West Plains Tp., Meade Co., v. Sage, 531.

• Decision Date: 16 September 1895
• Docket Number: 531.
• Citation: 69 F. 943
• Parties: WEST PLAINS TP., MEADE COUNTY, v. SAGE et al.
• Court: U.S. Court of Appeals — Eighth Circuit

69 F. 943

WEST PLAINS TP., MEADE COUNTY, v. SAGE et al.

No. 531.

United States Court of Appeals, Eighth Circuit.

September 16, 1895

The township of West Plains, in the county of Meade, state of Kansas, the plaintiff in error, brings this writ of error to reverse a judgment rendered against it, and in favor of Henry W. Sage and others, defendants in error, upon certain coupons cut from refunding bonds issued by it under the provisions of chapter 50 of the Laws of Kansas of 1879. The case was tried by the court upon an agreed statement of facts. The bonds were payable to bearer, were in the usual form of such securities, and were duly executed by the proper officers of the township. Each bond contained the following recitals 'This bond is one of a series of fifteen bonds of one thousand dollars each, and issued by virtue of and in accordance with the provisions of sections one, two, and three of chapter fifty of the Laws of 1879; being an act of the legislature of the state of Kansas entitled 'An act to enable counties, municipal corporations, the board of education of any city and school districts to refund their indebtedness,' which said act took effect March 10, 1879. And it is certified and recited that all acts, conditions and thing required to be done precedent to and in the issuing of said bonds have been done, happened, and performed in regular and due form, as required by law. ' The defendants in error were bona fide purchasers of the bonds and coupons before maturity, without notice of any irregularity in their issue, except such as they were lawfully charged with from the public records, the law and the face of the bonds themselves.

The provisions of chapter 50 of the Laws of Kansas of 1879 that are material to the issues in this case are:

'Section 1. That every county, every city of the first, second or third class, the board of education of any city, every township, and every school district, is hereby authorized and empowered to compromise and refund its matured and maturing indebtedness of every kind and description whatsoever, upon such terms as can be agree upon, and to issue new bonds, with semi-annual interest coupons attached, in payment for any sum so compromised; which bonds shall be issued at not less than par, shall not be for a longer period than thirty years, shall not exceed in amount the actual amount of outstanding indebtedness, and shall not draw a greater interest than six per cent. per annum.

'Sec. 2. * * * Bonds issued by any township shall be signed by the trustee, attested by the township clerk, and countersigned by the township treasurer. * * * Such bonds may be in any denominations, from one hundred to one thousand dollars, and made payable at such place as may be designated upon the face thereof, and they shall contain a recital that they are issued under this act.

'Sec. 3. When a compromise has been agreed upon, it shall be the duty of the proper officers to issue such bonds at the rate agreed upon to holder of such indebtedness in the manner prescribed in this act. * * *

'Sec. 4. A record shall be kept by the different county clerks of all bonds issued in such counties under this act, showing the date, number, amount thereof, to whom and on what account issued, and when the same become due.'

