Hull & Argalls v. County of Marshall

Lowe, G. J. These causes have their origin in a similar state of facts, and in their main features involve the same questions. On the 14th day of January, 1859, Wm. 0. Smith, County Judge of Marshall County, contracted with one Wm. Dishon, for the buliding of a court house at Marietta, in said county, to be completed in twenty months, at a cost of $26,000; and — 154 — issued and delivered to him as payment therefor in advance, twenty-six bonds of one thousand dollars each, of the date aforesaid, drawing ten per cent interest, and payable to William Dishon or order, in one, two, three and four years, with coupons attached for the annual payment of interest. A part of these bonds were at once sold, endorsed and their payment guarantied by Eishon to the plaintiffs, who, after the demand and protest for non-payment at maturity, have brought their respective suits, to recover upon the same against the county of Marshall and the guarantor. The latter makes no defense; the former seeks by demurrer to the petitions to raise the questions of the power of the County Judge to fix a liability upon the county, in the manner and by the description of paper above specified. The demurrers being sustained in both cases, the plaintiffs appeal to this court. A county is a political sub-division of the State, invested with certain limited and specified powers, which are divided among and are to be exercised by a class of agents or county officers appointed for that purpose. Their duties are not only defined, but the mode of performing them is in many instances prescribed by law; especially those which relate to the fiscal operations of the county, and the raising of money by taxation. When this is done, it is a well settled maxim that the power must be exercised precisely as it is given. Indeed it is a general rule, that when the statutes confer special ministerial authority, the exercise of which may affect the rights of property or incur a municipal liability, it shall be strictly construed and as strictly observed, and that any departure will vitiate the whole proceeding. Sedgwick on Stat. and Const. Law, 347-351. Among the number of county officers created by law is the county judge, whose duties are both ministerial and judicial; and whilst the power to provide for the erection of a court house, jail and other county buildings, is expressly — 155 — enumerated and made tbe duty of that officer, yet this duty is in its nature ministerial, although under the Code, it falls within his functions as a county court. It is conceded that in the execution of this power, the right to enter into contracts with third persons for the building of a court house necessarily follows, subject however to the restrictions, as to the mode of payment laid down in the law. If the expense of the building is to be met out of the ordinary revenue of the county, it can only be drawn from the County Treasury in the particular manner designated in the statute. The judge as the accounting officer of the county, is required to audit and allow the expenses or charges as they shall accrue and mature, as it is his duty to do with all other claims against the county; and when this is done to draw, sealed with the seal of the county, his warrant on the Treasurer for the amount of money thus to be paid from the County Treasury, and to enter upon his warrant book in the order of their issuance, the number, date, amount, and name of payee of each warrant drawn on the county treasurer. When this warrant is presented for payment, and not paid for want of money, the treasurer shall endorse thereon a note of that fact, and the date of the presentation, after which it draws six per cent interest. This being the rate of interest expressed by law, it would not be competent for the county officers to allow a greater amount. Nor is the treasurer permitted to disburse any money from the county treasury otherwise than upon the warrant of the county judge. Code of 1851, § 152. To this there is but one exception, or one other method of drawing money from the county treasury. And that is, as we understand it, where the people of a county by, a vote in the manner described in the Code, authorize a loan of money for some of the county purposes named therein, calling for an extraordinary expenditure. Such vote however, amounts to nothing unless the proposition to borrow — 156 — money is accompanied by a provision to lay a tax for tbe payment thereof, which must also be adopted by a vote. Money raised for such a purpose constitutes a fund distinct from all others in the hands of the treasurer until the liability thus increased is discharged. What sort of paper or security, the county shall give for money borrowed is not provided for in the statute. In the absence thereof, however, we suppose that Avhen the authority is regularly conferred, it carries with it the requisite incidents for its due execution; and that negotiable bonds not unlike those sued on, might be very properly issued. The holders of such securities after maturity, would be entitled to present them to the county treasurer, who could safely redeem the same out of the fund set apart and specially appropriated for that purpose. It may be safely stated that the above are the only methods known to the law for reaching the money in the county treasury, for the building of a court