Town of Pana v. Bowler/Opinion of the Court

by William Burnham Woods

United States Supreme Court

107 U.S. 529

Town of Pana  v.  Bowler

The people of the township of Pana voted almost unanimously for the donation to pay which the bonds in this case were issued. There is no pretense of any fraud in their issue. It is not disputed that the railroad company complied on its part with all the conditions upon which the bonds were to be issued to it, or that the township has received all it bargained for in consideration of the issue of the bonds. The bonds were registered in the office of the auditor of public accounts, where no bonds could be registered according to law unless the election authorizing the donation for which the bonds were issued had been held in pursuance of the statute, and the sworn certificate of the supervisor of the township to that effect had been filed with the auditor. The township has paid the interest on the bonds for three years. Under these circumstances, if the bonds and coupons are in the hands of bona fide holders for value, the defenses through which the township can escape liability will be reduced to narrow limits. The charter of the Illinois Southeastern Railway Company declared that any town in any county under township organization might donate to said company any amount not to exceed $30,000. The question is raised by the first assignment of error whether this limit was removed by the amendatory act of February 24, 1869. We think it was.

Section 10 of the act last named is an entire revision of sections 9 and 10 of the original charter of the company. The original charter authorized townships only to make donations to the railroad company, and it required that the railroad, or some part of it or its branches, should be completed before the donation was paid. It did not authorize the issue of bonds to pay the donations, but required the assessment and collection of a tax upon all the taxable property of the town for that purpose.

The amendatory act authorized noy only townships, but also villages, cities, and counties along the route of the railroad to make donations to the company. It prescribed an entirely different condition precedent to the making of a donation, and required the issue of bonds to pay the donation when made, and it did not require the completion of the railroad, or any part of it, before the bonds were issued. It did not limit the amount which might be donated to $30,000, but declared that if a majority of the votes cast at the election provided for by the act should be in favor of donation, the corporate authorities of the village, city, county, or township, as the case might be, should donate to the company the amount so voted at said election, and issue bonds in payment thereof. It thus appears that the section 10 of the amendatory act covered the entire subject embraced by sections 9 and 10 of the original act. It related to the same railroad company; it prescribed different methods of procedure in reference to the same subject, and embraced entirely new provisions, thus plainly showing that it was intended as a substitute, pro tanto, for the original act. Section 10 of the amendatory act, therefore, operated as a repeal by implication of sections 9 and 10 of the original act, and removed the restriction limiting to $30,000 the amount which could be donated by a township to the railroad company. U.S. v. Tynen, 11 Wall. 88; Henderson's Tobacco, Id. 652; Murdock v. Memphis, 20 Wall. 590; King v. Cornell, [1 SUP. CT. REP. 312,] decided at the present term.

The next question raised by the assignments of error relates to the power of the township of Pana, under the circumstances of this case, to issue the bonds in question. This court has decided in the case of Harter v. Kernochan, 103 U.S. 562, that bonds issued by the township of Harter, dated April 1, 1880, signed by the supervisor and countersigned by the clerk of the township, reciting that they were issued in pursuance of the acts of February 25, 1867, and February 24, 1869, which are the acts relied on in this case, and in pursuance of an election of the legal voters of the township held on November 10, 1868, were valid obligations of the township.

The power of the township of Pana, under the same acts, to issue bonds to pay its donation to the same railroad company, is, therefore, settled beyond dispute, unless what the plaintiff in error insists was a defect in the method of conducting the election by which the donation was voted, is fatal to the authority of the officers of the township to issue the bonds. This defect was that the election was presided over and the returns made, not by the supervisor, assessor, and collector of the township, ex officio judges of elections, but by a moderator chosen by the electors present.

It is insisted by the plaintiff in error that, as the constitution of Illinois, adopted July 2, 1870, by its second additional section, cut off the power of any township or other municipality to subscribe to the capital stock of, or make a donation to, any railroad company, except when such subscription or donation had been authorized under existing laws, by a vote of the people of the municipality prior to the adoption of the constitution, and as, by reason of the defect just mentioned, there was no legal election, it follows that there was no authority in the officers of the township of Pana to make the donation or issue the bonds in question in this case, and that the bonds are not binding on the township. We cannot assent to this conclusion.

It is clear that this case in nowise differs from other cases where the holding of an election and a vote of the people in favor of an issue of bonds is made by law a condition precedent upon which the authority to issue bonds rests.

