Buchanan v. Litchfield

ERROR to the Circuit Court of the United States for the Southern District of Illinois.

This was an action of assumpsit, brought Nov. 25, 1876, by Alexander Buchanan against the City of Litchfield, Illinois, to recover the amount of certain coupons of which it was admitted that he was the bona fide holder for value. The declaration, besides a count upon the coupons themselves, contains the usual counts for money lent and advanced, and for money had and received. The city defended the action upon the ground that the bonds were issued in violation of the Constitution of the State, and that they were consequently void. The court which, by the stipulation of the parties, tried the issue found for the defendant, and the plaintiff sued out this writ.

The legislature of Illinois passed, April 15, 1873, an act entitled 'An Act authorizing cities, incorporated towns, and villages to construct and maintain water-works,' by the first section of which act it is provided that all cities, incorporated towns, and villages in the State be, and are hereby, authorized and shall have power to provide for a supply of water for the purpose of fire protection and for the use of the inhabitants of such cities, incorporated towns, and villages, by the erection, construction, and maintaining of a system of waterworks.

The second section provides that such cities, incorporated towns, and villages may borrow money, and levy and collect a general tax in the same manner as other municipal taxes may be levied and collected, for the erection, construction, and maintaining of such water-works, and appropriate money for the same.

The city council, the legislative authority of the city, adopted, Dec. 4, 1873, an ordinance in the words following:--

'An Ordinance to provide for the issuing of Bonds for the Construction of the Litchfield Water-works.

'Be it ordained by the city council of the city of Litchfield:

'SECT. 1. That in accordance with the power conferred by section second of an act of the General Assembly of the State of Illinois, entitled 'An Act authorizing cities, incorporated towns and villages to construct and maintain water-works,' approved April 15, 1873, the mayor and city clerk are hereby authorized and instructed to issue not exceeding fifty thousand dollars in Litchfield water bonds, which bonds shall be used for borrowing money for the erection, constructing, and maintaining of water-works for the use of the people of said city of Litchfield.

'SECT. 2. That the said Litchfield water bonds shall be of the denomination of five hundred dollars each, shall be dated Jan. 1, 1874, and shall become due twenty years after said date, but may be redeemed at par at any time after the year 1878, notice being given at the Nassau Bank, in the city of New York, six months in advance of the intention so to redeem, and said bonds shall bear interest at the rate of ten per centum per annum, payable semi-annually at the said Nassau Bank in the city of New York.'

As required by the charter, the mayor of the city approved this ordinance, and after its adoption he and the city clerk made one hundred bonds of the denomination of $500 each, as follows, differing in the numbering from 1 to 100, inclusive.

'No. ___.] LITCHFIELD WATER BOND. [$500.00.

'CITY OF LITCHFIELD, STATE OF ILLS.

'The City of Litchfield, in the State of Illinois, for value received, promises to pay to Geo. Wm. Ballou or bearer five hundred dollars, in current money of the United States, at the Nassau Bank in the city of New York, twenty years after date, with interest thereon from the date hereof at the rate of ten per centum per annum, which interest shall be payable semi-annually in current money of the United States on presentation at said bank of the coupons hereto annexed: Provided, that the said city of Litchfield shall have the right to pay off and redeem this bond at its par value at any time after the year A. D. 1878, first giving said bank six months' notice in writing of the intention to so redeem.

'This bond is issued under authority of an act of the General Assembly of the State of Illinois, entitled 'An Act authorizing cities, incorporated towns, and villages to construct and maintain waterworks,' approved April 15, 1873, and in pursuance of an ordinance of the said city of Litchfield numbered 184, and entitled 'An Ordinance to provide for the issuing of bonds for the construction of the Litchfield water-works,' approved Dec. 4, 1873.

'In testimony whereof, the mayor of said city has hereunto set his hand and caused the corporate seal to be affixed, and the clerk of said city to countersign the same this first day of January A.D. 1874.

'W. S. PALMER, Mayor.

'B. S. HOOD, City Clerk.'

Coupons for the semi-annual interest were attached to the bonds, and the whole number, amounting to $50,000, were sold by the city for the purposes for which they were authorized. The plaintiff's coupons were due July 1, 1876.

The defendant then proved against the objection of the plaintiff, who insisted that such evidence was not admissible against him as the bona fide holder of the coupons, that the city of Litchfield is incorporated under a special law which defines its boundaries; that there was no assessment made of the taxable property within said city for the year 1873, separately, but that the city is within the limits of two municipal townships organized under the township organization laws of the State, one called North Litchfield and the other South Litchfield, each six miles square, and that the taxable property in the city was assessed for State and county taxes in the township in which it was situated and to which it belonged; that the property of the city as assessed for State and county taxes for the year 1873 was $1,400,000, which valuation was ascertained by the following method:--

The assessors of North and South Litchfield returned to the clerk of the county court the lists and value of the property assessed for taxation for the year 1873 in said townships respectively, which lists contained a description of all the lands, lots, and other real estate in said township, with the proper valuation opposite each tract or lot. With these lists and the plat of the city before him, the clerk was able to ascertain the description and value of all the real estate in the city, and by footing the value of the several lands and lots found within the city limits the aggregate value of all the real estate of the city was ascertained for the year 1873.

