A circuit court has jurisdiction of a suit brought in the name
of the state in which the circuit is situated, on the relation of a
citizen of another state, to enforce the obligations of a bond
given by citizens of the state in which the suit is brought for the
faithful performance of his duties by a municipal officer of that
state.
A certificate, made and payable in a state out of a particular
fund, and purporting to be the obligation of a municipal
corporation existing under public laws and endowed with restricted
powers, granted only for special and local purposes of a
noncommercial character, is not governed by the law merchant, and
is open in the hands of subsequent holders to the same defenses as
existed against the original payee.
The sureties on the bond of the trustee of a municipal township
in Indiana are not subjected by the Revised Statutes of that state,
§§ 6006, 6007, to liability for the payment of warrants
or certificates which, apart from those sections, it was not within
the authority of the trustee to execute, or which were fraudulent
in themselves.
A township trustee in Indiana cannot contract a debt for school
supplies unless supplies suitable and reasonably necessary for the
township have been actually delivered to and accepted by it.
This was an action brought in the name of the State of Indiana,
on the relation of Walter Stanton, trustee, a citizen of New York,
against Arista Glover and four other defendants, citizens of
Indiana, on the official bond of said Glover as trustee of Mill
Creek Township, in the County of Fountain, State of Indiana, the
other defendants being sureties on said bond. The complaint was
demurred to on the grounds that it did not state facts sufficient
to constitute a cause of action, and that the court had no
jurisdiction of the subject
Page 155 U. S. 514
matter. The demurrer was sustained and judgment rendered in
favor of defendants, and plaintiff sued out a writ of error.
The complaint averred that Glover was elected trustee of the
township April 7, 1884, qualified April 19th, and entered upon the
discharge of his duties as such, and so continued until some time
in the month of August or September, 1885, when he abandoned his
office and fled the country; that on April 19, 1884, he executed
his bond as such trustee, with his codefendants as sureties
thereon, a copy of which bond is made part of the complaint, and
the first condition expressed therein is that "the said Arista
Glover shall well and faithfully discharge the duties of said
office according to law." The complaint stated facts showing that,
under the provisions of law in that behalf, the township trustee
had no right to incur any further debt on behalf of his township
without first procuring an order from the board of county
commissioners allowing him to contract therefor, and averred that,
in violation of the duties of his office and of the terms of his
bond, said Glover executed and delivered to R. B. Pollard certain
promissory notes, seven in number, aggregating $5,375.76, all of
the same form, filed as exhibits, and made part of the complaint,
and one of which is as follows:
"$772.50 State of Indiana, County of Fountain, Trustee's
Office"
"Mill Creek School Township, May 19th, 1885"
"This is to certify that there is now due from this township to
R. B. Pollard or order seven hundred & seventy-two & 50/100
dollars, for school supplies bought for and received by this
township, and payable out of the special school funds, for which
taxes are now levied at the Citizens' Bank at Attica, Indiana, on
the 20th day of January, 1887, with interest at 8 percent per annum
on the amount from date till paid, and attorney's fees."
"Arista Glover"
"
School Trustee of Mill Creek Township"
It was further alleged that Glover,
"as such trustee, did not at or prior to the execution of said
promissory notes, or either
Page 155 U. S. 515
or any of them, nor at any other time obtain any order from the
Board of Commissioners of said Fountain County authorizing him to
contract any indebtedness for or in the name of said Mill Creek
School Township, but the execution and delivery of said notes, and
each and every of them, was executed and issued in express
violation of the provisions of sections one and two of the Act of
the General Assembly of the State of Indiana entitled 'An act to
limit the powers of township trustees in incurring debts and
requiring them to designate certain days for transacting township
business,' approved March 11, 1875, the same being sections
numbered 6006 and 6007 of the Revised Statutes of the State of
Indiana."
The complaint then averred the transfer by Pollard of the notes,
in blank, for value received, to certain banks and a trust company,
citizens of Rhode Island, and their transfer and delivery to the
plaintiff; that subsequent to the endorsements, and prior to the
institution of the suit, Pollard abandoned his residence and
citizenship in the United States and fled beyond the seas, and that
plaintiff was unable to state whether Pollard had acquired a
citizenship in a foreign country, or of what country; but plaintiff
averred that he is not now, and was not at the commencement of this
action, either a resident or citizen of the State of Indiana.