house. That is to say, where the costs and charges of such an undertaking are to he defrayed out of the ordinary revenue of the county, then the money necessary to meet the expense thereof, may be drawn upon the warrant of the county judge in the manner above indicated, without any appeal to the people of the county for authority to do so. If, however, an extraordinary expenditure is contemplated, which the ordinary revenue of the county would not likely meet as fast as the same should fall due, then it would be competent for the county judge to borrow money as before slated, provided, first, that he obtained his authority for so doing, by a majority vote of the people of his county; and, second, that the people authorizing the loan, shall also provide for the payment thereof, out of a special fund to be raised by taxation. The wisdom of such a regulation for the disbursement of the county funds is apparent. It guards against an unreasonable abuse of the powers vested in the financial agents of the county. For it will be noticed that under the first of — 157 — tbe above methods of drawing money from the county-%re&i^ ¿ ury, that it can only be done upon a claim already subsisting^ and in the payment of which the county gets an equivalent in advance. The second method contemplates the payment of money to be borrowed alone under the authority of the whole body of the people of a county, to whom so important a depository of power may be safely entrusted. Whether, therefore, the money is disbursed in the one or the other of these ways, the rights of the people and the security of their funds aro fairly and adequately protected. It is true that the power to issue county bonds in the form of negotiable securities is not expressly provided for in the statute, under any circumstances, or for any state of case, yet it is insisted that the right'to do so, in the absence of any statutory direction, flows by implication from the powTer to borrow whenever such power is conferred. Without such right it might not be possible to affect a loan of money under the rules regulating the commerce and capital of the county. But if it should be asked why this same implication of law does not equally apply to the power given to the county judge to contract for the building of a court house, carrying with it the right to employ the requisite means necessary to accomplish the end, even if that should involve the necessity of executing the bonds of the county in the form of negotiable paper, the answer is a plain one. The statute is not silent on this subject, but specifically defines just the manner in -which all the funds of the county shall be disbursed; and hence it follows that all contracts made by the county judge, contemplating payment out of the county funds, must be made in subordination to those limitations and provisions of the statute. If the contract should stipulate for the payment of the money in any way not authorized by law, or out of a fund not provided ior by law, it would be nugatory and void. To sanction and enforce such a contract would be to break down all the barriers and checks which the law — 158 — has erected around the county treasury to protect its finances. It seems to us that Dwarris, in his treatise on Statutes, (which is frequently quoted by Sedgwick in his work on Statutory and Constitutional law, with approbation,) states the true principle of interpreting all such statutes when he says, that, “ as a maxim it is generally true, that if an affirmative statute direct a thing to he done in a certain manner, that thing shall not, even although there are no negative words, he done in any other manner. Now, recurring to the bonds sued on in the above cases, the question is asked, under our system of county finances, and the special regulations adopted by the'legislature, for their collection and disbursement, how are they to be liquidated and paid off? If presented by the holders to the county treasurer, where is his authority for receiving and settling the same? Shall he pay them out of the ordinary revenue of the county? This would not only be inadequate to meet them, but the statute requires that this discription of county funds shall only be disbursed upon the warrants of the county judge. Although the expenditure of $26,000 in the building of a court house, in a new county like that of. Marshall, must be regarded as an extraordinary expenditure, yet it is not pretended that the voters of that county either authorized a loan of money, or provided a special fund to. meet such expenditures, in the absence of which it is impossible to see how these bonds are to be' legally taken up and discharged. It would be no answer to say that they could be paid out of the ordinary revenue of the county by exchanging them; as they fall due, for the county judge’s ■warrants, for this would be an attempt to reach fund raised and set apart for ordinary police objects, and -which could not be legitimately used for any other purpose, in order to pay an extraordinary liability fixed upon the county by the act of the county judge alone, and which, in its practical effect and operation, is the — 159 — same as a county loan. The General Assembly deemed it inexpedient, if not dangerous, to permit the county judge, in his own discretion, to contract a debt against the county, by way of a loan for any amount, without the sanction