The governing board of the plaintiff in error was the township board, which consisted of the trustee, clerk, and treasurer. On October 23, 1889, that board held a special meeting, and made a record of its proceedings. That record recites that all the members of the board were present; the W. C. Gould appeared at the meeting, 'he being the owner of $15,000 of outstanding scrip of said township of West Plains,' and offered to surrender the 'scrip' for cancellation, and to receive an equal amount of 'bonds to be issued in accordance with the laws of the state of Kansas, authorizing the refunding of outstanding indebtedness'; that the township board 'decided that it is for the best interests of the township of West Plains that the proposition be accepted, and a special election is hereby ordered,' at a proper time and place, for the purpose of submitting the proposition to the electors of the township, 'all for the purpose of refunding the outstanding indebtedness of said township, as provided by * * * sections 1, 2, and 3' of chapter 50, supra; that the form of ballot to be used at the election should be, 'For the issuing of 15 bonds, of the denomination of $1,000 each, to refund the outstanding indebtedness of the township of West Plains, county of Meade, and state of Kansas,' and 'Against issuing 15 bonds, of the denomination of $1,000 each, to refund the outstanding indebtedness of the township of West Plains, county of Meade, and state of Kansas'; and that the clerk was ordered to post and publish a proper notice of the election. On November 2, 1889, the board held a meeting, and made an official record of that meeting, which recites that an election had been held on that day pursuant to the notice the board had prescribed; that the board canvassed the vote at that election, found that 52 votes had been cast for, and 14 against, the proposition of Gould, and declared it carried; that thereupon Gould surrendered to the board 'all and each of the outstanding indebtedness indicated by township scrip which he was the holder and owner of, amounting to $15,000'; that this was burned; that thereupon the trustee, clerk, and treasurer, who composed the board, 'did then and there execute and deliver to said W. C. Gould, in lieu of the $15,000 township scrip that had been destroyed, 15 bonds,' which were described by date, amount, number, to whom and on what account issued, and when due, as prescribed by sections 3 and 4 of chapter 50, supra; and that, 'no further business appearing, the board adjourned.' These are the material facts, and all the material facts, disclosed by the records of the meetings of the township board with reference to these bonds. The facts were, however, that on October 23, 1889, before the proceedings of the board were had, which appeared in the record of the meeting of that day, the American Sugar Company, a corporation, submitted to the board at its special meeting a written proposition to construct a sugar factory in the township if $15,000 of refunding bonds were donated to it by the township. The township trustee and township clerk, at the request of the president of the sugar company, thereupon executed and delivered to W. C. Gould $15,000 in scrip, in the form of orders on the treasurer, without any consideration whatever, and for the purpose of creating an apparent debt of the township to be converted into refunding bonds. After the bonds were executed, they were not delivered to Gould, as the record of the meeting of the board of that day shows, but were delivered to the president of the sugar company; and that company made a written agreement with the township, which is dated on that day, and recites an acknowledgment of the receipt of the bonds. The records of the meetings of the board do not disclose any of these facts tending to show that the bonds were issued for a sugar factory and not for the purpose of refunding the outstanding indebtedness of the township; but the proposition of the sugar company was on October 23, 1889, copied into the clerk's book in which the proceedings of the meeting of the board of that day appear before the record of that meeting, and the agreement made by the sugar company, dated November 2, 1889, was copied into the same book just after the record of the meeting of that day. These copies in the record book do not appear to be any part of the records of the proceedings of the meetings, and neither of them nor their originals are mentioned or referred to in those records. The complaint is that upon this state of facts the court below erred in rendering a judgment against the plaintiff in error.

J. T. Herrick, for plaintiff in error.

W. H. Rossington and Charles Blood Smith, for defendants in error.

Before CALDWELL, SANBORN and THAYER, Circuit Judges.

SANBORN Circuit Judge, after stating the facts as above, .

May a municipal corporation make a false certificate and official record that its negotiable bonds were issued for a lawful purpose, and, after they have been bought by innocent purchasers for value in reliance upon this certificate or record, defeat them by the plea that the certificate and record were false, and that the bonds were in fact issued for an unlawful purpose? This is the question presented by the first objection to this judgment. It is that although the official record of the meetings of the township board that issued these bonds, and the recitals made by that board in the bonds themselves, show that they were issued for the lawful purpose of refunding an outstanding indebtedness of the township in accordance with the provisions of sections 1, 2, and 3 of chapter 50 of the Laws of Kansas of 1879, yet they were in fact issued for the unlawful purpose of procuring the erection of a sugar factory. Defenses of this character are unfortunately not novel. In answer to a like plea in National Life Ins. Co. v. Board of Education of City of Huron, 10 C.C.A. 637, 62 F. 778, 784, this court said:

'Nor is it any defense to such bonds, as against bona fide purchasers, that the citizens and officers of a municipal corporation, with the intention to use the proceeds of the bonds for an unlawful purpose, took the necessary steps to issue them for a lawful purpose, certified on the face of the bonds that they were issued for such lawful purpose, and then appropriated the proceeds to the unlawful purpose. Corporations are as strongly bound to an adherence to truth in their dealings with mankind as are individuals, and t

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