In the second paragraph or count of the complaint, plaintiff
averred that Glover
"did, in violation of the duties of his office and of the terms
and conditions of his bond aforesaid, purchase and obtain from one
R. B. Pollard a large amount of goods for the use of the schools of
said Mill Creek Township, and in payment therefor did execute and
deliver to said R. B. Pollard"
the notes (describing them), and that said Glover,
"as such trustee, did not at, or prior to the purchase of said
goods or the execution and delivery of said promissory notes, or
either or any of them, nor at any other time, obtain any order from
the Board of Commissioners of said Fountain County authorizing him
to contract any indebtedness for or in the name of said Mill Creek
School Township, but the purchasing of said goods and the execution
and delivery of said notes, and each and every of them, was made in
express violation of the provisions"
of sections 6006 and 6007. Both paragraphs of the complaint were
otherwise the same, and the breach alleged was the execution of the
notes or certificates in question.
Section 6006 of the Revised Statutes of 1881 is:
"Whenever it becomes necessary for the trustee of any township
in this state to incur on behalf of his township any debt or debts
whose aggregate amount shall be in excess of the fund on hand to
which such debt or debts are chargeable, and of the fund to be
derived from the tax assessed against his township for the year in
which such debt is to be incurred, such trustee shall first procure
an order from the board of county commissioners of the county in
which such township is situated authorizing him to contract such
indebtedness."
Section 6007 provided for the manner in which such order of the
board of country commissioners should be obtained by the
trustee.
On March 5, 1883, an act of the legislature of Indiana was
approved entitled "An act touching the duties of township trustees
with reference to liquidating and contracting indebtedness of
townships in certain cases." The second section of this act reads
as follows:
"And it is further provided that any township trustee, in any
county of the State of Indiana, who shall contract any debt in the
name or in behalf of any civil or school township of which he may
be the trustee, contrary to the provisions of sections one and two
of 'An act to limit the powers of township trustees in incurring
debts, and requiring him to designate certain days for transacting
township business,' approved March 11, 1875 (the same being
numbered 6006 and 6007 of the Revised Statutes of the State of
Indiana) shall be personally liable, and liable on his official
bond, to the holder of any contract or other evidence of such
indebtedness for the amount thereof."
Stats.Ind. 1883, c. 95, p. 114. This act was repealed March 9,
1889, Stats/Ind. 1889, c. 138, p. 278, but was in force at the date
of the bond sued on, and at the date of the alleged breach
thereof.
Page 155 U. S. 517
MR. CHIEF JUSTICE FULLER, after stating the facts in the
foregoing language, delivered the opinion of the Court.
The case must be treated, so far as the jurisdiction of the
circuit court is concerned, as though Stanton was alone named as
plaintiff.
Maryland v. Baldwin, 112 U.
S. 490. If the suit could be regarded as founded on the
certificates attached to the complaint, there would be a want of
jurisdiction, as it does not appear that Pollard could have
prosecuted the suit in the circuit court, Rev.Stat. § 629; Act
of March 3, 1875, 18 Stat. 470, c. 137; 24 Stat. 552, 553, c. 373.
But as the suit is upon the bond, and Stanton and his
cestuis
que trustent were citizens of other states than Indiana, we
think the jurisdiction may be maintained.
But although the suit is upon the bond, the liability asserted
under section two of the act of 1883 is to the holder of the
certificates, "for the amount thereof," and the breach alleged is
the execution of the certificates.
Such a liability might be transferable to successive holders of
the warrant or certificate, but it would seem quite clear that if
the liability did not exist in favor of the payee, subsequent
holders would stand in no better position. Certificates like those
exhibited in the case at bar, made and payable in Indiana out of a
particular fund and purporting to be the obligations of a
corporation existing under public laws and endowed only with
restricted powers granted for special and purely local purposes of
a noncommercial character, are not governed by the law merchant,
and are open, in the hands of subsequent holders, to the same
defenses as existed against the original payee.
Stanton v.
Shipley, 27 F. 498;
State
Page 155 U. S. 518
ex Rel. Cohen v. Hawes, 112 Ind. 323;
Merrill v.
Monticello, 138 U. S. 673.
The contention is that where an order of the county
commissioners is requisite, under sections 6006 and 6007 of the
Revised Statutes of Indiana to empower a township trustee to
contract indebtedness, and has not been obtained, the mere fact of
the issue of a warrant or certificate by the trustee, in form the
warrant or certificate of the township, authorizes the recovery of
the amount thereof of the trustee and his sureties by suit on the
official bond. We cannot concur in that view.