of the people. Hence the prohibition. Nevertheless, to issue bonds of the description of these on which suit is brought, for the purpose of raising money on them, (whether that be done by exchanging them as security for money, calling it a loan, or selling in the market for money, by the county judge or court house contractor, can make no difference,) has not only the effect to establish the relations of debtors and creditor between the county and the holder of the bonds, but to stamp the transaction, in its essential features and ultimate consequences, with the incidents of money borrowed. And if such a power should be recognized, it would be productive of the very mischief intended to be guarded against in the law, and open the door for the most stupendous abuses and frauds. A majority of this court, therefore, cannot but view the issuing of county bonds, in the form of negotiable paper to be sold in the market, without limit as to number and amount, in the absense of any authority from the people of the county, as a manifest perversion of the law, and a dangerous power which should be arrested at the threshold of its exercise. There is less apology for resorting to such artifices to raise money, inasmuch as every public exigency of the county may be fully met within the provisions and limitations of the law defining the duties and powers of the county agents. From this partial analysis of the statute defining the powers of a county judge over the subject of court houses, we deduce tho following propositions: First, That among others, the duty of providing a court house is specifically enumerated and enjoined. Second, That the performance of this duty involves the power to enter into all necessary — 160 — and lawful contracts. Third, That the terms of such contracts, so far as they relate to the payment of the expenses incident to the undertaking, must be in accordance with, and subject to the provisions of the statute regulating the disbursement of the county funds. Fourth, That the costs and charges of erecting a court house can only be paid in one of two ways, either out of the ordinary revenue of the county, or by a loan of money; that under the first of these methods the payment must be made alone upon the county judge’s warrants, issued in the particular manner prescribed bylaw, for subsisting claims duly audited and allowed. The second method contemplates a cash payment out of a fund borrowed for that purpose, which, when authorized, furnishes the only occasion where a county judge can bind the county by negotiable securities. Fifth, That the county treasurer has a legal right to pay out the funds of the county in liquidation of county bonds only when they have been given for money borrowed, and a special fund appropriated for that purpose. Sixth, In the absence of either of these contingencies, the authority to issue bonds in the form of negotiable paper, binding the county for the future payment of money, is wanting, and if exercised would be a void act. In each of the above cases a demurrer was interposed, raising the question of the validity of the bonds and coupons sued upon, inasmuch as the authority of the judge to issue them, did not appear upon the face of the bonds or by allegations in the petitions to have been derived from a vote of the people of the county. The demurrers wore sustained in the court below, and the plaintiffs insist that this was error. They claim that if under any circumstances, in any state of cases or contingency, a a county judge is authorized to execute in the name of the county, negotiable bonds, there is no legal necessity to state in the petition, that the state of case existed or con — 161 — tingency had happened, which conferred the authority; but the bonds being 'prima facie regular upon their face, and importing as they do, a good consideration, that a cause of action is stated whenever they are properly described in the petition; and that the extrinsic fact relied upon by the defense to impeach the validity of the bonds, should be the subject of a plea in bar, and cannot be reached by demurrer. This position was most ably maintained in argument, the soundness of which in the present aspect of this case, we do not feel it necessary to contradict, for the reason that its application to the facts in this case is not observable. The bonds in question contain the following language: “ By authority of the statutes of the State of Iowa, for value received, I, William C. Smith, county judge of said county, do hereby pledge the faith of said county of Marshall to the payment of one thousand dollars, to Wm. Dishon or order, twelve months after date,” &c. The affirmative statement that the judge derived his authority for issuing the bonds from the statutes, excludes the idea that he obtained it from any other source. The demurrer was intended to settle the question whether the statutes did confer such a power. We have already given our interpretation of the statute upon this point, and held that it did not, but that it only prescribed the manner in which the authority to borrow money might be obtained by a vote of the people of the county, and the resulting power to issue bonds for such loan. The two things are quite distinct. If the demurrers had been overruled, it seems to us the legal effect of such a decision would be to hold just what the judge, in the execution of