Board County Commisioners of Chaffee County v. Potter/Opinion of the Court

This was an action by Andrew Potter, a citizen of Massachusetts, against the board of county commissioners of Chaffee county, Colo., on a large number of interest-bearing coupons attached to certain bonds issued by that county, in 1882, for the purpose of funding its floating indebtedness.

The following is a copy of one of the bonds and coupons: 'No. ___. $1,000. United States of America, County of Chaffee, State of Colorado. Funding Bond. (Series A.) The county of Chaffee, in the state of Colorado, acknowledges itself indebted and promises to pay to _____ or bearer one thousand dollars, lawful money of the United States, for value received, redeemable at the pleasure of said county after ten years, and absolutely due and payable twenty years from the date hereof, at the office of the treasurer of said county, in the town of Buena Vista, with interest thereon at the rate of eight per cent. per annum, payable semi-annually on the first day of March and the first day of September in each year, at the office of the county treasurer aforesaid, or at the banking-house of Kountz Brothers, in the city of New York, at the option of the holder, upon the presentation and surrender of the annexed coupons as they severally become due. This bond is issued by the board of county commissioners of said Chaffee county, in exchange at par for valid floating indebtedness of the said county, outstanding prior to August 31, 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 dulyqualified electors of the said county of Chaffee 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 Chaffee are hereby pledged for the punctual payment of the principal and interest of this bond. In testimony whereof the board of county commissioners of the said county of Chaffee have caused this bond to be signed by their chairman, countersigned by the county treasurer, and attested by the county clerk under the seal of the county, this first day of December, A. D. 1882. _____, Chairman Board of County Commissioners. Attest: _____, County Clerk, [County Seal.] Countersigned: _____, County Treasurer.'

'$_____. (Coupon.) $_____.

'The county of Chaffee, in the state of Colorado, will pay     the bearer _____ dollars at the office of the county      treasurer, in the town of Buena Vista, or at the      banking-house of Kountz Brothers, in the city of New York, on      the first day of ___, being six months' interest on funding      bond. No. ___, Series ___. E. B. JONES, County Treasurer.'

The plaintiff, as the holder of a large number of the coupons of each series, alleged in his declaration that all the proceedings required by the statutes of the state to be taken in the matter of the issue and registration of the bonds had been taken before the bonds were put on the market, that the bonds were therefore legal in all respects as valid obligations of the county, and that, as the bona fide holder for value of the interest coupons, he had presented them for payment at the place required, and payment had been refused. Wherefore he prayed judgment for the amount of said coupons, with interest; in all, $9,648.

The defenses set up in the answer were that the bonds had not been authorized by a vote of the qualified voters of the county, and no bonds had been authorized to be exchanged for the warrants of the county, and the board, therefore, never had any jurisdiction to issue them; that the bonds, and each of them, were issued in violation of section 6, art. 11, of the constitution of the state, and the debt which they assumed to fund was contracted in violation of said provision of the constitution; and that the bonds were issued by the board of county commissioners without any consideration valid in law, as plaintiff well knew when he received the coupons sued on.

A demurrer to the answer, on the ground that it was not a sufficient defense to the action, was sustained by the circuit court, and, the defendants electing to stand by their pleading, judgment was entered in favor of the plaintiff for the full amount of his claim, with interest. 33 Fed. Rep. 614. This writ of error is prosecuted to review that judgment.

The ground upon which the circuit court based its decision and judgment was that the county should be estopped, by the recitals in the bonds, from pleading the defenses set up in the answer.

The act of the legislature under the authority of which the bonds were issued is set out in the margin. It is the same act under which certain bonds were issued by Lake county, Colo., which bonds were under consideration in Lake Co. v. Graham, 130 U.S. 674, 9 Sup. Ct. Rep. 654. The bonds in that case were quite similar to those now under consideration, differing only, as regards their recitals, in this: that the bonds here contain the additional recital that 'the total amount of this issue does not exceed the limit prescribed by the constitution of the state of Colorado,' and do not show upon their face, as did those in that case, how many bonds were issued, or how large each series was.