The bonds in question in this case recite on their face that they were issued by the township, in compliance with the vote of the legal voters thereof, at an election held on April 30, 1870, under and by virtue of the authority conferred by acts of the general assembly of the state of Illinois, specifying the acts of February 26, 1867, and February 24, 1869, above mentioned.

This court has again and again decided that if a municipal body has lawful power to issue bonds or other negotiable securities, dependent only upon the adoption of certain preliminary proceedings, such as a popular election of the constituent body, the holder in good faith has the right to assume that such preliminary proceedings have taken place, if the fact be certified on the face of the bonds by the authorities whose primary duty it. Lynde v. The County, 16 Wall. 6; Town of Coloma v. Eaves, 92 U.S. 484; Com'rs Johnson Co. v. January, 94 U.S. 202; Douglas Co. v. Bolles, Id. 104; Co. of Warren v. Marcy, 97 U.S. 96.

The authority to issue the bonds in question in this case, resting upon the fact that an election was held in pursuance of law before a certain date, namely, the date when the constitution of 1870 was adopted, and the bonds reciting on their face the fact that the election was so held before the date mentioned, the circumstance that the election was irregularly conducted can be of no avail as a defense to the bonds in a suit brought by a bona fide holder.

Our attention has been called to the decision of the supreme court of Illinois in the case heretofore mentioned and reported as Lippincott v. Town of Pana, in 92 Ill. 24, which it was held that the election relied on in this case as the authority for the issue of the bonds was absolutely void, and the issue of the bonds was, therefore, without authority. Our attention is also called to the cases of People v. Santa Anna, 67 Ill. 57, and People v. Town of Laenna, Id. 65, where similar elections under a like statute were held void. These last two cases were decided before the bonds in this case were issued. They were, however, suits brought to restrain the issue of bonds by the township officers, on account of the irregularities in the election. The rights of bona fide holders could not, therefore, arise, and were not passed on in those cases. But in the case first mentioned the bonds had been issued, and were presumptively in the hands of bona fide holders. Nevertheless, the supreme court of Illinois held the bonds to be void in whosoever hands they might be.

It is insisted that this court is bound to follow this decision of the supreme court of Illinois and hold the bonds in question void. We do not so understand our duty. Where the construction of a state constitution or law has become settled by the decision of the state courts, the courts of the United States will, as a general rule, accept it as evidence of what the local law is. Thus, we may be required to yield against our own judgment to the proposition that, under the charter of the railway company, the election in this case, which was held under the supervision of a moderator chosen by the electors present, was irregular and therefore void. But we are not bound to accept the inference drawn by the supreme court of Illinois, that, in consequence of such irregularity in the election, the bonds issued in pursuance of it by the officers of the township, which recite on their face that the election was held in accordance with the statute, are void in the hands of bona fide holders. This latter proposition is one which falls among the general principles and doctrines of commercial jurisprudence, upon which it is our duty to form an independent judgment, and in respect of which we are under no obligation to fllow implicitly the conclusions of any other court, however learned or able it may be. Swift v. Tyson, 16 Pet. 1; Russell v. Southard, 12 How. 139; Watson v. Tarpley, 18 How. 517; Butz v. Muscatine, 8 Wall. 575; Boyce v. Tabb, 18 Wall. 546; Oates v. Nat. Bank, 100 U.S. 239; Railroad Co. v. Nat. Bank, 102 U.S. 14. See, also, Burgess v. Seligman, [ante, 10,] decided at the present term, where the question, how far the courts of the United States are bound by the decisions of the state courts, is carefully re-examined, and the rule on the subject stated with precision.

We cannot follow the decision of the supreme court of Illinois in Lippincott v. Town of Pana, ubi supra, without overruling a uniform current of the decisions of this court, beginning with the case of Com'rs Knox Co. v. Aspinwall, in 21 How. 539, and continuing down to the present time. The rights of the bona fide holder of negotiable municipal bonds, as we have stated them in this opinion, are too firmly settled by the decisions of this court to be shaken.

Our conclusion is, therefore, that the bonds in question in this case are valid in the hands of a bona fide holder, notwithstanding the irregularity in the conduct of the election by which they were claimed to be authorized.

The next question presented by the assignments of error is, does the irregularity in the conduct of the election throw on the plaintiffs the burden of proving that they are holders for value?

