissioners it was held that, where the constitution and the statute of a state forbid a county to issue bonds to an *397amount such as will make its indebtedness exceed a certain proportion of the assessed valuation of its taxable property, and the statute provides that semiannual statements, showing the total amount of the county’s debt, shall be published and entered upon the public records of the county, a purchaser of a bond issued in excess of the constitutional and statutory limit is charged with the duty of examining the record; and the county is not estopped by a recital in the bond that all the provisions of the statute have been complied with. In both cases the question was one of the preliminary authority to take the initial step towards the issuance of the bonds. The question of the existence of that authority was referable to the constitution and the statutes, and in the Sutliff Case to. a public, record, which the statute expressly required, and to- which it directed atten-. tion. The fact is not overlooked that incidentally in the opinion in Dixon Co. v. Field it was said that:
•‘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 honda had lawful authority to make the recitals, and to malte them conclusive.”
What was meant by this language of the court is indicated by the decisions which are cited to sustain it. It was not meant that, before such recitals might bind the corporation, the statute must first in words have defined the powers of municipal officers to decide preliminary questions, and have recited the language of the representations which the bonds might contain. It was meant that, wherever it might be inferred from statutory authority that the officers whose duty it was to execute such instruments were to determine for themselves for their own guidance that the preliminary steps had been taken, or that the conditions of fact existed upon which they might proceed, and that they were to act thereupon, their recital of those facts should be conclusive. Thus, in Marcy v. Township of Oswego, 92 U. S. 688, 23 L. Ed. 748, cited by the court in Dixon Co. v. Field, it was said that:
‘‘Where it may be gathered from the legislative enactment that the officers or persons designated to execute the bonds were invested with power to decide whether the contingency had happened, or whether the fact existed which was a necessary precedent to any subscription or issue of the bonds, their decision is final in a suit by the bona fide holder of the bonds against the municipality; and a recital in the bonds that the requirements of the legislative act have’ been complied with is conclusive.”
Of similar import are tbe remarks of Mr. Justice Bradley, speaking for tbe court, in County of Warren v. Marcy, 97 U. S. 104, 24 L. Ed. 977, and tbe decision of tbe court in Oregon v. Jennings, 119 U. S. 74, 92, 7 Sup. Ct. 124, 30 L. Ed. 323, in which it was held that by virtue of the statutory authority to the supervisor and the clerk of the town to sign the bonds it was implied that they were the persons intrusted with the duty to decide, before issuing the bonds, whether the conditions determined at the election existed. The ruling in Hackett v. Ottawa has not been modified by. any subsequent decision of the supreme court. It was expressly approved in Ottawa v. Bank, 105 U. S. 342, 26 L. Ed. 1127, where it was held that the purchaser of bonds was relieved from the duty of taking notice of *398the provisions of ordinances whose titles were recited in the bonds “by reason of the representation upon the face of the bonds that the ordinances provided for a loan for municipal purposes.” It was impliedly approved in Sherman Co. v. Simons, 109 U. S. 737, 3 Sup. Ct. 502, 27 L. Ed. 1093, and in Evansville v. Dennett, 101 U. S. 434, 16 Sup. Ct. 613, 40 L. Ed. 760. In the latter case the bonds contained the recital that they were issued by virtue of a certain designated act of the legislature, “as well as by virtue of a resolution of the city council ordering an election of the qualified voters of the city, which resulted in a legal majority in favor of such subscription.” The court said:
“As, therefore, the recitals in the bonds import compliance with the city’s charter, purchasers for value, having no notice of the nonperformance of the conditions precedent, were not bound to go behind the statute conferring the power to subscribe, and to ascertain, by an examination of the ordinances and records of the city council, whether those conditions had, in fact, been performed. With such recitals before them, they had the right to assume that the circumstances existed which authorized the city to exercise the authority given by the legislature.”
In the United States circuit court of appeals the same doctrine has been applied. In Risley v. Village of Howell, 12 C. C. A. 218, 64 Fed. 453, the question arose whether a bona fide purchaser of bonds was chargeable with notice, and defeated in his right to recover, by the fact that an ordinance referred to in the bonds, and mentioned as an ordinance of a certain date, misappropriated the bonds to an unlawful use. The court held that, inasmuch as the common council had authority to issue bonds of the nature of those which were involved in the suit, the defendant was estopped from setting up the fraudulent conduct of its own officials in misapplying the proceeds thereof. In City of Huron v. Second Ward Sav. Bank, 30 C. C. A. 38, 86 Fed. 272, the bonds in the controversy recite that they were issued for the purpose of refunding the “bonds, warrants, or floating debt” of the city. It was held that the corporation was estopped from defending an action by an innocent purchaser on the ground that the warrants of bonds which they were issued to satisfy were void, or that the debt which they were issued to pay was fictitious. In City of South St. Paul v. Lamprecht Bros. Co., 31 C. C. A. 585, 88 Fed. 449, it was held that the issuance of bonds containing the recital that they were “authorized by” a certain act of the legislature estops a municipality from tendering proof that they were issued in the construction of a bridge, a portion of which was outside the corporate limits.
In Jasper Co. v. Ballou, 103 U. S. 752, 26 L. Ed. 422, it was said:
“There must be a time when the people in their political capacity are concluded. by their contracts as much as individuals, and we think that where the people of a county, at an election held according to law, authorize their corporate or political representatives to treat certain outstanding county obligations as ‘properly authorized by law’ for the purpose of negotiating a settlement with the holders, and the settlement which was contemplated has been made, all contests as to th‘e validity of the obligations must be considered as ended.”
In the case at bar the city of Santa Cruz, by its ordinance adopted at the institution of the proceedings on which the bonds were issued, *399by the election notice which was issued and published, by the vote of its citizens at such election, and by the recitals which its bonds contained, declared that the outstanding obligation of the city which was evidenced by the water bonds, which it had assumed to pay, was a portion of the city’s bonded indebtedness, which it might refund under the act. Through all the transactions culminating in the delivery of the bonds it is clear that the officers of the city acted in the utmost good faith. There was no fraud, misrepresentation, or concealment. They honestly believed the refunding of the bonds of the water company to be within the purview of the statute, and, if they had ever received the proceeds of the refunding bonds, they would doubtless have applied them to the discharge of that obligation. I submit that the city is estopped to deny its liability, and that the judgment of the circuit court should be affirmed.