By another special law the city of Litchfield is made one school district, called the Litchfield school district. And it is a part of the legal duty of the township to note opposite the name of each owner of personal property assessed for taxation the school district in which he resides. That the assessors of North and South Litchfield for the year 1873 noted opposite the names of the owners of personal property in their township residing within the city limits that they resided in Litchfield school district, and the assessed value of the personal property of the city of Litchfield was ascertained by computing the value of all the personal property assessed for taxation in the school district.

That railroad property and the property of corporations were assessed by the State Board of Equalization, and the whole value of these species of property lying in Montgomery County (in which the city of Litchfield is situated) was certified by the auditor to the county clerk, and the proportion taxable in Litchfield was ascertained by the clerk.

That the assessment thus made by the town assessors of the towns of North and South Litchfield was the only assessment made, or authorized by law to be made, of the property situated in the city of Litchfield for State and county taxes for the year 1873, and which assessment for the purposes aforesaid was the last assessment for State and county taxes previous to the issuing and making of said bonds. That by compiling the assessments thus made the exact amount of the value of taxable property in said city of Litchfield for the year 1873, as assessed for State and county taxes, should be and is ascertained to be the said sum of $1,400,000.

It was proved that the debt of the city of Litchfield on and before the first day of January, 1874, exclusive of the water bonds, was $70,000.

Sect. 12 of art. 9, in force in 1870, of the Constitution of the State, is in these words: '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 per centum 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.'

Upon the trial the following questions arose:--

First, Whether said twelfth section of the ninth article of the Constitution of the State of Illinois, by its own force and terms, without appropriate legislation, limited or affected the otherwise lawful power of the city of Litchfield to issue the bonds and coupons, and sell the same to raise money for the construction of water-works according to the provisions of the act of April 15, 1873, and the ordinance of the city of Litchfield No. 184, in relation thereto, so as to render said bonds and coupons void as being in excess of five per cent including existing indebtedness on the value of taxable property in said city as ascertained by the last assessment for State and county taxes preceding the issue of such bonds.

Second, Whether the facts offered in evidence for the purpose of showing the value of taxable property in the city of Litchfield for the year 1873 are competent and sufficient to establish the value of taxable property therein, to be ascertained by the last assessment thereof, for State and county taxes previous to the issue of such bonds.

Third, Whether the said facts tending to prove that the said bonds, including the indebtedness of said city, exceed five per cent on the value of the taxable property of said city at the time they were issued, as ascertained in manner before stated, are admissible or competent as evidence in this case to impair the rights of the plaintiff as the bona fide holder of the coupons sued on.

And the opinion of the said judges being opposed upon the questions, the latter were duly certified to this court.

Mr. John M. Palmer and Mr. Frank Morison for the plaintiff in error.

The defence relied upon by the city is the nullity of the bonds by reason of her asserted absolute want of power to issue them. It rests upon the constitutional clause, that 'no county, city, &c., shall be allowed.' &c. The question arises, whether the clause operates proprio vigore upon municipal corporations, and imposes an actual limitation upon them, or whether it enjoins a duty upon the legislature, when either creating them or providing for the government and control of such as are already in existence. The sounder view, we submit, is that it requires for its enforcement legislation prescribing, under adequate penalties, the duties of the officers of a municipal corporation and declaring the mode by which those dealing with them may ascertain its indebtedness. None has been enacted.

But, conceding the clause to be self-operating, it does not unconditionally prohibit the city from contracting debts for the purposes enumerated in its charter, or in the act of April 15, 1873. That power is expressly granted, and the limitation upon it taking effect only under certain circumstances, the question as to when it may be lawfully exercised must be necessarily dependent upon the decision of the city council whether they do in fact exist. That body alone has access to the means by which they can be investigated and determined. The passage of the ordinance, so far as innocent third parties are concerned, was a final and authoritative declaration by those who were clothed with authority to make it, that no circumstances existed which precluded the exercise of that power. The bonds issued, whereon the money was raised to carry that ordinance into effect, are, therefore, valid securities in the hands of a bona fide holder for value. The city is as effectually estopped by their recitals as if the ordinance had declared in express terms, as it now does virtually and by necessary implication, that, at the time of its passage, her debt, including that thereby incurred, would not be in excess of the prescribed amount.

