§ 518 (416 c). General Result stated. - As preliminary to a more immediate view of some of the leading cases decided by the Supreme Court of the United States upon municipal railway aid securities, it may be observed that the general result of its decisions has been very clearly summarized in one of its judgments relating to bonds of this character. "Bonds, payable to bearer," says the learned justice who delivered the opinion of the court, "issued by a municipal corporation to aid in the construction of a railroad, if issued in pursuance of a power conferred by the legislature, are valid commercial instruments; but if issued by such a corporation which possessed no power from the legislature to grant such aid, they are invalid, even in the hands of innocent holders. Such a power is frequently conferred to be exercised in a special manner, or subject to certain regulations, conditions, or qualifications; but if it appears that the bonds issued show by their recitals that the power was exercised in the manner required by the legislature, and that the bonds were issued in conformity with those regulations and pursuant to those conditions and qualifications, proof that any or all of those recitals are incorrect will not constitute a defence to the corporation in a suit on the bonds or coupons, if it appears that it was the sole province of the municipal officers who executed the bonds to decide whether or not there had been an antecedent compliance with the regulation, condition, or qualification which it is alleged was not fulfilled."1

It is definitely settled by this court that mere irregularities in the exercise of the power will not avail as a defence against an innocent holder for value, and that the only defence open against such a holder is the want of power to issue the bonds. Obviously, then, the most important inquiries to be considered are those which relate to the question, when the power exists or arises; who is to decide whether it existed or had arisen when the bonds were issued; and what will estop the corporation which issued them to set up in defence a non-compliance with antecedent or preliminary conditions: and it is these inquiries that we shall seek to illustrate by a reference to the leading decisions of the courts in cases which have arisen for judgment.

§ 519. Condition precedent to Exercise of Power; Popular Vote; Non-compliance with Condition Precedent; Recital; restraining Is

1 St. Joseph Township v. Rogers, 16 Wall. 644 (1872), opinion by Clifford, J. In general throughout this work the author has not referred at length in the text to particular cases, but the importance of

this subject, as well as the impossibility of otherwise presenting it with the requisite fulness and accuracy, has induced him to depart to some extent from his usual

course.

sue of Bonds. Generally, the power of the municipality, county, or other local civil subdivision of the State, to subscribe for the stock of railway companies, and issue bonds in payment, is conferred upon certain officers, not absolutely but on the condition of a previous approving popular vote, or the assent of a majority or of some greater proportion of the resident taxpayers. If this sanction is given, then the officers, by the usual legislation, are authorized to make the subscription and to issue bonds in payment therefor. A very common defence to such bonds consists in a denial that the condition precedent, i. e., the approving vote, the assent of the taxpayers, or whatever else it may be, has, in fact, been complied with; and hence, as contended, the power to issue the bonds did not exist, or never arose.1

Where the legislation is of this character, namely, requiring compliance with some such condition before issuing the bonds, the Supreme Court of the United States does not hold, as we understand its decisions, that the power can be rightfully exercised unless the condition precedent has been performed. As between the immediate parties, the municipality and the railroad company, doubtless, the inquiry is open, and fully open, whether the condition on which the rightful exercise of the power depends has been complied with; and if it has not been, on due application the issue of the bonds will be enjoined, or if they are in the hands of the original party or of holders with notice, an action to enforce the bonds may, if no estoppel exists, be successfully defended. Want of power is a good defence against a railroad company, endeavoring to enforce by mandamus the execution and delivery to it of such bonds by the municipality.

In a suit by the payee, or by a person not

1 Mere informalities in the returns of such an election not prejudicing substantial rights, failing to comply with statutory requirements which are directory only, and clerical errors, will not defeat an appropriation in aid of a railroad. Irwin v. Lowe, 89 Ind. 540. Further, as to statutory requirements in respect of municipal bond elections, see State v. Harris (Mo.), 23 Eng. & Am. Corp. Cases, 43, 47, note, and cases. In the case of State v. Harris, supra, the statute of Missouri was construed to require two-thirds of the qualified voters of the county to attend, not merely two-thirds of the votes actually cast. But see ante, sec. 44, note, 157, note.