It is a general rule that when the holder of a negotiable instrument, regular on its face and payable to bearer, produces it in a suit to recover its contents, and the same has been received in evidence, there is a prima facie presumption that he became the holder of it, for value at its date, in the usual course of business. Murray v. Lardner, 2 Wall. 110; Bank of Pittsburgh v. Neal, 22 How. 96; Collins v. Gilbert, 94 U.S. 753; Brown v. Spofford, 95 U.S. 474. And municipal bonds, payable to bearer, are subject to the same rules as other negotiable paper. Cromwell v. Sac Co. 96 U.S. 51.

But the plaintiff in error insists that this case falls within an exception to that rule, and cites to sustain his position the cases of Smith v. Sac Co. 11 Wall, 139, and Stewart v. Lansing, 104 U.S. 505. The exception relied on by plaintiff in error is well settled, and is this: If, in a suit brought by the indorsee or transferee of a negotiable instrument, the maker or acceptor, or any party who is primarily bound by the original consideration, proves that there was fraud or illegality in the inception of the instrument, the burden of proof is thrown on the plaintiff to show that he is a holder for value. Smith v. Sac Co. and Stewart v. Lansing, ubi supra; Com'rs v. Clark, 94 U.S. 285; Collins v. Gilbert, Id. 753; Fitch v. Jones, 5 El. & Bl. 238; Smith v. Brane, 16 Q. B. 244; Hall v. Featherstone, 3 Hurl. & N. 284; Bailey v. Bidwell, 13 Mees. & W. 73; Vathir v. Zane, 6 Grat. 246; Hutchinson v. Boggs, 28 Pa. St. 294; Perrin v. Noyes, 39 Me. 384; Cottle v. Cleaves, 70 Me. 256; Sistermans v. Field, 9 Gray, 331; Woodhull v. Holmes, 10 Johns. 231; Thompson v. Armstrong, 5 Ala. 383; Harbison v. Bank of Indiana, 28 Ind. 133; Fuller v. Hutchings, 10 Cal. 526; Redington v. Wood, 45 Cal. 406; Conley v. Winsor, 41 Mich. 253; Sloan v. Union Banking Co. 67 Pa. St. 470; Holme v. Karsper, 5 Binn. 469; Vallett v. Parker, 6 Wend. 615; Munroe v. Cooper, 5 Pick. 412; 1 Daniel, Neg. Inst. (3d Ed.) § 815.

In most of the cases above cited the defense relied on was fraud in the inception of the instrument. Thus, in the case of Smith v. Sac Co. 11 Wall. 139, the report shows that the bonds were issued to a contractor to pay for the building of a court-house; that the county judge who executed and delivered the bonds was bribed to do so; and that the court-house never was built.

In the case of Stewart v. Lansing, 104 U.S. 505, the county judge, assuming to act under authority of a law of the state, rendered a judgment appointing commissioners to execute bonds of the town of Lansing. This judgment was carried by certiorari to the supreme court and there reversed. The county judge, the commissioners, and the railroad company to which the bonds were ordered to be issued, all has notice of the writ of certiorari and of the subsequent proceedings under it. Before the judgment of reversal, however, the commissioners, notwithstanding the pendency of the writ of certiorari, issued the bonds in suit in the case, taking from the railroad company an obligation for their personal indemnity. This court held that, as between the railroad company and the town, the judgment of reversal was equivalent to a refusal by the county judge to make the original order, and invalidated the bonds.

There is no pretense of any fraud in the inception of the bonds in question in this case. It is not denied that they were issued in good faith and for a valuable consideration. The question, then, is, was the irregularity in the conduct of the election such an illegality as throws on the plaintiff the burden to show that he paid value for the coupons? We are clearly of opinion that it is not.

It will appear from an examination of the cases above cited, in which the defense was illegality in the inception of the instrument, that the illegality which shifts the burden of proof on the holder to prove that he paid value, must be something which relates to the consideration of the paper sued on. It must appear that the consideration arose out of a transaction contrary to law, or against public policy. Thus, in the case of Sistermans v. Field, 9 Gray, 333, the illegality which the court held threw the burden on the plaintiff of proving that he gave value for the notes sued on, was the fact alleged by the defendant that they were given in payment for intoxicating liquors sold by the payees of the notes to the defendant in violation of law. Precisely the same illegality was held in the case of Cottle v. Cleaves, 70 Me. 256, to throw upon the plaintiff, who was indorsee, the burden of showing that he paid value for the note.

