Graves v. Saline County/Opinion of the Court

Under the authority of certain acts of the general assembly of the state of Illinois, and in pursuance of an election duly ordered and held according to law, and in payment of a subscription to stock in the St. Louis & Southeastern Railway Company, the county of Saline issued bonds to the amount of $25,000 bearing interest at the rate of 8 per cent., to the said railway company, bearing date January 1, 1872, payable 20 years after date. These bonds were delivered to the railway company February 1, 1872, and were purchased in open market by the appellants, for value, and without notice of any defense, prior to the year 1876.

The contract of subscription contained a condition that the said St. Louis & Southeastern Railway should pass, and a depot be established, within one-half mile of the old courthouse in Raleigh, and within one-half mile of the church in Galatia. The railroad was not constructed within the prescribed limits, but was constructed in said county in a different direction, and compliance with the said condition was waived by the board of commissioners of said county.

By the seventh section of the act of April 16, 1869, it is provided that 'any county, township, city or town shall have the right, when making any subscription or donation to any railroad company, to prescribe the conditions upon which such bonds and subscriptions or donations shall be made, and such bonds, subscriptions or donations shall not be valid and binding until such conditions precedent shall have been complied with.'

The constitution of Illinois, which took effect July 2, 1870, provides as follows: 'No county, city, town, township or other municipality shall ever become subscribers to the capital stock of any railroad or private corporation, or make donation to or loan its credit in aid of such corporation: provided, however, that the adoption of this article shall not be construed as affecting the right of any such municipality to make such subscriptions where the same have been authorized, under existing laws, by a vote of the people of such municipalities prior to such adoption.'

Such an election was held by the people of Saline county on October 9, 1868, and the subscription was made January 15, 1870.

The validity of these bonds so issued to the St. Louis & Southeastern Railway Company was continually recognized by the county of Saline by the payment of interest thereon, and by the refunding of the same into new bonds of the county in July, 1885; and the said county has always retained, and now has, the stock in said railway company.

This state of facts brings the case, as respects the bonds originally issued to the St. Louis & Southeastern Railway Company, clearly within the decision of this court in the precisely similar case of Insurance Co. v. Bruce, 105 U.S. 328, and where, per Mr. Justice Harlan, it was said:

'The statute did not make it obligatory on the town to impose conditions upon the performance of which its liability should depend. It conferred simply the right to do so, leaving the town at liberty to prescribe conditions or to make an unconditional subscription. Consistently with the statute, the town could issue and deliver bonds for the subscription in advance of the construction of any part of the road. But, when conditions were prescribed, good faith and the obligations which everywhere arise out of negotiable securities required-if the town intended to rely upon them-that the public, who were expected to buy the bonds or to advance money upon them, should be informed by their recitals that the town had exercised its statutory right to impose conditions upon its liability. The officers both of the town and the railroad company knew, however, that bonds could not be negotiated in the market did their recitals disclose the fact that payment depended upon conditions thereafter to be fulfilled by the railway company. To the end, therefore, that money might be raised for the construction of the proposed road, or in reliance upon the performance by the railroad company of the conditions imposed, the constituted authorities of the town and the officers or agents of the company co-operated in putting out bonds negotiable in form, and with recitals that gave no intimation even that the subscription was conditional. The fact that conditions had been prescribed was omitted in recitals full of everything necessary to induce the public to buy the bonds. The statement on the face of the bonds that they were issued by virtue of the statutes of April 15, 1869, and April 16, 1869,-the first of which contains an absolute requirement that the bonds be issued and delivered upon the subscription being voted, while the second gives the right, but does not make it imperative, to impose conditions,-and the further statement that the people had voted for subscription and to issue bonds therefor, fairly imported that nothing remained to be done in order to make the bonds binding obligations upon the town in the hands of bona fide purchasers. Under these circumstances, the town, by every principle of justice, is estopped, as against a bona fide holder, to plead conditions, the existence of which was withheld from the public, either to facilitate the negotiation of the bonds in the markets of the country, or because it had full confidence that the railway company would meet the prescribed conditions. It should not now be heard to make a defense inconsistent with the representations contained in the recitals upon its bonds, or upon the ground that the conditions imposed, of which purchasers had no notice, have not been performed.'

Similar conclusions were reached in the case of Oregon v. Jennings, 119 U.S. 74, 7 Sup. Ct. 124, where, citing Insurance Co. v. Bruce, it was held that bonds issued by the town of Oregon, a municipal corporation of the state of Illinois, in compliance with a vote of the people held prior the adoption of the Illinois constitution of 1870, in pursuance of a law providing therefor, were valid, although a condition as to the completion of the road was not complied with, because the recitals in the bonds were made by officers intrusted under the statute with the duty of determining whether the condition had been complied with, and the town was thereby estopped from asserting the contrary. The doctrine of the case of County of Jasper v. Ballou, 103 U.S. 745, is applicable. There it was held in a case arising, like this one, in the state of Illinois, that when the people of a county, at an election held under a refunding act, voted to issue new bonds to exchange for old ones, such a vote recognized the original bonds as binding and subsisting obligations, and that the county was therefore estopped from setting up that they were invalid because voted for at an election called by the board of supervisors instead of by the county court; and that where, at an election held according to law, the people of a county authorized their proper representatives to treat certain outstanding county obligations as properly authorized by law for the purpose of settling with the holders, and the settlement has been made, the validity of the obligations can be no longer questioned. There, as here, there was lawful power in the county to issue the original bonds, but there was an irregularity in the election having been called for by the wrong officers.

Applying these cases to the present one, we conclude that under the facts contained in the statement the bonds issued to the St. Louis & Southeastern Railway Company in July, 1872, were binding and subsisting obligations of Saline county, and, having been recognized as such by the county authorities in 1885, by lifting them with new bonds under the refunding act, the second question put to us by the circuit court of appeals must, as respects said new bonds, be answered in the affirmative.