the bonds, claims upon their face — that the power to do so is delegated in the statute. Still, as a question of pleading and practice, we readily confess that it is not free from doubt, and would be inclined to give it a more thorough examination, if practically it was — 162 — of any importance to tbe parties whether the existence of the power, which is the great object of the inquiry, was determined under an issue of law, or under an issue of fact. Under the circumstances, we are inclined to think there was no error in sustaining the demurrers. A question was made upon the argument, whether in the hands of innocent holders, these bonds should not be collected against the county in any event. If the power to make, never existed, no subsequent transfer of the bonds could give to them the effect of legal liabilities in the hands of any one. On the other hand, if the power had been delegated, resulting as it would in this case by a vote authorizing a loan, then any irregularity in conducting the vote, or other imperfection in the execution of the power, would not have been allowed to vitiate the bonds or prejudice the rights of bona fide holders, either in a direct or collateral proceeding. In transactions of this kind the public agent acts alone under delegated power; and third persons, dealing with him, must, at their peril, ascertain for themselves whether in fact and law the authority being exercised does exist. 21 How. 441, 539; 23 Ib., 381. It only remains for us to state, that according to our apprehension, there is no conflict between the opinions above expressed and the ruling made in the case of The State of Iowa ex. rel. Brooks v. Napier, Bounty Judge, 7 Iowa 425. Affirmed1. Footnotes [1] (1.) The following petition for a re-hearing of this cause, was filed by Bmcll dsShiras, of counsel for Hull & Argalis, appellants, and after consideration by the court, was overruled : The pleadings in this case show that the bonds and coupons, upon which this suit was brought, were part of a series of bonds issued by the defendant to one William Dishon, or order, in payment for building a Court House in said county, and by Dishon endorsed to plaintiffs before due; that plaintiffs aro dona fide holders for value. It is admitted that the County Judge liad poioor to contract for the erection of a Court House, and also to contract that payment should be made for such erection at a future day, and that the cost of such Court House does not affect the question of power, except in a case of fraud, and then only as evidence of fraud between the parties. The whole question turns upon the power of the County of Marshall, or of its legally constituted officers, to — 163 — issue coupon bonds in payment of indebtedness then accrued, or thereafter to accrue. It is true that a County is a political subdivision of a State, invested with limited and specific powers, that all its power is derived from the act creating such corporation; but it is also true, that every municipal corporation has certain implied powers which are derived from the duties imposed uponit. The authority referred to by the court, in Sedgwick on Stat. and Gon. Law, 347, 351, does not refer to the powers of municipal corporations, or of their ofiicers, but to summary judicial proceedings and swnmary admimistrattoé proceedings. In McMillan v. Lee County, 3 Iowa, 311, the Court use tho following language: ‘‘Then again, the counties exercise granted powers, and, as municipal organizations, cannot exercise'any other. If not expressly granted, yet, if necesswy to carry out, or accomplish the pmpose and object of their creation, they map be exercised, but not otherwiseMany of the powers exercised by the officers of municipal corporations are not specifically pointed out, but arise, or grow out, of other duties devolved upon such officers. The Code confers certain powers upon counties, and provides, that “each county, now or hereafter organized, is a body corporate for civil and political purposes only, and, as such, may sue and be sued; may acquire and hold property, and make all contracts necessary or expedient for the management, control and improvement of the same, and for the better exercise of its civil and political powers; map ta7c& any order for the disposition of its property, <&d By chapter 15, the county judge ia mado the general agent and the officer who is to exercise and carry out all the powers of the county. He is in fact the county itself, as far as any act is concerned, for the county acts through him only. “ He is in fact the head and hand of the county.” If the cmnty, by its county judge, can contract, it of course can create a liability by such contract; a liability to be performed at a future time; a liability to be measured by a money equivalent; a contract which, if it comes within its civil and political powers, is only to be measured by the discretion of the county judge. In regard to building a court house, this court has decided, in the case of Brooks v. Napier County Judge, 7 Iowa, 225, tbat the county judge has power to contract for the erection of a court house, that he has a right to contract for the payment of the money at a future day; and that the manner of the exercise of his discretion or power, cannot be controlled by any one. This seems all to be conceded in the opinion filed in the case at bar; but the court say, “subject