St. Paul Gaslight Company v. Village of Sandstone
| Decision Date | 02 July 1898 |
| Docket Number | 11,078 - (157) |
| Parties | ST. PAUL GASLIGHT COMPANY v. VILLAGE OF SANDSTONE |
| Court | Minnesota Supreme Court |
Appeal by defendant from an order of the district court for Pine county, Williston, J., denying its alternative motion for judgment in its favor notwithstanding the verdict or for a new trial, after the court had directed a verdict in favor of plaintiff. Affirmed.
Constitution -- Laws 1885, c. 145.
Laws 1885, c. 145, providing for the incorporation of villages, is constitutional.
Municipal Corporation -- Collateral Attack on Corporate Existence.
Where a municipal corporation is acting under color of law, and exercising all of the functions and powers of a corporation de jure, and the legality of its incorporation has not been questioned by the state, but, on the contrary, it has been recognized as such for some years by the state, neither the municipal corporation nor any private party can question the validity of its corporate existence in a collateral action or proceeding.
Village Bonds -- Laws 1893, c. 200 -- Recitals -- Bona Fide Holder -- Fulton v. Town of Riverton Followed.
The defendant issued its negotiable bonds pursuant to a majority vote of the electors of the village, for the purchase of waterworks for the village, under the provisions of Laws 1893, c. 200. The bonds recited that they were issued under this act, and that all the requirements of the constitution and laws of the state had been fully complied with in the issuance thereof. In fact, the statute had not been complied with, in that the bonds were not advertised for sale and sold at not less than par, but were issued directly to a corporation in payment of a system of waterworks purchased of it for the village. Held, following Fulton v. Town of Riverton, 42 Minn. 395, that the bonds were valid in the hands of a bona fide holder for value without notice.
Village Bonds -- Collateral Security -- Plaintiff Corporation a Bona Fide Holder.
The plaintiff acquired the bonds as collateral security for a loan made by it to a third party, under circumstances which would, if it were an individual, constitute it a bona fide holder of the bonds, but it was not authorized to loan money by its charter. Held, that it is a bona fide holder of the bonds.
Robert C. Saunders, for appellant.
The bonds in question are void, absolutely so, whether in the hands of the first taker or subsequent purchaser, because the bonds were not advertised for sale, as required by Laws 1893 c. 200, § 5. Nor did the legislature ever authorize the village to buy waterworks and pay its bonds therefor. The statute authorizes bonds to be issued for the purpose of raising money, but does not authorize the exchange of bonds for property at an agreed price. The doctrine of bona fide innocent holder does not enter into this case. There can be no innocent holder of an instrument void ab initio, of an obligation which was never the obligation of the alleged obligor, of a bond which never had a legal inception or beginning, and to which no title whatever could be conferred. That all recitations in municipal bonds, however made or however authorized, are not final and conclusive, has been held in this state. Harrington v. Town of Plainview, 27 Minn. 224; Town of Plainview v. Winona & St. P.R. Co., 36 Minn. 505, 517.
Plaintiff is not a bona fide holder of the bonds in suit because the power to loan its corporate funds and take collateral from the borrower was not conferred on it by statute, and was clearly outside of its powers and duties -- an act which it had no right to do, a usurpation of powers with which it is not invested. Plaintiff had actual notice of the invalidity of the bonds at the time it foreclosed its lien, and acquired the absolute title thereto. Again, the undisputed testimony shows that, when plaintiff loaned its money, it looked to the borrower for repayment, and relied on his ability to repay and not on the bonds.
Defendant never existed as a municipal corporation, because Laws 1885 c. 145, under which it attempted to incorporate, is unconstitutional, because it delegates legislative functions to 30 private citizens, and because it contravenes Const. art. 3, distributing the powers of government. The purported incorporation in the case at bar embraced territory of a greater extent and of a different character from that authorized to be incorporated by the statute, in that said territory was neither urban nor suburban in character, nor adjacent to the platted portion of the village.
There is no question of estoppel as between the bondholder and the village. If the bonds are invalid, as insisted by defendant, they cannot be validated by estoppel in favor of any one. If they are valid, plaintiff recovers by virtue of that validity. An ultra vires municipal act, done without legislative authority therefor, is absolutely void, and it makes no difference whether the municipality receives and retains a benefit and consideration for the act or not. Young v. Board of Education, 54 Minn. 385; City of Chaska v. Hedman, 53 Minn. 525.
Flandrau, Squires & Cutcheon and F. B. Tiffany, for respondent.
The failure of the village to advertise for bids for the bonds before issuing them does not render them invalid in the hands of a bona fide holder, in view of the fact that they were issued directly to the water company for the waterworks. Bernards Tp. v. Stebbins, 109 U.S. 341; Scipio v. Wright, 101 U.S. 665; Montclair v. Ramsdell, 107 U.S. 147.
