Court Opinion

ID: 8743200
Source: CourtListenerOpinion
Date Created: 2022-11-26 10:57:01.321543+00
Date Added: 2024-06-11T17:00:31.130242
License: Public Domain

SANBORN, Circuit Judge.
This is an action brought by the defendants in error, who were bona Me purchasers of bonds of the city of Pierre, without any notice of any defenses thereto, to recover upon certain coupons cut therefrom. The city interposes two defenses in this court: (1) That it had no authority to issue the bonds; and (2) that at the time they were issued its indebtedness exceeded the constitutional and statutory limitation of 5 per cent, of its assessed valuation, and the issue of these bonds increased its debt.
The bonds were issued to fund the floating indebtedness of the city, and the first defense is that the legislature conferred no authority upon this city to issue bonds for this purpose, because the general power conferred upon it by the general law for the incorporation of cities, which took effect on March 6, 1890 (Laws S. D. 1890, c. 37, art. 5, § 1), was limited by the constitution of the state, and by chapter l(i, Gen. Laws Dak. 1887, to the purposes specified in the latter act. The act of 1887 took effect on March 8 of. that year, and provided that any city organized, as was the city of Pierre, under a general law of the territory, might incur a bonded indebtedness for the purpose of erecting public school buildings and for certain other specified purposes, but it gave no power to such a city to issue its bonds for the purpose of funding its floating indebtedness. Section 1, c. 16, Gen. Laws 1887; section 1149, Pol. Code, Comp. Laws Dak. In the same year an act to provide for the general incorporation of cities, which took effect on March 11, 1887, and which gave authority to cities organized thereunder to borrow money on the credit of the corporation for corporate purposes, and,to issue bonds therefor, was enacted by the legislature of Dakota territory, and is known as chapter 73, Gen. Laws Dak. 1887. The constitution of the state of South Dakota was adopted in the year 1889, and it provides :
“The legisla ture shall provide by general laws for the organization and classification of municipal corporations. ⅜ s * The legislature shall restrict the power of such corporations to levy taxes and assessments, borrow money and contract debts so as to prevent the abuse of such power.” Article 10. § 1. “Kxcopt as otherwise provided in this constitution no tax or assessment shall be levied or collected or debis contracted by municipal corporations except in pursuance of law for public purposes specified by law, nor shall money raised by taxation, loan or assessment for one purpose be devoted to any other.” Article 10, § 2.
In the year 1890, after the adoption of this constitution, the legislature of South Dakota passed the general law for the incorporation of cities under which the funding bonds in this case were issued. It provided by that law that the city council of any city organized under the prior general laws upon this subject should be subject to its provisions; that the city council of every such city should have the power “to borrow money on the credit of the corporation for cor*614porate purposes and issue bonds therefor in such amounts and forms and on. such conditions as it shall prescribe,” upon a favorable vote of;a majority of the legal voters of its city; and that chapter 73 oi the General Laws of 1887, and all acts and parts of acts inconsistent with this general incorporation law of 1890, were thereby repealed. Laws S. D. 1890, c. 37, art., 5, § 1, subd. 5; Id. art. 23, § 7. The power tp issue bonds granted to the city council of the city of Pierre by this act of Í890' was plenary. It was general, not special. It was not limited to .any. specific purpose, but was to borrow money and issue bonds for ,alL corporate purposes. The whole is greater than any of its parts,' and includes them all, and the power to borrow money and issue bonds for all corporate purposes necessarily includes the power to d.o so for the purpose of paying or funding the floating indebtedness of the corporation. City of Huron v. Second Ward Sav. Bank, 86 Fed. 272, 280, 30 C. C. A. 38, 46, 57 U. S. App. 593, 608, 49 L. R. A. 534; Insurance Co. v. Mead (S. D.) 82 N. W. 78, 79, 83 N. W. 335. The contention of counsel for the city