*So in Fuller v. Hutchings, 10 Cal. 526, the paper sued on was given for losses at a public banking game called 'faro.' Gaming was prohibited by statute. It was declared by the laws of California to be a felony in the keeper of the game and a misdemeanor in the player. In this case the court held that, the illegal consideration being admitted, it devolved upon the plaintiff to show that he took the paper without notice and for value.

In the case of Bailey v. Bidwell, 13 Mees. & W. 73, it was alleged, as a matter of defense, that the consideration for the note sued on was an agreement that the payee should not oppose a petition in bankruptcy filed by the defendant, the maker of the note, and that the note was indorsed to the plaintiff without value. The court, by Baron PARKE, held the rule to be that if the note was proven to have been obtained by fraud, or affected by illegality, that afforded a presumption that the person who had been guilty of the illegality would dispose of it, and place it in the hands of another person to sue on it, and that such proof casts upon the plaintiff the burden of showing that he was a bona fide indorsee for value.

In Fitch v. Jones, 5 El. & Bl. 238, the note which was sued on by an indorsee was given for a wager on the hop duty. This, the court said, was not within the statute of Anne or any other statutes which prohibit wagers. There was no penalty imposed for such a wager; and, therefore, as between the maker and payee, there was no illegality or violation of law, but it was a mere nudum pactum. And the court held that the defendant was bound to prove his plea by showing that the plaintiff did not give value for the note.

The authorities illustrate the rule and show that it does not apply to this case. There was no illegality whatever in the consideration of the bonds in question in this suit. The mere irregularity in the conduct of the election was not such an illegality as is contemplated by the rule, and does not deprive the holder of the coupons of the presumption that he acquired them for value.

The next contention of the plaintiff in error is that the decree of the circuit court of Christian county, Illinois, by which the bonds in question were declared void, is binding upon the plaintiffs in this case, and is a bar to the action upon the coupons sued on. The plaintiffs in this case are citizens of the state of Maine. It is sought to bind them by a decree rendered in a proceeding purely in personam in a case in which they were not named as parties, when there was no personal service upon or appearance by them, and when the only pretense of notice to them of the pendency of the suit was a publication addressed to the 'unknown holders and owners of bonds issued by town of Pana.' It is contended that, under the statutes of Illinois, parties may be thus brought in and a valid personal decree rendered against them. Whatever may be the effect of such a decree upon citizens of the state of Illinois, this court has held that, as to non-residents, it is absolutely Cooper v. Reynolds, 10 Wall. 308; Pennoyer v. Neff, 95 U.S. 714; Brooklyn v. Ins. Co. 99 U.S. 370; Empire v. Darlington, 101 U.S. 92.

In a case decided at the present term it was declared by this court, speaking by Mr. Justice FIELD, that 'the courts of the United States only regard judgments of the state courts establishing personal demands as having validity or importing verity when they have been rendered upon personal citation of the party, or upon his voluntary appearance.' St. Clair v. Cox, 106 U.S. 350; [S.C.. 1 SUP. CT. REP. 354.]

These authorities settle the rule which is conclusive of this question. It would be a reproach to jurisprudence if the rights of citizens of Maine to recover the contents of a chose in action, held and owned by them, could be cut off by a suit in Illinois to which they were not made parties by name, and in which there was no presonal service or appearance.

It is insisted by counsel for plaintiff in error that the decree of the appellate court recites the fact that the persons made defendant under the designation of 'the unknown holders and owners of bonds and coupons of the town of Pana,' which includes the defendants in error, appeared in that court, and that they are, therefore, concluded by the decree in the case. There is no pretense that there was any appearance in fact of the parties referred to. It is sought to conclude them by a loose expression in the decree, which, in our opinion, was clearly not intended to recite their appearance, and is not fairly open to such a construction.

Lastly, it is assigned for error that, in computing the amount due upon the coupons described in the declaration, the court allowed 7 per cent. interest, the legal rate in New York, where the coupons were payable, instead of 6 per cent., the legal rate in Illinois, where they were made. There was no error in this. The coupons, after their maturity, bore interest at the rate fixed by the law of the place where they were payable. Gelpcke v. Dubuque, 1 Wall. 175. What we have said covers all the assignments of error. We find no error in the record. The judgment of the circuit court must, therefore, be affirmed.

Notes