Marshall v. Town of Elgin , 8 F. 783 ( 1881 )

Nelson, District Judge.

These cases are tried together without a jury. The only matters relied on in defense are:

First-—That the provisions of Chap. 106, General Laws of Minnesota of 1877, and particularly of Sec. 7, under which the bonds and coupons issued, were unconstitutional and void.

Second-—That the decision of the Supreme Court of Minnesota in the case of Harrington v. The Plainview Railroad Company, is conclusive and binding in respect to the first point, upon the Federal Courts, as an exposition and construction of the constitution of the State of Minnesota.

The views taken by the Court will render it necessary to consider only the second defense urged. The following propositions must control the decision:

First—The recitals in the bonds are conclusive evidence in favor of the plaintiffs, who purchased without other information than that which appears upon their face, that all the conditions precedent prescribed in the law had been complied with.

Second—If the law under which the bonds issued had been sustained and recognized as valid by the highest Court of the State at the time, no subsequent act of the judiciary can impair their validity in the hands of the plaintiffs.

The bonds on their face refer to the law under which power to issue them was given by the Legislature, and the coupons, though detached, are described with sufficient certainty in the complaint, and the evidence is plain that they belonged to the bonds issued. If the bonds are valid obligations, the coupons are identified and follow the bonds, so that if the second proposition can be applied, the plaintiffs are entitled to recover.

In State ex rel. v. Town of Highland, 25 Minn., 355 a case arose under the act of 1877, and Sec. 7 was before the Supreme Court of the State. Proceedings for a mandamus to compel the town of Highland to comply with the mutual agreement entered into as prescribed by this section, were instituted, and on motion to quash the alternative writ which had issued, the respondent’s counsel presented and urged in a written brief among other things the following, as appears by the records on file, but not given in the report of the case, viz:

“Fourth—Because the act of 1877, Chap. 106, in so far as it attempts to empower a majority of the tax-payers of a town by means of a petition to enter into and bind the town by agreement, is unconstitutional and void.”

The Court, in its decision, after citing the principal provisions of the act, say, “We think the following propositions clearly deducible:

“ First—The statute authorizes a town to aid the construction of railroads. It does not authorize aid to roads already constructed. The idea of the lawmaker unquestionably was, to authorize aid to be given to roads which were believed to require aid to secure their construction, and not to roads which had been constructed without such aid.”

“Second—The aid is to be rendered by the making of a mutual agreement between the town and the railroad company, by which the town is legally bound to issue its bonds to or for the use of the company, upon performance by the latter of its part of the agreement, and by the issue of bonds accordingly.”

“ Third—Until the mutual agreement is arrived at and perfected, as provided in Sec. 7, no legal liability or obligation whatever is imposed upon or incurred by the town in the premises. In other words, unless an agreement is arrived at and perfected as there provided, all steps which may have been taken with the intent of arriving at and perfecting one, or looking in that direction, are absolute nullities.”

Here was a recognition, in my opinion, of the validity of this law, and a full and comprehensive construction of the section It is true the Court did not consider the constitutional question, but the decision did not express a doubt, and at least favored its validity. This decision was rendered January 10, 1879, and at that time the bonds with the coupons in suit, of the town of El-gin, had been issued and were in the market as commercial securities. The Plainview Railroad Company had also entered into an agreement with the town of Plainview, and by the construction of its road was entitled to receive town bonds, when a suit was commenced in the District Court of the State, by a taxpayer and citizen of the town, entitled Harrington v. Town of Plainview et al., to enjoin and restrain their issue, and a preliminary injunction issued. This suit was subsequently tried and the action was dismissed by the Court and the injunction dissolved, and the town issued its bonds. An appeal to the Supreme Court of the State was taken by Harrington, and among other things it was argued on the hearing that Sec. 7 of the act was unconstitutional, and it was so declared by the Court. It is insisted that this decision of the highest Court of the State is binding, and the defendants entitled to judgment. Such is not my opinion. The Federal Courts, it is true, generally follow the adjudication of the highest Courts of the State in the construction of its statutes, but exceptions are recognized, and these cases fall within the rule laid down in The City v. Lamson, 9 Wall., 477, which is, briefly, where a decision of the highest judicial tribunal at the time the bonds issued, favors the validity of the law under which they issued, a subsequent decision impairing their validity will not be followed to the prejudice of bona fide holders. To the same effect is Douglas v. Pike County, 191, U. S. R., 687. “We have no hesitation in saying that the rights of the parties are to be determined according to the law as it was judicially construed to be when the bonds were put on the market as commercial paper.” See collated authorities in Dillon on Municipal Corporations.

The question as stated by the Court in that case is not so much whether the last decision was right, as whether it should be followed.

These bonds having been purchased by the plaintiffs before the decision in the Harrington case, and no previous expression by the Court other than that contained in State v. Town of Highland, are “clean obligations to pay” not affected by the last decision of the Court.

It is urged that the bonds are invalid in the plaintiff’s hands by the fact that they were purchased during the pendency of the suit in which the law was held to be unconstitutional. The answer to this proposition is, that the plaintiffs were not parties to, and had no knowledge of that suit, and the rule that all persons are bound to take notice of a pending suit does not apply to negotiable securities. 97 U. S. Rep., p. 96.

The plaintiffs are entitled to judgment in each case, and is so ordered.

N U. Pinney and Thos. Wilson, for plaintiffs. Gordon E. Cole and Robt. Taylor, for defendants.