however to the restrictions as to the mode of payment laid down in the Code.” “If the expense of the building is to be met out of the ordinary revenue of the county, it can only be drawn from the county treasury in the particular manner designated in the statute. As far as we can discover, there is no provision of the Code which provides for drawing money out of the ordinary revenue of the county, or from any special fund. The Codo provides tb at the county judge shall audit claims against the county, and also audit and set164 tie the Treasurer's account; also, he is required to keep an account of receipt* and disbursements, and and also all debts payable to and by the County, &c. By § 124, money raised by loan is a special fun3 in the treasurer’s hands. So road funds and other funds are special funds in the bands of the treasurer. See Code, § 156. The Code, §152, provides that the treasurer shall disburse the money in his hands on warrants drawn and signed by tho county judge and sealed with the county s^al, and not othej’wise. The county may be liable to pay a demand against it, and also may be liable to have a judgment rendered against it, in cases where the treasurer would not be authorized to pay the demand. The authority of the treasurer to pay a demand upon presentation is no test of the liability of the county, or of the validity of a contract with the county, and because the treasurer is not authorize to pay a demand, is no test of the liability of the county to ■pay such demand. There is no distinction in this respect, in the Code, between the liability to pay out of the general or out of the special founds, upon ordinary or extraordinary expenditures. The provisions of the Code are the same in all cases. Tho court, in tho opinion filed, say: “ The Judge is the accounting officer of the county ; is required to audit and allow the expenses and charges as they shall accrue and mature.’' This is not the language of tho Code. The Code, § 106, p. 21, says, “to audit all claims for money against the county ” &c. This docs not require that the claim shall have matured or accrued. The Code does not say that he shall audit all claims and draw his warrant on the treasurer for such claims; but the auditing claims and drawing warrants on the treasurer are separate act1», and independent acts as to time. A claim for money may be audited and allowed as a money demand, when it is not payable at the time. Suppose a contract should be made with a county to perform a certain amount of labor, and the money to be paid in a stipulated time after the completion of the contract, and suppose the contract should be performed and an application made for an acceptance of the contract, and to have the amount due audited and allowed, would not the judge have au thority to audit and allow such a claim, and fix the time of payment, and give to the party entiiled evidence of the allowance? Tho liability would arise from the performance of the work. The court assumes that the county cannot pay, or contract to pay, a greater amount of interest than six por cent., because, whf*n county warrants are presented for payment and are unpaid for want of funds, they will draw interest at that rate. All parties, having power to contract to pay interest at all, may contract for any rate they please, unless there is some statute restricting them in this respect. It is not true that the county officers may not contract to pay interest on unpaid warrants at a greater rate than six per cent., for there is nothing in the statute which limits such power. The statute is only intended to provide, that warrants shall become due and draw interest from presentment. Even if the statute did restrict the county officers to the payment of six per cent interest on the warrants unpaid, this cannot be construed into any limitation upon other contracts of the county. There is no provision in the Code which requires the county to give any particular evidence of indebtedness, whether the same is to be paid out of the general or special fund of — 165 — the county. Bach fund, as far as the statute is concerned, is disbursed in the same manner; the treasurer can pay neither without the warrant of the county judge. If a fund is raised by a special tace, this does not give the treasurer any greater control over it than when the fund is raised by a general tax. The treasurer has no ministerial power, he exercises no judgment, he is absolutely to pay no money, except upon the warrant of the county judge. It is true that there are certain liabilities which cannot be created by the county judge, without a vote of the people; but building a court house is not one of them. In Brooks v. Napier, County Judge, 7 Iowa, 425, the court ruled that the value of the court house to be built had nothing to do with the ciuestion of the power of the county to build a court house, and that the amount to be expended, did not determine whether it was extraordinary expenditure or not. It is true that such liability, created without a vote of the people must be met out of the ordinary county revenue. This is a matter that rests exclusively between the county, contractiug through the county judge, and the contractor. When the money comes due, the county is responsible for it. The wisdom of allowing a county to incur an indebtedness, and to issue its negotiable pa-peras evidence of such indebtedness, is