Ætna Life Ins. Co. v. Lyon County

Si-iiras, J., (after stating the facts as above.) The questions of law arising on the foregoing facts have been very fully and ably presented by the counsel for the respective parties, and it is perhaps needless to say that there is a wide divergence in the views advanced touching the judgment that should be rendered by the court. It clearly appears from the evidence that the plaintiff and other purchasers of the bonds issued by the defendant county in pursuance of the resolution adopted by the board of supervisors in April, 1884, bought the same in good faith, and paid therefor the full face value and accrued interest; and the amount thus received was applied by the county, through its ru.Hiding agent, to the payment of bonds then outstanding against the county. It no loss clearly appears that the issue of bonds negotiated by B. L. Richards on behalf of the county, being in amount $120,000, exceeded largely the constitutional limitation of 5 per cent, upon the valuation of the taxable property in the county, as shown by the last preceding state and county tax-lists. If this issue of bonds had been negotiated in the purchase of property then acquired, or for the erection óf county buildings or other like purpose, so that thereby a new or original indebtedness had been thereby created against the county, there could then be no question that the bonds themselves would be void by reason of the provision of the' constitution of the state of Iowa, limiting the indebtedness of all municipal and political corporations within the state to 5 per cent, upon the taxable valuation of the property within the limits of the particular corporation, and a recovery thereon could not be had, even in favor of parties who had paid full value therefor in the belief that the bonds were valid. Buchanan v. Litchfield, 102 U. S. 278; Dixon Co. v. Field, 111 U. S. 83, 4 Sup. Ct. Rep. 315; Lake Co. v. Rollins, 130 U. S. 662; 9 Sup. Ct. Rep. 651; Lake Co. v. Graham, 130 U. S. 674, 9 Sup. Ct. Rep. 654. The bonds in question were not issued for any such purpose, but were issued for the purpose of refunding other outstanding bonds of the county; and the issuance thereof did not in fact increase the indebtedness of the county, but only changed the form or evidence of indebtedness. Under these circumstances, it is broadly claimed on behalf of plaintiff that the bonds, being issued to refund or pay other bonds, are-not affected by the constitutional limitation. To the extent of holding that, as applied to a series of refunding bonds, the mere fact that the amount thereof might exceed 5 per cent, of the then taxable valuation of the property within the county, as shown by the tax-lists, would not necessarily show that the bonds so issued were-invalid, I can agree in the views of‘counsel for plaintiff. If a county owes a valid and enforceable indebtedness, refunding bonds, issued under authority of an act of the legislature for the purpose of taking up such enforceable indebtedness, are not invalid because they may exceed the 5 per cent, limitation. In such case, the refunding bonds are valid, because they represent a valid indebtedness. Railroad Co. v. County of Osceola, 45 Iowa, 168; Austin v. District Tp. of Colony, 51 Iowa, 102. In suits, therefore, upon refunding bonds representing prior indebtedness, it is necessary, in order to sustain the defense of invalidity, to show that [343] tho indebtedness merged in and represented by the refunding bonds was itself invalid and non-énforeeable, either in whole or in part, and, in the present ease, both parties have introduced evidence on this issue. On behalf of plaintiff, it is claimed that tho representations made by J>. L. Richards, the accredited agent of the county, to the effect that all tho indebtedness proposed to be refunded by means of the issuance of the series of bonds which were negotiated by him to plaintiff and others hail been reduced to judgment, and then bonded, estops the county from showing the contrary. 1 do not think the statements made by Richards come within the principle contended for. When these bonds wore offered to the plaintiff, it was known to the parlies acting for llio plaintiff that the series of bonds proposed to be negotiated exceeded in amount 5 per cent, of the taxable property in the county, and therefore, to authorize the issuance thereof, there must be then in existence a valid indebtedness to the amount of §120,000, which it was proposed to refund by the issuance of the bonds in question. The validity of the bonds was asserted upon the claim that the bonds to be refunded represented claims that had been reduced to judgment, and therefore were enforceable against the county. The puchasors knew, and wore bound to know, that, unless this assertion was true, the bonds would be invalid, because in excess of the constitutional limitation, and the purchasers were bound to ascertain what the fact in this particular was. The bonds themselves contain no recital on the subject. The certified copy of the proceedings taken by the board of supervisors in regard to the issuance of the bonds, and which copy was submitted to the purchasers, does not contain any statenient showing that tho bonds proposed to be refunded were based wholly upon, prior judgments. Tho statement relied upon as an estoppel was made by Richards first orally, and then in tho form of an affidavit; but he was not then acting on behalf of the county in ascertaining or certifying to a fact which the law required to be then ascertained and determined as the basis for further action. He was the refunding agent of the county, but ho did not have the power to determine any question or matter pertaining to tho right to issue the bonds. Dixon Co. v. Field, 111 U. S. 83, 4 Sup. Ct. Rep. 315; Daviess Co. v. Dickinson, 117 U. S. 657, 6 Sup. Ct. Rep. 897. The resolution of the board of supervisors appointing Richards declares the object of the appointment to be “for the purpose of funding and refunding the county indebtedness,” and the resolutions adopted by the board under date of April 10,1884, show upon their face that it was the purpose of the board to undertake the bonding of the floating indebtedness, as well as the refunding tho then outstanding bonded indebtedness. Cpon the question of what the bonds proposed to be refunded were the representative, and whether the same were based upon judgments previously rendered against the county, the records of the county constituted the primary and best evidence. Richards had no charge over or connection with those records, nor was he the one to whom application ■would naturally be made by one seeking to know the origin and purpose of the outstanding bonded indebtedness of the county. If the effect [344] of an estoppel is given to statements of .this character, the