is that this plenary power was restricted and limited to the special purposes specified in section 1, c. 16, of the General Laws of 1887. But that position is untenable, for various reasons. The argument that the act of 1887 was a restriction of the power of corporations to borrow money and contract debts pursuant "to the mandate of section 1, art. 14, of the constitution' is futile, because the act of 1887 was enacted before the constitution was adopted. If the provisions of the acts of 1887 and 1890 were repugnant, the former would not repeal or restrict the latter, but the later act of 1890 would repeal the former to the extent of the repugnancy. But there is no inconsistency or repugnancy in the provisions of the two acts. The act of 1887 gave to cities the power to issue bonds for certain specified purposes. The law of 1890 granted .the power to issue them for all corporate purposes. The effect of the latter was to grant the power to issue bonds for all corporate purposes not specified in the act of 1887, in addition to those there specified. “All statutes in pari materia are to be read and construed together as if they formed part of the same statute and were enacted at the same time.” Potter’s Dwar. St. 145. Reading these statutes together, the powers specified in the act of 1887 are enlarged by the additional grant of the general law of 1890, and the authority of the city of Pierre to issue bonds to fund its floating indebtedness under the act of 1890 is plain. Seward Co. Com’rs v. Ætna Life Ins. Co., 90 Fed. 222, 227, 32 C. C. A. 585, 590, 61 U. S. App. 41, 49; In re Henderson’s Tobacco, 11 Wall. 652, 657, 20 L. Ed. 235; Gowen v. Harley, 56 Fed. 973, 979, 6 C. C. A. 190, 196, 12 U. S. App. 574, 584.
The second defense urged is that the bonds and coupons were void because they increased an indebtedness of the city which was in excess; of the constitutional and statutory limitation at the time they yrere issued.. This objection to the bonds arises upon this state of facts: ■ At the time these bonds were issued the indebtedness of the city of Pierre was limited by the constitution and by the statutes of 'South1 Dakota to 5 per cent, of the assessed valuation of the prop-Cfty';of the city. Section 4, art. 13, Const. S. D.; Gen. Laws S. D. *6151890, c. 37, art. 5, § 1, suM. 5. The limit of the indebtedness of, this ciiy under this constitutional and statutory restriction was §48,033.25, and its indebtedness was more than §100,000 on July 1, Í.890, when these bonds were issued. The amount of bonds issued was §25,000, and this appeared upon the face of each bond. The bonds were issued and sold to the National Bank of Commerce of Fierre on July 1, 1890, for §25,950 in money, which was paid to the treasurer of the city, who expended at different times during the months of July and August the aggregate amount of §23,319.38 in payment of outstanding warrants of the city; and it does not appear what disposition was made of the remainder of the proceeds of the bonds. The record of the proceedings of the ciiy council disclosed this disposition of the bonds,, and tJie act under which the bonds were issued required the city auditor to keep regular books, of account, which should at all times show the financial condition of the city, and the amount of the evidences of its indebtedness which had bees) issued by its city council. Laws 1890, c. 37, art. 7, § 3. The plaintiff was a bona fide purchaser of these bonds, without any actual notice of any excessive Indebtedness of the city, or of the method in which the bonds were used to satisfy that portion of the indebtedness which their proceeds discharged. Each of the bonds contained this recital:
“This hand is one of a series of hands amounting to twenty five thousand dollars issued for the purpose of funding the outstanding indebtedness of the ciiy, in pursuance of the general incorporation laws of the state of South Dakota approved March seventh, 1890, adopted by said city, and an ordinance of said city of Pierre entitled ‘An ordinance to Issue bonds for the purpose of funding and paying the outstanding iurtelnediiess of I in; ciiy of Pkore.’ approved April the twenty-fourth, 1890, and a vote of the electors in favor of issuing said bonds by a majority of the legal votes cast at a special election duly held in said city on the third day of Jane, 1890.”