The loan in question was not ultra vires, so far as plaintiff is concerned. It has the power to accumulate money, and therefore it follows that it had the right, and was in duty bound, to loan the money so accumulated, if a proper loan could be made, rather than allow it to remain idle. Moreover, such an objection, even if the loan had been ultra vires, does not lie in the mouth of appellant. Baker v. Northwestern G.L. Co., 36 Minn. 185; St. Paul Land Co. v. Dayton, 37 Minn. 364; National Bank v. Matthews, 98 U.S. 621; National Bank v. Whitney, 103 U.S. 99; Fortier v. New Orleans Nat. Bank, 112 U.S. 439.
The question in this case is not whether respondent knew of the invalidity of the bonds at the time it bought them at the foreclosure sale, but whether it had any such knowledge when it made the loan. If, while it held the bonds as collateral simply, it was protected by the rule of bona fides, that protection extends to the present ownership. Simonton, Mun. Bonds, § 116; Rosemond v. Graham, 54 Minn. 323; Haugan v. Sunwall, 60 Minn. 367.
Municipal bonds are absolutely void only in the following cases: (1) When issued without the authority of any law authorizing the issuance of any such bonds. (2) When all statutes supposed to confer authority for their issuance are unconstitutional. (3) When the municipality has never in fact in any way authorized the issuance of any such bonds. (4) When the law authorizing the issuance of such bonds imposes certain conditions upon the exercise of the power by the municipality, and expressly provides a record other than the recitals contained in the bonds themselves, from which it may be determined whether the conditions thus imposed have been complied with, and the conditions have not in fact been complied with, as will be disclosed by referring to the record provided for in the statute. It is not claimed by appellant that the bonds under discussion fall into any one of these classifications. This being true, the recitals in the bonds as to compliance with legislative requirements are conclusive. Fulton v. Town of Riverton, 42 Minn. 395; Board of Commrs. v. Aspinwall, 21 How. 539; Town of Coloma v. Eaves, 92 U.S. 484; Bissell v. City of Jeffersonville, 24 How. 287; Bernards Tp. v. Morrison, 133 U.S. 523; National L. Ins. Co. v. Board of Education, 10 C.C.A. 637; Oregon v. Jennings, 119 U.S. 74. As to irregular elections, see Board of Commrs. v. Aspinwall, supra; Humboldt Tp. v. Long, 92 U.S. 642; Coler v. Rhoda, 6 S.D. 640; Pana v. Bowler, 107 U.S. 529. As to failure to advertise, see Oregon v. Jennings, supra; National L. Ins. Co. v. Board of Education, supra. As to exchange for property, instead of sale for cash, see Bernards Tp. v. Stebbins, 109 U.S. 341; Scipio v. Wright, 101 U.S. 665; Montclair v. Ramsdell, 107 U.S. 147; People v. Mead, 24 N.Y. 114. As to sales for less than par, see Simonton, Mun. Bonds, §§ 50, 146, 147; Woods v. Lawrence Co., 1 Black, 386; Mercer Co. v. Hacket, 1 Wall. 83; Sherman Co. v. Simons, 109 U.S. 735; Delafield v. State, 26 Wend. 192; Atchison v. Butcher, 3 Kan. 104; County v. North-Western, 32 Pa. St. 144; Appeal of Whelen, 108 Pa. St. 162. See also Marcy v. Tp. of Oswego, 92 U.S. 637; New Providence v. Halsey, 117 U.S. 336; Chaffee v. Potter, 142 U.S. 355; Sutliff v. Lake County Commrs., 147 U.S. 230; Mutual v. Elizabeth, 42 N.J.L. 235; Cotton v. Inhabitants, 47 N.J.L. 401.
That Laws 1885, c. 145, relating to the incorporation of villages, is not unconstitutional on the ground that it delegates legislative functions, was determined in State v. Minnetonka Village, 57 Minn. 526. State v. Village of Fridley Park, 61 Minn. 146.
Conceding that appellant village comprises land of a different character and greater in extent than the act authorizes, and that the validity of its incorporation might be successfully attacked in a direct proceeding by the state, nevertheless appellant is estopped in this action to deny its corporate existence. 1 Dillon, Mun. Corp. (4th Ed.) § 43a; 15 Am. & Eng. Enc. 964, 965; Aller v. Town of Cameron, 3 Dillon, 198; National L. Ins. Co. v. Board of Education supra; President v. Thompson, 20 Ill. 197; Town v. Cole, 61 Ill. 397; Louisville v. Shires, 108 Ill. 617; School v. School, 135 Ill. 464; Bushnell...
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