Graves v. Saline County
This case came into the circuit court of appeals for the Seventh circuit at October term, 1894, on an appeal from a decree of the circuit court of the United States for the Southern district of Illinois.

The original action was a suit in equity brought in the circuit court of Saline county, Ill., by the county of Saline as complainant against the treasurer and auditor of public accounts of the state of Illinois and the collector of taxes and clerk of the county court of Saline county, to restrain the levy and collection of the tax required to be levied by the said auditor of public accounts of the state of Illinois to pay the interest on 100 registered refunding bonds of the said county.

Luther R. Graves, one of the holders of such refunding bonds, intervened in the circuit court of Saline county, and had the cause removed to the circuit court of the United States for the Southern district of Illinois, where the Society for Savings, D. B. Wesson, and William Burgoyne, other holders of such bonds, also filed intervening petitions. That court granted the injunction asked for by the county, and the case was then taken by appeal to the circuit court of appeals of the Seventh circuit, and thereupon the latter court certified to this court the following statement of facts and questions for its opinion and instructions:

The appellants were, prior to the year 1883, bona fide holders for value and before maturity of certain bonds issued by the county of Saline to the Belleville & Eldorado Railroad Company and to the St. Louis & Southeastern Railway Company, respectively. These bonds ($75,000 in amount to the former and $25,000 in amount to the latter company, and bearing interest at the rate of 8 per centum per annum, payable semiannually) were issued under authority of acts of the general assembly of the state of Illinois passed in the years 1861 (Priv. Laws Ill. 1861, p. 485) and 1869 (3 Priv. Laws Ill. 1869, p. 238), and pursuant to an election duly ordered and held according to law on the 9th day of October, 1869, and in payment of subscriptions to stock in said companies, respectively, dated January 15, 1870, duly authorized by said election, upon certain conditions, one of which was that said railroad should be commenced within one year and completed within three years from the date of subscription, and another of the conditions was that the St. Louis & Southeastern Railway should pass, and a depot be established, within one-half mile of the old courthouse in Raleigh, and within one-half mile of the church in Galatia.

These bonds to the St. Louis & Southeastern Railway Company were dated January 1, 1872, payable 20 years after date, with option of paying 5 years after date, and were issued and delivered to that company February 1, 1872, and were purchased in open market by the appellants, and for value, and without notice, prior to the year 1876. The railroad was never constructed within one-half mile of the old courthouse in Raleigh, or within one-half mile of the church in Galatia, but was constructed in a different direction, and the said condition was in no sense complied with, but was waived by the board of commissioners of said county after July 2, 1870.

The time for the completion of the Belleville & Eldorado Railroad was, by the board of commissioners of the county of Saline after July 2, 1870, extended from time to time and until October 20, 1877, and the bonds were issued and delivered on the 19th day of April, 1877, being dated March 9, 1877, and payable 20 years after the 1st day of January, 1873, with option of paying 5 years after date.

The amendment to the constitution of the state of Illinois which went into effect July 2, 1870, provided: 'No county, city, town, township or other municipality shall ever become subscriber to the capital stock of any railroad or private corporation, or make donations to or loan its credit in aid of such corporation; provided, however, that the adoption of this article shall not be construed as affecting the right of any such municipality to make such subscriptions where the same have been authorized, under existing laws, by a vote of the people of such municipalities prior to such adoption.'

The bonds issued to the St. Louis & Southeastern Railway Company were valid obligations of the county in the hands of the appellants under the decisions of the supreme court in the cases of Insurance Co. v. Bruce, 105 U.S. 328, and Oregon v. Jennings, 119 U.S. 74, 7 Sup. Ct. 124.

The bonds issued to the Belleville & Eldorado Railroad Company were void even in the hands of bona fide purchasers for value, within the decision of German Sav. Bank v. Franklin Co., 128 U.S. 526, 9 Sup. Ct. 159.

The bonds to the St. Louis & Southeastern Railway Company were issued before and those to the Belleville & Eldorado Railroad Company were issued after the decision of the supreme court of Illinois in the case of Town of Eagle v. Kohn, 84 Ill. 292, decided in 1876.

The validity of none of these bonds was at any time questioned by the county of Saline until December 30, 1889, and the county had annually paid the interest on all of these bonds from the time of their issue until they were exchanged for funding bonds of the county, as hereinafter stated.

The county of Saline has always retained and now has the stock in said railway companies obtained by it for the bonds so issued to said railway companies, respectively; but such stock is now, and always has been, wholly worthless, and of no value.