a matter which this court is not called upon to determine. This court cau only determine aslo the power of the county to incur such indebtedness under the laws, as they existed at the date of the bonds. This is not a mw question. It has been before the courts, and has been settled, if any question can be settled by the courts of the coimtry. In the case of Ketchum v. The City of Buffalo, 4 Ker. 356, in the Court of Appe -Is of Hew York, the question involved in this case were fully decided. It is there decided that a municipal corporation, being merely authorized to establish markets, may purchase the necessary grounds for the pnrp rae; that it may purchase on credit; that it may give its negotiable bond in payment for the same. (See also State of New York v City of Buffalo, 2 Hill, 434; Kelley v City of Brooklyn, 4 Hill, 263; Halstead v. The City of New York, 5 Barb. 215. In the first of the above ca*es, the court expressly decide, that such an indebtedness is not a borrowing of money, and did not come within the statutory prohibition on that subject. The com t there shows that there is a marked distinction between incurring a debt and issuing a note, or bond, for a legitimate purpose and borrowing money with such power, that it could be used for any legitimate or illegitimate purpose. If bonds were issued and sold by the county judge for some legitimate purpose, but where the proceeds are not a special fund under the law, the county judge might divert it from its ostensible purpose, bocause the fund would be in the ordinary county fund; but when bonds are issued for building a court house under contract, they cannot be diverted to any other purpose. None of the objections against borrowing money can lie against such indebtedness. It is immaterial whether the ordinary revenue of the county meets this indebtedness or not, and this court cannot say that, in thiscase, the ordinary county revenue would not meet this indebtedness, l’heie is certainly nothing in the pleadings which shows that the ordinary county revenue would not meet it. We cannot see by what rnle of law this court can presume any such fact. Can this court determine that a suitable court house for the county — 166 — of Marshal! could have been erected in January 1859, foralesssum than 5526,000? What is the revenue of Marshall county, and what are its current expenses, upon the knowledge of which this court can determine that an expenditure, in which the sum of $26,000 is pnyable • during a term of four years, is an extraordinary one, and that it cannot be met by the ordinary county revenue ? The court however says, that to pay for the erection of a court house would he fo reach a fund set apart for ordinary police objects, and could be used for no other. But in Brooks v. Napier County Judge,, this court decided that a payment for the cection of a court house could be made out of the ordinal y county revenue; that the erecting of a court house was an ordinary duty of a county judge. We think the first proposition laid down by the Supreme Court is correct. The second proposition is undoubtedly correct as far as it goes; but there might be well added, “either for cash or on credit, as might be deemed necessary by the county judge.” The third, we think, is not correct, as it is not necessary that a contract, to bind the county, should be of such a form, or character, as to authoiize the treasurer of the county to liquidate it upon presentment. The disbursement of the county revenue is entirely separate and distinct from the power of creating a liability against the cuuhty. The fourth proposition may be correct, if it is limited to the aciuul disburse/m&ni of money Ijy the treasurer; but if it is extended to embrace the creation of a liability}, then it is clearly erroneous. The fifth is correct, as applied to the county treasurer; but this is not a proceeding against the county treasurer. The sixth is clearly erroneous, as the authorities are all the other way. It is a settled proposition that as far as a municipal corporation is given power to act, it can act just as far as any other person, unless it is expressly restricted; and there is no restriction upon the county, as to the form of indebtedness it may create. Every municipal corporation is required to have its funds in some particular officer’s hands, and such officer can only pay the same out upon orders of one or more of the other officers of the corporation. Still, unless restricted, negotiable payment may be given by a municipal corpora-Uon, as well as by any other Corporation, and is constantly given, and the issue of such paper is sustained by the courts. We do not claim that the bond itself shows the authority of the county judge to issue it, but the petition does, for it sets out that these bonds were issued in payment for building a court house, and this is admitted by the demurrer. This, we say, shows full authority to issue the bonds; for the county judge may contract to have it done on credit, and may issu* evidences of indebtedness in liquidalion of such indebtedness. We have thus, as we think shown that the county judge has authority to issue bonds for the purpose set forth in the petition in this case, and that the judgment of the court b-1 ought to be reversed and the demurrer overruled; and therefore, most respectfully ask this court to grant a rehearing in this case.