2 So where a city voted to issue bonds in aid of a railway when the track was

laid and the cars running on sections of ten miles each, "provided, the eastern terminus, general offices, and headquarters of said railroad should be in" the city, the court refused a writ of mandamus to compel their issue, for the reason that it did not appear that these conditions had been fulfilled. State v. Minneapolis, 32 Min. 501.

As to the duty of enjoining the issue of bonds on the pain of being estopped to set up irregularities in the exercise of the power, see post, secs. 547, 548.

8 Chambers County v. Clews, 21 Wall. 317, 321 (1874); Madison v. Smith, 83 Ind. 502, approving the text.

4 Lamoille Valley R. Co. v. Fairfield, 51 Vt. 257.

an innocent holder, there is no legal ground for maintaining that the action of the local officers in issuing the bonds, or any recital that they may make therein, will conclude the question whether the condition precedent has been performed; and there is no decision of the Supreme Court of the United States in conflict with this statement of the law, but several which distinctly establish it.1

§ 520. Estoppel by Recital to show Non-compliance with Conditions Precedent; Knox County v. Aspinwall. When the bonds have been issued and sold in the market, and before maturity have come for value, and without notice, into the hands of innocent. holders, another element of great importance is, according to the doctrine of the Supreme Court, introduced into the transaction, as respects compliance with conditions precedent, the element of estoppel. This is so important in its practical relations to the subject as to require careful and minute consideration. Conceding that the rightful exercise of the power to issue the bonds depends upon a condition precedent, for example, a popular vote in favor of the proposition, when, how, and by whom is it to be ascertained whether the condition precedent has been performed? Is it to be ascertained, once for all, before the bonds are issued? Or is it open to inquiry and contestation in every action upon a coupon or bond? Is the municipality estopped, in favor of a bona fide holder of the bonds, from setting up this defence? and in what cases will the estoppel be available in favor of the holder? These are grave questions, and cases involving them have been frequently before the Supreme Court, the first and leading case being The Commissioners of Knox County v. Aspinwall.2

1 Chambers County v. Clews, supra. That court has several times adverted to the duty of the corporation or taxpayer to interfere by injunction to restrain the issue of bonds where the statute has not been complied with. Injunction lies to restrain issue of bonds where there has been a material departure from the statute. Union Pac. R. Co. v. Lincoln County, 3 Dillon C. C. R. 300 (1873); Same v. Merrick County, Ib. 359; State v. Montgomery, 74 Ala. 226; McClure v. Oxford Township, 94 U. S. 429; Portland & Oxford Central Railroad Co. v. Hartford, 58 Me. 23. "In cases arising before the issue of the bonds, estoppel has no place, and the sound doctrine is, that compliance with all substantial or material conditions

is essential." Ib. Ante, sec. 163, and cases cited.

Where, by statute, the signature of a particular officer is essential to the validity of bonds issued in payment of a subscription to railway stock, bonds issued without such signature are not the bonds of the municipality, and recitals in them showing the provisions of the statute and compliance therewith will not estop the munici pality from denying their validity. Bissell v. Spring Valley Township, 110 U. S. 162. Mayor's signature held to be essential; ex-mayor's signature insufficient. Coler v. Cleburne, 131 U. S. 162 (1889), noted ante, sec. 509, note.