The history of the bonds originally issued to the Belleville & Eldorado Railroad Company is somewhat different. These bonds were issued and delivered on April 19, 1877, after the decision of the supreme court of Illinois in the case of Town of Eagle v. Kohn, 84 Ill. 292. The nature and effect of that decision were thus described in the case of German Sav. Bank v. Franklin Co., 128 U.S. 538, 9 Sup. Ct. 159:

'That was a suit against the town of Eagle, brought by innocent holders for value, to recover on coupons cut from bonds issued by the town to a railroad company, December 1, 1870, in payment of subscription to stock in pursuance of a vote of the people of the town had November 2, 1869. In that vote certain conditions as to time had been prescribed, upon which the bonds should be issued. Those conditions had not been complied with. The question arose in the case whether the declaration of the statute that the bonds should not be valid and binding until such conditions precedent should have been complied with was to be confined in its operation to the railroad company to which the bonds should have been issued, or whether it extended to innocent holders for value. The court held that, although the statute did not declare that the bonds should be void, its declaration that they should not be valid and binding until the conditions precedent should have been complied with was an imperative and peremptory declaration; that the bonds should not be valid and binding until the conditions named should have been complied with, even in the hands of innocent holder without notice, and it declared the bonds to be invalid in the hands of the plaintiffs. This interpretation of section 7 of the act of April 16, 1869, accompanied all bonds subsequently issued into the hands of whoever took them, whether a bona fide holder or not. This court must recognize this decision of the supreme court of Illinois as an authoritative construction of the statute made before the bonds were issued, and to be followed by this court.' If the present case stood only on the footing of the original conditional contract of subscription we would be compelled to follow the holding of the supreme court of Illinois, and to hold that the original bonds were uncollectible even by innocent holdrers. But we have here an additional feature, not present in the case of German Sav. Bank v. Franklin Co., or in the case of Town of Eagle v. Kohn, and that is found in the fact that in the year 1885, in pursuance of the Illinois funding bond act, approved February 13, 1865, as amended by acts approved April 27, 1877, and June 4, 1879 (Laws Ill. 1879, p. 229), and in pursuance of a vote of a majority of the legal voters of Saline county as prescribed in said statutes, new bonds were issued, and registered in manner as directed in the law, and were delivered to the holders of the original bonds, which latter were surrendered and canceled. The county of Saline thereafter, until the year 1890, paid the annual interest on such new issue of bonds.

While it is true that the mere exchange of new bonds for old ones, and the payment of interest on the former, by the county authorities would not estop the county from challenging the validity of the new as well as that of the old bonds, yet we think it was competent for the county, in such a state of facts as here existed, by a vote of its people to waive the condition attached to the original subscription, and to estop itself from declining to be bound by the new negotiable securities. It must be admitted as well-settled law that, where there is a total want of power to subscribe for stock and to issue bonds in payment, a municipality cannot estop itself from raising such a defense by admissions, or by issuing securities negotiable in form, nor even by receiving and enjoying the proceeds of such bonds. So, too, it may be admitted that, even where the power to subscribe for stock and to issue bonds in payment was validly granted, yet where the right to exercise the power has been subjected to conditions prescribed by the legislature, the municipality cannot dispense with or waive such conditions.

But where the municipality is empowered to subscribe with or without conditions, as it may think fit, and where the conditions are such as it chooses to impose, there seems to be no good reason why it may not be competent for such municipality to waive such self-imposed conditions, provided, of course, such waiver is by the municipality acting as the principal, and not by mere agents or official persons. Such was the present case. The subscription was made on condition that the railroad should be commenced within one year and completed within three years from the date of the subscription, and it may be, under the doctrine of Town of Eagle v. Kohn, that the action of the board of commissioners in extending the period for commencing and finishing the railroad would not relieve the company from the condition, nor avail to estop the county as against bona fide holders of the bonds. But when, in pursuance of the funding laws, the question whether the outstanding original bonds issued to the Belleville & Eldorado Railroad Company should be refunded in new bonds was submitted to the same constituent body that authorized the original issue, and when, in accordance with the vote so taken, and in formal compliance with the other directions of the funding laws, negotiable securities were issued and delivered in payment of the outstanding bonds, we know of no principle of law which forbids the county of Saline from such honorable discharge of its liabilities in the hands of innocent holders. Such action on the part of the legal voters of Saline county may well be regarded as a declaration that there had been, by the actual construction of the railroad and the delivery of the stock, a substantial compliance with the original conditions. After such deliberate action, it is now too late for Saline county to seek the aid of a court of equity to enable it to avoid its contracts made in pursuance of a legislative grant of power, and the consideration of which has been received. In equity, time is usually not of the essence of the contract, and is never regarded as such when the contract has been fully executed, without objection. It may be fairly said that, while a municipal corporation may not ratify a contract into which it had no power to enter, and may not waive a condition put by the legislature upon the exercise of a given power, yet it may well waive a condition made by itself, and not a condition upon the exercise of the power. Such a waiver is not an attempt to ratify a void contract, but is rather an admission that the condition has been complied with in an equitable sense.

If these views are sound in respect to the bonds issued to the Belleville & Eldorado Railroad Company, they apply with stronger reason to the bonds issued to the St. Louis & Southeastern Railway Company, because the subscription to the stock of the latter company and the issue of bonds in payment took place before the decision of the case of Town of Eagle v. Kohn, and in circumstances, as we have seen, that rendered those bonds valid independently of the subsequent vote by Saline county to refund.

We therefore answer the second question put to us by the circuit court of appeals in the affirmative, and this renders a formal answer to the other questions unnecessary.