Now the position of the city is that in view of these facts the bonds were void, because the indebtedness exceeded its lawful limit at the time when the bonds were issued, and because, under the authority of Doon Tp. v. Cummins, 142 U. S. 367, 372, 378, 12 Sup. Ct. 220, 35 L. Ed. 1044, that indebtedness was increased temporarily by the sale of the bonds, and the deposit of the money in the treasury of the city before it was applied to the discharge of the floating indebtedness which it was procured to pay. This contention has been repeatedly and exhausHvely considered by this court upon a review of all the authorities, and held to he untenable. City of Huron v. Second Ward Sav. Bank, 86 Fed. 272, 279, 280, 30 C. C. A. 38, 45, 46, 57 U. S. App. 593, 606-608, 49 L. R. A. 534; Lawrence County v. Jewell, 100 Fed. 905, 908, 41 C. C. A. 109, 113. The supreme court of South Dakota has reached the same conclusion. Insurance Co. v. Mead, 82 N. W. 78, 83 N. W. 335. It would be a useless task to restate the arguments and review1 the authorities which have led us to this conclusion, and we shall content ourselves with briefly stating the propositions upon which this result is founded. It rests upon the broad proposition that every municipality is estopped, as against an innocent purchaser who has bought its. bonds in reliance upon, certificates upon their face which its officers were authorized to make, from denying the truth of those certificates in order to defeat ,the *616securities. From this broad proposition the following rules of law have been deduced, and are established bj repeated decisions of the courts: The recitals of officers of a municipality who are invested with authority to perform a precedent condition to the issue of negotiable bonds, or with authority to determine wrhen that condition has been performed, that the bonds have been issued “in pursuance of” or “in conformity with” or “by virtue of” or “by authority of” the statute, preclude inquiry, as against an innocent purchaser for value, as to whether or not the precedent conditions had been performed when the bonds were delivered. Such recitals estop the municipal body from denying the performance of every act and the discharge of every duty which under the law its officers were required to do or discharge before and at the time when they delivered the bonds. National Life Ins. Co. v. Board of Education, 62 Fed. 778, 792, 793, 10 C. C. A. 639, 651, 652, 27 U. S. App. 244, 266, 268; City of Huron v. Second Ward Sav. Bank, 86 Fed. 272, 279, 30 C. C. A. 38, 45, 57 U. S. App. 593, 607, 49 L. R. A. 534; Hughes Co. v. Livingston, 43. C. C. A. 541, 104 Fed. 306, 316; Rathbone v. Board, 83 Fed. 125, 131, 27 C. C. A. 477, 483, 49 U. S. App. 577, 589; Haskell Co. Com’rs v. National Life Ins. Co., 90 Fed. 228, 231, 32 C. C. A. 591, 594, 61 U. S. App. 53, 58; City of South St. Paul v. Lamprecht Bros. Co., 88 Fed. 449, 453, 31 C. C. A. 585, 589, 60 U. S. App. 78, 85; Meade Co. Com’rs v. Ætna Life Ins. Co., 90 Fed. 237, 32 C. C. A. 600, 61 U. S. App. 51; Board v. Heed, 101 Fed. 768, 41 C. C. A. 668; Wesson v. Saline Co., 73 Fed. 917, 919, 20 C. C. A. 227, 229, 34 U. S. App. 680, 684. A municipal corporation is estopped from defeating an action by an innocent purchaser to collect its negotiable bonds, which recite that they were issued for the purpose of funding the bonds, warrants, or floating debt of the corporation, either on the ground that the warrants or bonds which they were issued to satisfy were void, or that the apparent debt which they were issued to pay was 'fictitious. Hughes Co. v. Livingston, 43 C. C. A. 541, 104 Fed. 306, 318; City of Huron v. Second Ward Sav. Bank, 86 Fed. 272, 275, ,277, 30 C. C. A. 38, 41, 43, 57 U. S. App. 593, 600, 603, 49 L. R. A. 534; National Life Ins. Co. v. Board of Education, 62 Fed. 778, 785, 10 C. C. A. 637, 644, 27 U. S. App. 244, 256; West Plains Tp. v. Sage, 69 Fed. 943, 946, 16 C. C. A. 553, 557, 32 U. S. App. 725, 733; Seward Co. Com’rs v. Ætna Life Ins. Co., 90 Fed. 222, 224, 32 C. C. A. 585, 587, 61 U. S. App. 41, 45; Board v. Howard, 83 Fed. 296, 298, 27 C. C. A. 531, 533, 49 U. S. App. 642, 645; Barber Co. Com’rs v. Society for Savings, 41 C. C. A. 