Under the well-settled rule of this court, that nothing but a total want of power renders this class of securities void in the hands of such a holder, bonds issued without proper formalities, bonds issued contrary to the provisions of the laws authorizing them, bonds fraudulently issued, stolen bonds, the proceeds of which never reached the municipalities issuing them, and bonds declared to be invalid by the courts of the States in which they were issued, have all been pronounced good here. The municipalities have been held to the payment of them, without regard to any equities which would constitute a good defence against a party who had notice of them. Commissioners of Knox County v. Aspinwall, 21 How. 539; Moran v. Miami County, 2 Black, 732; Mercer County v. Hacket, 1 Wall. 83; Mayor v. Muscatine, id. 384;, Kennicott v. Supervisors, 16 id. 452; Supervisors v. Schenk, 5 id. 784; County of Daviess v. Huidekoper, 98 U.S. 98; County of Schuyler v. Thomas, id. 169; County of Callaway v. Foster, 93 id. 567; County of Scotland v. Thomas, 94 id. 682; County of Warren v. Marcy, 97 id. 96; Cromwell v. County of Sac, 96 id. 51; Commissioners v. Bolles, 94 id. 104; Commissioners v. January, id. 202.

Marcy v. Township of Oswego (92 id. 637) was a suit on bonds issued under the authority of a statute of Kansas, which provided that they should not exceed such a sum as would require a levy of more than one per cent per annum to pay the yearly interest. Each recited that it was issued by virtue of and in accordance with that statute, and in pursuance of and in accordance with the vote of three-fifths of the legal voters of the township. A recovery was resisted, upon the ground that the authorized amount was exceeded; but this court held the bonds to be valid in the hands of a bona fide holder, and remarked: 'It is to be observed that every prerequisite fact to the execution and issue of the bonds was of a nature that required examination and decision. The existence of sufficient taxable property to warrant the amount of the subscription and issue was no more essential to the exercise of the authority conferred upon the board of county commissioners than was the petition for the election, or the fact that fifty freeholders had signed, &c. These are all extrinsic facts, bearing not so much upon the authority vested in the board to issue the bonds, as upon the question whether that authority should be exercised.'

The bonds now in question recite that they are issued under the authority of an act of the General Assembly and pursuant to an ordinance of the city. The cases are not distinguishable in principle. The only difference in point of fact is that the prohibition in one is declared by statute, and in the other by a constitutional provision. It is hardly necessary to say that a law passed pursuant to the Constitution has, while it remains in force, the same binding efficacy as the Constitution itself.

In Humboldt Township v. Long (id. 642), which was governed by the same statute, the required notice of the popular election was not given. This court, however, reaffirming the doctrines of Marcy v. Township of Oswego, ruled, in view of the recitals in the bonds,-and they are not substantially different in effect from those in the present case,-that the township was liable. Unless the vote cast at such an election was in favor of the issue of the bonds, the commissioners were not authorized to order it. Their decision that the election had been duly held, although only inferrible from their order for the issue, was regarded as conclusive. So here, under the statute of Illinois and her Constitution, giving to the latter the broadest effect, it was a condition precedent to the power of the city council that certain facts, peculiarly if not exclusively within its knowledge, should exist, but which a third party had no means of ascertaining. The exercise of the power was a decision by the appointed tribunal that such facts existed. We may therefore insist, in the language of Mr. Justice Strong, that 'the bonds are not invalid by reason of their having been voted and issued in excess of the statutory (constitutional) limit.' Wilson v. Salamanca (99 id. 499) is to the same effect, and the decisions here contain nothing in conflict therewith.

If the city had contracted with a party to erect the water-works, she, after accepting them and enjoying the benefit and protection which they afford, could not set up that the contract entailed upon her a debt in excess of the amount she was allowed to incur. Union Water Co. v. Murphy's Flat Fluming Co., 22 Cal. 650; Whitney Arms Co. v. Barlow et al., 63 N. Y. 62. The bondholders' case is as meritorious as his, because their money was, in this instance, faithfully applied to the construction and maintenance of those works.

Again, if the city, with a knowledge of her then indebtedness, passed the ordinance, sold the bonds, and received into her treasury the money therefor, can she set up her own fraud to exempt her from liability to pay it? The doctrine of ultra vires has no application to such a case, and she, to the same extent as an individual, is liable for the acts of her servants, who, in their appropriate sphere of duty, are engaged in the transaction of her business.

No assessment of the taxable property of the city of Litchfield was made or authorized to be made in the year 1873, and the value of that property was, therefore, not 'ascertained,' as provided for in the constitutional provision.

This being so, the remaining evidence shows that the valuation of the towns of North and South Litchfield was ascertained by their assessors; that other officers ascertained the value of the railroad property, and still others that of the school property in a part of the county in which Litchfield is situated; and that, by compiling these different returns, the assessable valuation of the property in the city of Litchfield may be determined.

It is not in evidence that it was the duty of any city officer to so compile these various returns, or that any authorized person ever did so; but the court is now asked to do it, and so far constitute itself a city functionary as to make from these returns an estimate of the taxable value of the then property in the city.

The fact indispensable to make out the defendant's case on this point is the ascertained taxable value of this property in 1873. The evidence shows that it never was ascertained.

Mr. A. L. Knapp, contra.

MR. JUSTICE HARLAN, after stating the case, delivered the opinion of the court.