City of Santa Cruz v. Waite

• Decision Date: 04 December 1899
• Docket Number: 505.
• Citation: 98 F. 387
• Parties: CITY OF SANTA CRUZ v. WAITE.
• Court: U.S. Court of Appeals — Ninth Circuit

98 F. 387

CITY OF SANTA CRUZ v. WAITE.

No. 505.

United States Court of Appeals, Ninth Circuit.

December 4, 1899

John Garber and Carl E. Lindsay, for plaintiff in error.

Chickering Thomas & Greggory, and Wm. Thomas, for defendant in error.

Before GILBERT and ROSS, Circuit Judges, and HAWLEY, District Judge.

ROSS Circuit Judge.

The constitution of California provides for the classification of municipal corporations. The plaintiff in error (defendant in the court below) is, and was at all the times mentioned in the record, a municipal corporation of the fifth class organized and existing under and by virtue of a statute of the state of California, approved March 31, 1866 (St 1865-66, p. 547), entitled 'An act to incorporate the town of Santa Cruz,' and an act supplemental thereto approved March 11, 1878, entitled 'An act to reincorporate the city of Santa Cruz' (St. 1878, p. 189). The present is an action at law to recover the amount alleged to be due on 9 refunding bonds, alleged to have been issued by the city of Santa Cruz on the 16th day of April, 1894, under and by virtue of an act of the state of California approved March 1, 1893, and entitled 'An act to amend an act entitled 'An act to authorize the common council, board of trustees, or other governing body of any incorporating city or town, other than cities of the first class, to refund its indebtedness, issue bonds therefor, and provide for the payment of the same,' approved March 15, 1883' (St. 1893, p. 59). While the suit directly involves only the amount alleged to be due upon the bonds and coupons mentioned, it necessarily involves the validity of the entire issue under that act, consisting of 360 bonds of $1,000 each, purporting to have been issued at the same time. It appears from the findings of the court below that on February 26, 1894, the city of Santa Cruz had an outstanding bonded indebtedness of $271,000, or thereabouts, and was also the owner of certain waterworks, and necessary appurtenances thereto, including land, water rights, etc., theretofore purchased by it from the City Water Company of Santa Cruz, a private corporation. The waterworks and appurtenant property were subject to a mortgage, which had been placed thereon by the City Water Company of Santa Cruz for the purpose of securing an outstanding bonded indebtedness of that corporation in the sum of $89,000 and interest thereon. On the said 26th day of February, 1894, the common council of the city, deeming it for the best interests of the city to refund its bonded indebtedness under the provisions of the act of March 1, 1893, adopted an ordinance, which was duly approved by the mayor, providing for a special election to be held in the city of Santa Cruz on the 13th day of March, 1894, at which there should be submitted to its qualified electors the question of refunding the outstanding bonded indebtedness of the city. The indebtedness which it was thus proposed to refund was described in the ordinance as consisting not only of certain bonds of the city, amounting to the sum of $271,000, but also 'eighty-nine (89) first mortgage bonds (with interest thereon from November 1, 1893) of the corporation, the City Water Company of Santa Cruz, heretofore issued by said corporation, the City Water Company of Santa Cruz, which bonds bear date May 1, 1890, and are of the denomination of one thousand ($1,000) dollars each, and bearing interest at the rate of six (6) per cent. per annum, payable semiannually, and are secured by a mortgage or deed of trust upon the property known as the 'City Waterworks of Santa Cruz,' executed by the City Water Company of Santa Cruz, as party of the first part therein, to the Holland Trust Company of New York, as trustee, party of the second part therein; and which said bonds outstanding were, at the time of the conveyance by the City Water Company of Santa Cruz to the City of Santa Cruz of the property known as the 'City Waterworks,' and now are, a valid lien and charge upon the said property known as the 'City Waterworks,' and became thereby a part of the bonded indebtedness of the city of Santa Cruz. ' More than two-thirds of the qualified electors of the city voted at the special election thus called in favor of the proposition to refund the then outstanding bonded indebtedness, as described in the ordinance, and thereafter, to wit, on March 26, 1894, the common council of the city passed, and its mayor approved, an ordinance for the purpose of carrying into effect the will of the electors as expressed at the election. This ordinance provided for the issuance of 360 interest-bearing bonds of the city of the denomination of $1,000 each, and also directed that said bonds should be signed by the mayor and city clerk, and should contain the following recitals:

'This bond is one of a series of bonds of like date, tenor, and effect, issued by the said city of Santa Cruz for the purpose of refunding the bonded indebtedness of said city, and issuing bonds therefor, and providing for the payment of the same under, and in pursuance of, and in conformity with the provisions of an act of the legislature of the state of California, 'An act to amend an act entitled 'An act authorizing the common council, board of trustees, or other governing body of any incorporated city or town, other than cities of the first class, to refund its indebtedness, issue bonds therefor, and provide for the payment of the same' (approved March 15, 1883), ' approved March 1, 1893, and in pursuance of and in conformity with the constitution of the state of California and the ordinances of the city of Santa Cruz, and in pursuance of and conformity with a vote of more than two-thirds of all the qualified electors of said city of Santa Cruz voting at a special election duly and legally called the thirteenth day of March, 1894, notice thereof having been duly and legally given and published in the manner as required by law, and after the result of said election had been duly canvassed, found, and declared in the manner and as required by law; and it is hereby certified and declared that all acts, conditions, and things required by law to be done precedent to and in the issue of said bonds have been properly done, happened, and performed in legal and due form, and as required by law.'

The ordinance further directed that such bonds should, after public notice inviting bids therefor, be sold to the highest bidder, for not less than their face value, in United States gold coin, to be paid on delivery at the city treasurer's office in the city of Santa Cruz. The bonds were offered for sale, but there were no bidders for them; and on April 16, 1894, the date to which the common council of the city had regularly adjourned, there were present William T. Jeter, assuming to act as mayor, and J. Howard Bailey, F. J. Hoffman, E. G. Green, and F. W. Lucas, assuming to act as the common council of the city. At this meeting, a proposition, theretofore made by the firm of Coffin & Stanton, to take all of the bonds, was accepted, upon condition that satisfactory security for its faithful performance by Coffin & Stanton be furnished. This proposition was dated February 27, 1894 (the day after the adoption of the ordinance calling the election), and was, in substance, one by which Coffin & Stanton were to purchase the refunding bonds at par value, less 3 per cent., without the payment of any money at the time of their delivery, or giving any other consideration therefor than their promise to take up the outstanding bonds which were to be refunded, and forward the same, 'from time to time, to the city, for cancellation. ' On April 23, 1894, the said Jeter, assuming to act as mayor, and the said Bailey, Hoffman, Green, and Lucas, assuming to act as the common council, of the city, publicly met, pursuant to adjournment, and without protest from any one accepted and approved a bond presented by Coffin & Stanton for the faithful performance by them of the agreement contained in the proposition mentioned, and thereupon directed the city clerk of the city to deliver to Walter Stanton, of the firm of Coffin & Stanton, on April 24, 1894, and thereafter Coffin & Stanton sold the same to various parties, from some of whom the plaintiff below (defendant in error here) claims title to the bonds and coupons sued on. The plaintiff is only the nominal owner of these bonds and coupons, the same having been assigned to him for the purpose of collection only. Coffin & Stanton never complied, in whole or in part, with the agreement under which the bonds were delivered to them, and the city of Santa Cruz never received any benefit whatever from their sale; the entire proceeds thereof having been appropriated by Coffin & Stanton, who are insolvent. The bonds are under the seal of the defendant city, contain the recitals set out, and are signed: 'Wm. T. Jeter, Mayor of the City of Santa Cruz. Attest: O. J. Lincoln, City Clerk.' they were so signed on the 16th day of April, 1894, on which day Jeter's successor to the office of mayor duly qualified.

The court below held-- and rightly held-- that the act of March 1, 1893, afforded no authority for the issuance by the city of Santa Cruz of any bonds for the purpose of refunding the indebtedness of the City Water Company, which was a private corporation. The court further held that, as the bonds issued by the city under that act for that purpose were in no way segregated from others of the same issue, the plaintiff could only be permitted to recover by sustaining his contention that he was a bona fide purchaser without notice of this infirmity in the bonds, and as such was protected by the recitals contained therein. This contention the court below sustained and accordingly gave judgment for...