2 Commissioners of Knox County v. Aspinwall, 21 How. 539 (1858). See

§ 521 (417). The Case of the Commissioners of Knox County v. Aspinwall,1 respecting the liability of municipal and public corporations on their negotiable railway aid bonds, deserves to be particularly noticed, as it stands in the order of time at the head of the important line of decisions of the Supreme Court on this subject. The action was by a bona fide holder for value of certain coupons attached to negotiable bonds issued by Knox County, Indiana, in payment of a subscription to railroad stock. The defence was that the bonds were not binding upon the county because the county commissioners possessed no power to execute them. By statute, the county commissioners were authorized "to take stock in the railroad, payable in county bonds, such as had been issued, provided a majority of the qualified voters of said county, at a designated election, shall vote for the same." The ground upon which the want of power to execute the bonds was placed by the county was the omission to comply with the requirement of the statute in respect to the notices for the election (which the statute provided should be held on a fixed day), at which a vote was to be taken for and against a subscription to the stock of the railroad company. It was admitted in the case that the notices, such as the statute prescribed, were not given; and the court seemed to concede that this would be decisive against the authority of the county to issue the bonds, were it not for the question which underlaid it; and that is, Who is to determine whether or not the election has been properly held, and a majority of the votes cast in favor of the subscription? . . . Is it," the court inquires, " to be determined by the court, in this collateral way, in every suit upon the bond, or coupon attached, or by the board of commissioners, as a duty imposed upon it before making the subscription?" The court was of the opinion, and so decided, that the county commissioners were the proper judges whether or not a majority of the votes in the county had been cast in favor of the subscription to the stock, and whether or not the election had been properly held, and that these questions cannot be determined collaterally in an action upon the bonds or coupons, at least when brought by a bona fide holder for value. The court, in assigning the reasons for this holding, speaking through Mr. Justice Nelson, say: "The right of the board [of county commissioners] to act in execution of the authority [conferred by the statute] is placed upon the fact that a majority of the votes had been cast in favor of the subscription; and to have acted without first ascertaining it, would have been a clear violation of duty; and the ascertainment of the further reference to this case, infra, sec. 1 21 How. 539 (1858). 524, note.

fact was necessarily left to the inquiry and judgment of the board itself, as no other tribunal was provided for the purpose. The board was one, from its organization and general duties, fit and competent to be the depositary of the trust thus confided to it. The persons composing it were elected by the county, and it was already invested with the highest functions concerning its general police and fiscal interests. . . . We do not say," he adds, "that the decision of the board would be conclusive in a direct proceeding to inquire into the facts previously to the execution of the power, and before the rights and interests of third parties had attached; but after the authority has been executed, the stock subscribed, and the bonds issued and in the hands of innocent holders, it would be too late, even in a direct proceeding, to call it in question. Much less can it be called in question to the prejudice of a bona fide holder of the bonds in this collateral way." 1

§ 522 (418). Comments on Knox v. Aspinwall. The author ventures to remark that he believes the decision upon the special facts of the case to be right, and for the reasons thus clearly stated by this able and experienced judge. But as sustaining the decision, a further position by way of argument is taken, which, unless it is to be understood in the limited sense herein suggested, he considers to be untenable, of a most dangerous nature, and subversive of an important principle in the law of agency applicable both to private and public agents. That position is this: that a purchaser of the bonds had a right to assume, from the mere fact that they were issued, that the condition on which the county was authorized to issue them had been complied with, and that a recital in the bonds that they were issued in pursuance of the statute amounts to an estoppel in pais upon the corporation, of which the officers issuing the bonds were the public agents. That this is the position assumed by the court will appear by the following extract: "Another answer," continues Mr. Justice Nelson, "to this ground of defence is, that the purchaser of the bonds had a right to assume that the vote of the county, which was made a condition to the grant of the power, had been obtained, from the fact of the subscription by the board to the stock of the railroad company and the issuing of the bonds. The bonds, on their face, import a compliance with the law under which they were issued. This bond,' we quote, 'is issued in part payment of a subscription of $200,000, by the said Knox County, to the capital stock, &c., by order of the board of

1 Commissioners of Knox County v. Aspinwall, 21 How. 539, 544; infra, sec. 524, note.