The general assembly of the state of Illinois, by act approved February 13, 1865, and by acts amendatory thereto approved April 27, 1877, and June 4, 1879, enacted as follows (Rev. St. Ill., Cothran's Ann. Ed. 1881, p. 1119; 2 Starr & C. St. c. 113, p. 1877):

'Section 1. That in all cases where any county, city, town, township, school district or other municipal corporation has issued bonds or other evidences of indebtedness for money, or has contracted debts, which are the binding, subsisting legal obligations of such county, city, town, township, school district or other municipal corporation, and the same, or any portion thereof, remain outstanding and unpaid, it shall be lawful for the proper corporate authorities of any such county, city, town, township, school district or other municipal corporation, upon the surrender of any such bonds or other evidences of indebtedness, or any number or portion thereof, to issue, in lieu or place thereof, to the owners or holders of the same, new bonds prepared as hereinafter directed, and for such amounts, upon such time, not exceeding twenty years, payable at such place, and bearing such rate of interest, not exceeding seven per centum per annum, as may be agreed upon with the owners or holders of such outstanding bonds or other evidence of indebtedness: provided, that bonds issued under this act, to mature within five years from their date, may bear interest not to exceed eight per cent. per annum. And it shall also be lawful for the proper corporate authorities of any such county, city, town, township, school district, or other municipal corporation to cause to be thus issued such new bonds, and sell the same to raise money to purchase or retire any or all of such outstanding bonds or other evidences of indebtedness; the proceeds of the sales of such new bonds to be expended, under the direction of the corporate authorities aforesaid, in the purchase or retiring of the outstanding bonds or other evidences of indebtedness of such conty, city, town, township, school district or other municipal corporation, and for no other purpose whatever. All bonds or other evidences of indebtedness, issued under the provisions of this act, shall show upon their face that they are issued under this act, and the purpose for which they are issued, and shall be of uniform design and style throughout the state, to be prescribed by the state auditor, whose imperative duty it shall be to devise and prepare such uniform style and draft adapted to the classes of bonds herein provided for, namely, the first class to consist of bonds of which only the interest is payable annually; the second class to consist of those of which the interest and five per centum of the principal are to be paid annually, and the third class to consist of a graduated series, the first grade made payable, principal and interest, at the end of one year from the date of issue; the second at the end of two years, and thus to the end of the series, the class to be issued being at the option of the legal voters expressed as herein provided. In any case, the new bonds, or other evidences of indebtedness, authorized to be issued by this act, shall not be for a greater sum in the aggregate, than the principal and accrued or earned interest unpaid of such outstanding bonds or other evidences of indebtedness. And when such new bonds or other evidences of indebtedness shall have been issued, in order to be placed on the market and sold to obtain proceeds with which to retire outstanding bonds or other evidences of indebtedness, it shall be the duty of the state auditor, on the request of the corporate authorities issuing them, and at the expense of the corporation in whose behalf the issue is thus made, to negotiate the same, at not less than par value, and on the best terms which can be obtained: provided, always, that any such county, city, town, township, school district or other municipal corporation issuing bonds under the provisions of this act, may, through its corporate authorities duly authorized, negotiate, sell or dispose of said bonds, or any part thereof, at not less than their par value, without the intervention of the auditor of state: and provided further, that no new bonds or other evidences of indebtedness shall be issued under this act, unless the same shall be first authorized, as hereinafter provided by a vote of a majority of the legal voters of such county, city, town, township, school district or other municipal corporation voting at some general election, or special election held for that purpose.' Under and by virtue of this provision of law the board of commissioners of the county of Saline duly ordered an election to determine the question of issuing the bonds of the county for the purpose of paying and redeeming the bonds above stated issued to the St. Louis & Southeastern Railway Company and to the Belleville & Eldorado Railroad Company and to another railway company, respectively, and at such election, duly held according to law on the 6th day of November, 1883, a majority of the legal voters of the county of Saline voting at such election voted in favor of such proposition. On the 15th day of November, 1883, the board of commissioners of the county, by order duly made and entered, ordered, in compliance with such vote, that 195 bonds of said county, of $1,000 each, be issued to take up and pay off the said bonds so issued to the St. Louis & Southeastern Railway Company, the Belleville & Eldorado Railroad Company, and said other company; and the duly-constituted officers of said county thereafter, on the 1st day of July, 1885, issued the bonds of said county in strict conformity with said act, to the amount in the aggregate of $100,000, to take up and pay off the said bonds so issued to the St. Louis & Southeastern Railway Company and to the Belleville & Eldorado Railroad Company, each of said bonds being of the tenor and effect following:

'United States of America. $1,000.