The provision of the constitution of 1876, referred to, both in this case and in that, (article 11, § 6,) is as follows:

'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 the 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 such 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.'

We held in that case that the county was not estopped from pleading the constitutional limitation, because there was no recital in the bonds in regard to it, and because, also, the bonds showing upon their face that they were issued to the amount of $500,000, the purchaser, having that data before him, was bound to ascertain from the records the total assessed valuation of the taxable property of the county, and determine for himself, by a simple arithmetical calenlation, whether the issue was in harmony with the constitution; and that the bonds, having been issued in violation of that provision of the constitution, were not valid obligations of the county. Our decision was based largely upon the ruling of this court in Dixon Co. v. Field, 111 U.S. 83, 4 Sup. Ct. Rep. 315. To the views expressed in that case we still adhere; and the only question for us now to consider, therefore, is: Do the additional recitals in these bonds, above set out, and the absence from their face of anything showing the total number issued of each series, and the total amount in all, estop the county from pleading the constitutional limitation?

In our opinion, these two features are of vital importance in distinguishing this case from Lake Co. v. Graham and Dixon Co. v. Field, and are sufficient to operate as an estoppel against the county. Of course, the purchaser of bonds in open market was bound to take notice of the constitutional limitation on the county with respect to indebtedness which it might incur. But when, upon the face of the bonds, there was an express recital that that limitation had not been passed, and the bonds themselves did not show that it had, he was bound to look no further. An examination of any particular bond would not disclose, as it would in the Lake Co. Case and in Dixon Co. v. Field, that, as a matter of fact, the constitutional limitation had been exceeded in the issue of the series of bonds. 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. True, if a purchaser had seen the whole issue of each series of bonds, and then compared it with the assessment roll, he might have been able to discover whether the issue exceeded the amount of indebtedness limited by the constitution. But that is not the test to apply to a transaction of this nature. It is not supposed that any one person would purchase all of the bonds at one time, as that is not the usual course of business of this kind. The test is, what does each individual bond disclose? If the face of one of the bonds had disclosed that, as a matter of fact, the recital in it, with respect to the constitutional limitation, was false, of course the county would not be bound by that recital, and would not be estopped from pleading the invalidity of the bonds in this particular. Such was the case in Lake Co. v. Graham and Dixon Co. v. Field. But that is not this case. Here, by virtue of the statute under which the bonds were issued, the county commissioners were to determine the amount to be issued, which was not to exceed the total amount of the indebtedness at the date of the first publication of the notice requesting the holders of county warrants to exchange their warrants for bonds, at par. The statute, in terms, gave to the commissioners the determination of a fact,-that is, whether the issue of bonds was in accordance with the constitution of the state and the statute under which they 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, Id. 494; Marcy v. Township of Oswego, Id. 637; Wilson v. Salamanca Tp., 99 U.S. 499; Buchanan v. Litchfield, 102 U.S. 278; Northern Bank v. Porter Tp., 110 U.S. 608, 4 Sup. Ct. Rep. 254.

The rule respecting the binding force of recitals in bonds is well stated in Town of Coloma v. Eaves, as follows: 'Where legislative authority has been given to a municipality, or to its officers, to subscribe for the 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 in 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.' 92 U.S. 491.

In Buchanan v. Litchfield, while holding that the bonds were in excess of the amount that could be legally issued, and that the recitals in the bonds were not sufficient to estop the municipality from pleading a want of authority to issue them, the court say: '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 on 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.' And again: '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 or statement, as to the extent of its existing indebtedness.' 102 U.S. 292.

We think this case comes fairly within the principles of those just cited; and that it is not governed by Dixon Co. v. Field and Lake Co. v. Graham, but is distinguishable from them in the essential particulars above noted. Judgment affirmed.

Mr. Justice GRAY dissented.