667, 101 Fed. 767. If upon any theory the bonds of a municipality can be valid, an innocent purchaser has the right to presume that they are so’ and that the recitals in them are true. E. H. Rollins & Sons v. Gunnison Co. Com’rs, 80 Fed. 692, 699, 26 C. C. A. 91, 98, 49 U. S. App. 399, 412; City of Evansville v. Dennett, 161 U. S. 434, 443, 446, 16 Sup. Ct. 613, 40 L. Ed. 760; Commissioners v. Potter, 142 U. S. 355, 363, 364, 12 Sup. Ct. 216, 35 L. Ed. 1040. Under the decision in Doon Tp. v. Cummins, 142 U. S. 367, 372, 378, 12 Sup. Ct. 220, 35 L. Ed. 1044, there was a legal method by which the city of Pierre could have ¡funded its floating indebtedness, although that indebtedness ex*617ceeded the constitutional limit. That method was by the exchange of the new obligations for the old ones, dollar for dollar. If this was the only method by which this funding could be lawfully accomplished the power was- granted to, and the duty imposed upon, the officers of the city to issue these bonds in this way, and their certificate that they had issued them in pursuance of the statute which authorized the funding was a declaration that they had funded the indebtedness by this exchange of securities. If they had pursued this method, the issue of these bonds would not have increased the indebtedness of their city, but would have simply changed the form of its obligations. The certificate in the bonds is, therefore, a representation that the issue of the bonds neither created nor increased the indebtedness of the city, but that it simply changed its form. Hughes Co. v. Livingston, 43 C. C. A. 541, 104 Fed. 306, 317; Board v. Platt, 79 Fed. 567, 569, 25 C. C. A. 87, 89, 49 U. S. App. 216, 220; E. II. Rollins & Sons v. Gunnison Co. Com’rs, 80 Fed. 692, 698, 26 C. C. A. 91, 98, 49 U. S. App. 399, 411; City of Huron v. Second Ward Sav. Bank, 86 Fed. 272, 278, 30 C. C. A. 38, 44, 57 U. S. App. 593, 605, 49 L. R. A. 534; Lyon Co. v. Keene Five-Cent Sav. Bank, 40 C. C. A. 391, 393, 100 Fed. 337, 339. This case is not governed by the decision in Boon Tp. v. Cummins, for the reason stated in City of Huron v. Second Ward Sav. Bank, 86 Fed. 272, 278, 30 C. C. A. 38, 45, 57 U. S. App. 593, 607, 49 L. R. A. 534, namely, because the holder of the bonds in that case was not a bona fide purchaser who could rely upon the certificate, while the plaintiff in this case is such. The cases of Dixon Co. v. Field, 111 U. S. 83, 4 Sup. Ct. 315, 28 L. Ed. 360, and Lake Co. v. Graham, 130 U. S. 674, 680, 9 Sup. Ct. 654, 32 L. Ed. 1065, in which it appeared upon the face of the bonds that the aggregate amount of the issue was in excess ,o£ the lawful limit of the indebtedness of the municipality, do not govern this case, because the amount of this issue ⅜25,000) was far within the limit of a debt of §48,033.25, which this city could lawfully incur. A funding of the indebtedness of a city, conducted in the legal method pointed out by the decisions of the courts, neither creates nor increases the indebtedness of the city. A certificate that bonds have been issued to fund such an indebtedness is a representation that the legal method has been pursued. Hence, where an innocent purchaser buys of others than the municipality and its agents negotiable bonds which recite that they \yere issued to fund the debt or the obligations of the municipality, the question of excessive indebtedness does not arise, and the purchaser is not required to consider or inquire concerning it. The certificate is in effect a representation that there has been no creation or increase of the debt of the municipality, but a mere change of its form. The plaintiff in this case had the right, in purchasing these bonds, to rely-upon the legal presumption and. the certificate of the officers of the city that they had accomplished the funding by the legal method; and now that the municipality has received the proceeds of the bonds, and the purchaser has parted with the price which he paid, for them in reliance upon this presumption and certificate, the city is estopped to show that its officers pursued an illegal method, or that its certificate is false, for the purpose of defeating its securities. The judgment below is affirmed.