'State of Illinois, County of Saline, Funding Bond, Issued under the Act of 1865, as Amended April 27, 1877, and June 4, 1879.

'Twenty years after date, for value received, the county of Saline promises to pay to the bearer hereof the sum of $1,000 in lawful money of the United States, at the office of the treasurer of the state of Illinois in the city of New York, with interest at the rate of six per cent. per annum, payable annually, as shown by and upon the surrender of the anexed coupons as they severally become due, shown by and upon the surrender of the annexed bond at any time after five years from date. This bond is one of a series of 195 of like tenor, issued for the purpose of funding and retiring certain binding, subsisting, legal obligations of said county, which remain outstanding and unpaid, under the provisions of an act of the general assembly of the state of Illinois entitled 'An act to enable counties, cities, towns, townships, school districts and other municipal corporations to fund, retire and purchase their outstanding bonds, and other evidences of indebtedness, and provide for the registration of new bonds, or other evidences of indebtedness, in the office of the auditor of public accounts,' approved February 13, 1865, and acts amendatory thereto, approved April 27, 1877, and June 4, 1879, and in pursuance of a vote of the majority of the legal voters of said county voting at an election legally called under said act, the 6th of November, 1883. We hereby certify that all requirements of said acts have been fully complied with in the issue thereof. In testimony whereof, we, the undersigned officers of said county, being duly authorized to execute this obligation on its behalf, have hereunto set our signatures this 1st day of July, A. D. 1885.

W. G. Frith,

'Chairman of the County Board.

'[Seal.] W. E. Burnett, County Clerk.'

Each of said bonds was duly registered according to law with the auditor of the state of Illinois, who indorsed upon each of said bonds the following:

'State of Illinois. $1,000.

'Saline County Bond.

'Date of bond: July 1, 1885. Payable twenty years after date. Redeemable five years after date. Interest payable July 1, annually. Principal and interest payable at the office of the state treasurer of the state of Illinois in the city of New York, and state of New York.

'Auditor's Office, Illinois.

'Springfield, Nov. 23d, 1885.

'I, Charles P. Swigert, auditor of public accounts of the state of Illinois, do hereby certify that the within bond has been registered in this office this day, pursuant to the provisions of an act entitled 'An act to enable counties, cities, towns, townships, school districts and other municipal corporations to fund, retire and purchase their outstanding bonds and other evidences of indebtedness, and to provide for the registration of new bonds, or other evidences of indebtedness, in the office of the auditor of public accounts,' approved February 13, 1865, and acts amendatory thereto, approved April 27, 1877, and June 4, 1879. I further certify that the aggregate equalized valuation of property assessed for taxation in said county for the year 1885 were certified to this office as follows: Real estate, $1,362,931. Personal property, $477,340. In testimony whereof, I have hereunto subscribed my name, and affixed the seal of my office, the day and year aforesaid.

'[Seal.] Charles P. Swigert,

'Auditor Public Accounts.'

The county of Saline appointed an agent to solicit the exchange of bonds, and obtained from the appellants and canceled the old bonds respectively held by them, and issued to them the funding bonds in lieu thereof. The county of Saline thereafter, until the year 1890, paid the annual interest on such new issue of bonds.

Upon these facts the questions certified were as follows:

'First. Is the county of Saline estopped by the recital in the funding bonds to assert that the bonds issued to the St. Louis and Southeastern Railway Company and to the Belleville and Eldorado Railroad Company, respectively, and for which the funding bonds were exchanged, were not binding, subsisting, legal obligations of said county?

'Second. Are the funding bonds so issued by the county of Saline legal, valid, and binding obligations upon said county in the hands of a bona fide holder for value before maturity?

'Third. If the court should be of opinion that the funding bonds are invalid, would it be competent for the court in this cause, which is a suit in equity instituted by the county of Saline to restrain officers of the law from levying and collecting a tax as required by law to pay the interest upon the funding bonds, to grant the relief asked only upon condition that the county of Saline pay to the holders the amount of the valid bonds issued to the St. Louis and Southeastern Railway Company which were exchanged for the funding bonds?'

Geo. A. Sanders and T. C. Mather, for appellants.

S. P. Wheeler, for appellee.

Mr. Justice SHIRAS, after stating the facts in the foregoing language, delivered the opinion of the court. 

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