protection intended to be secured by the constitutional provision limiting the amount of indebtedness of counties and other municipal corporations would be. wholly destroyed. In every instance it could be evaded by the simple device of appointing a refunding agent; and by his statements create an estoppel against the county or city, and thus validate any amount of bonds that might be issued. I hold, therefore, that the representations made by Richards do not operate as an estoppel against the county, but that it is open to the county to show that the bonds merged into the refunding bonds sold by Richards were in whole or in part invalid and non-enforceable. On behalf of the defendant, it is argued that, upon this issue of unconstitutionality, it is open in this proceeding to question the validity of judgments against the county, or of bonds issued to fund or pay judgments against the qounty. In this claim I cannot concur. The constitutional limitation is not self-acting. The protection of its provisions must be invoked at the proper time, and in the proper mode. If judgments are obtained against a county, and the same are not reversed, but remain in full force, they are evidence of the highest nature that the county owes the amounts adjudged to be due; and if the county, having the power to fund its outstanding indebtedness, issues bonds in payment of such judgments, the validity of the bonds cannot be successfully attacked, when suit is brought thereon, by showing that, if the defense had been interposed in the original case, the claim might have been defeated, and that the judgment actually rendered might have been prevented. As is said bv the supreme court in Cromwell v. Sac County, 94 U. S. 351: “Thus for example, a judgment rendered upon a promissory note is conclusive as to the validity of the instruihent, and the amount due upon it, although it be subsequently alleged that perfect defenses actually existed, of which no proof was offered, such as forgery, want of consideration, or payment. If such defenses were not presented in the action, and established by competent evidence, the subsequent allegation of their existence is of no legal consequence. The judgment is as conclusive, so far as future proceedings at law are concerned, as though the defenses never existed.” The argument of counsel would have weight if the constitutional provision was to the effect that no judgment could be rendered against a county under any circumstances. In such case, even though a court should enter up a judgment, its unconstitutionality and invalidity would be self-apparent, and could always be availed of when its enforcement might be attempted, and this for the reason that upon its face the judgment would show that the court was without jurisdiction. A defense based upon the clause limiting the amount of municipal indebtedness to 5 per cent, upon the amount of taxable property is of a wholly different nature. It requires a proper pleading of the facts, and upon the trial proper evidence must be introduced, or'else the defense fails. It makes no difference in the validity of the judgment whether the defendant-failed to plead the defense based upon the constitutional limitation; or [345] failed to sustain the defense, if pleaded, by sufficient evidence. In either case the rendition of the judgment established the validity of the claim against the county, and the judgment, so long as it remains unre-vorsed, cannot be questioned on the ground that the amount thereof exceeds 5 per cent, of the taxable property in the county. The evidence shows that, when the bonds owned by plaintiff were issued and sold, there was outstanding against the county bonds representing judgments, and possibly other enforceable debts, to an amount exceeding 5 per cent, of the taxable property in the county. It follows that, to the extent of this enforceable indebtedness, the county could have issued valid refunding bonds. The amount of bonds issued and sold exceeds the amount of this enforceable indebtedness, and it may be said, therefore, that part of the indebtedness represented by this series of bonds is valid and enforceable and part not. That the holders of these bonds have equities against the county, will not be questioned. The question is, whether effect can be giveji thereto in this action. It is argued that the bonds would be valid until the amount needed to refund the enforceable debt had been reached, and that it will he presumed that the bonds were sold in the order of their number. Such a presumption cannot be indulged in under the facts of this case. To settle the equities and rights of the bondholders against the county, and their rights as between themselves, would seem to require the institution of a suit in equity. In this action at law between one owner of part of the bonds and the county, it is beyond the power of the court to hear arid determine the question of the order in which the series of bonds was sold, or the application of the proceeds realized from the sales thereof, and whether the facts are such that a certain number of the bonds can bo held valid at law, or whether it should not be held that each owner of a bond is equitably entitled to demand his share of the total sum which may be adjudged to be collectible from the county. It seems to me that the only means of solving the difficulties of the situation is for the plaintiff and the other non-resident bondholders to unite in a proper proceeding in equity against the county and such other bondholders as may refuse to act as complainants, and in such suit it can finally be determined for what amount the county can be held liable, and the rights of the respective bondholders in and to this sum can he decreed. As the ease now stands, I hold that the facts show that the series of bonds isued by the county, and negotiated by B. L. Richards, as agent of the county, represent, in part, bonds previously issued, and which were enforceable against the county, and, in part, bonds which were invalid and non-enforccable; but that in the present case at law, and in the absence of interested parties, it is impossible to determine what part or proportion of the coupons sued on belong to bonds that represent the valid indebtedness refunded therein. While the plaintiff has shown a right of recovery against the bounty for some amount, it has Jailed to show a legal right to recover on all the coupons sued on, or any particular number thereof, and hence there is no basis for rendering a judgment at law in the present cause. For this reason, judgment [346] herein must be in favor of defendant; such judgment, however, to be without prejudice to the right oí' plaintiff to establish, in any other proper proceeding, its rights against the county growing out of the purchase by plaintiff of the bonds of the county.