The section in question provides that when the trustee contracts
a debt in the name or in behalf of the township, without the proper
order of the county commissioners, if required, liability on the
official bond is incurred to the holder of the contract or other
evidence of such indebtedness. The indebtedness thus referred to is
manifestly an indebtedness contracted within the line of official
duty and authority for something furnished to or obtained for the
township, although in disregard of the provisions of sections 6006
and 6007. The sureties were not subjected to liability by the
statute for the payment of warrants or certificates which, apart
from those sections, it was not within the authority of the trustee
to execute or which were fraudulent in themselves, but only when
persons had in good faith parted with money or property to the
township on the strength of the official character of the
transaction. Such we understand to be the construction put upon the
act by the highest judicial tribunal of Indiana. That court, in
Jeffersonville School Township v. Litton, 116 Ind. 467,
475, pointed out that, by the first section of the act, provision
was made for the protection of creditors without actual knowledge
of the facts, where a township trustee had theretofore undertaken
to incur debts without an order of the county commissioners, when
such an order was requisite, and that by the second section it was
attempted to check further extravagance and at the same time to
save innocent creditors. But a writing purporting to be evidence of
such indebtedness could not create it. And, in respect of school
supplies, the Supreme Court of Indiana has decided
Page 155 U. S. 519
"again and again that a township trustee has no power, by any
form of obligation, to bind the corporation of which he is the
agent or trustee by contract for school supplies, unless supplies
suitable and reasonably necessary have been actually delivered to
and received by the township."
Boyd v. Mill Creek School Township, 114 Ind. 210.
In
State v. Hawes, 112 Ind. 323, the action was brought
on the official bond of a trustee to recover for a certificate made
to Pollard, purporting to be for school supplies bought and
received by the township, it being averred that the same was
executed in violation of sections 6006 and 6007. The certificate
was in fact issued without any actual consideration, and the
supreme court said:
"The liability imposed by the act of 1883 requires, as a
condition precedent, that the township trustee must have contracted
a debt, in the name or in behalf of his township, either civil or
school, and the debt must have been contracted in violation of the
provisions of sections 6006 and 6007, Rev.Stat. 1881. If,
therefore, the transaction in which the certificate had its
inception was such as to create no debt. or if the debt created was
not within the prohibition of the above-mentioned sections,
manifestly the statutory liability has not been incurred by anyone.
. . . The mere delivery of a piece of paper which imports an
obligation to pay money, but which is in fact no evidence of an
actual, existing debt, does not constitute the contracting of a
debt. It cannot be supposed that it was the purpose of the statute
to enable a holder of a contract, or other evidence of
indebtedness, issued by a township trustee in the name or in behalf
of his township, to hold the trustee personally liable and liable
on his official bond, whether an indebtedness had been in fact
contracted or not. A recovery, in any case, is limited by the
statute to the amount of the indebtedness, and not by the amount
stipulated in the contract. Hence, given a case in which there is
no indebtedness -- that is, no one who occupies the situation of a
creditor -- and there can be no recovery under the statute.
Stanton v. Shipley, 27 F. 498. A township trustee cannot
contract a debt for school supplies unless supplies suitable and
reasonably necessary for the township have been
Page 155 U. S. 520
actually delivered to and accepted by the township.
Bloomington School Township v. National School Furnishing
Co., 107 Ind. 43;
School Township v. Dodson, 98 Ind.
497;
Wallis v. School Township, 75 Ind. 368."
"Where, therefore, as is the case here, paper purporting to be
the obligation of a township has been issued without any
consideration whatever -- nothing having been given or received
therefor -- the holder of such paper, whether he be the payee named
therein or an assignee, has no right of action under the act of
1880, because the trustee has not, in any legal or equitable sense,
contracted a debt. Such paper creates no obligation against anyone.
It is void.
Axt v. School Township, 90 Ind. 101. Since
township trustees can issue obligations binding on the township
only in case a debt has been contracted, and since, in any event,
paper issued as evidence of an actual indebtedness already incurred
by a municipal corporation, which possesses only limited powers,
conferred for special and local purposes, of a purely noncommercial
character, is not negotiable according to the law merchant, a
subsequent holder of paper issued by a township trustee can occupy
no better ground than that occupied by the person to whom it was
issued. . . . The certificate having been issued in the name and in
behalf of the township, without power or authority and not as
evidence of any debt contracted by the trustee, it was absolutely
void in the hands of the original payee, both as respects the
trustee personally and the township, and being for that reason void
in his hands, it was equally invalid in the hands of any subsequent
holder."
In
State ex Rel. Cunningham v. Helms, 35 N.E. 893, the
action was against Helms and others, sureties on his bond, as
trustee of Sugar Creek Township, to enforce the liability on such
bond, and the complaint averred that Helms, being the trustee of
the township, was engaged in erecting a schoolhouse suitable for
the educational purposes of the township, and necessary therefor,
and that to complete the building it became necessary for him to
borrow money and incur an indebtedness on the part of his township;
that, in order to obtain money in that behalf, he, as such trustee,
and in the
Page 155 U. S. 521
name and in the behalf of the township, executed a promissory
note to the relator, exhibited with the complaint; that thereupon
the trustee received the sum represented by the note, in money, for
the purposes aforesaid, and that the loan was made and the fund was
received by the trustee for those purposes, but that the trustee,
without the knowledge of the plaintiff, appropriated the fund to
his own use; that the facts existed bringing the case within
sections 6006 and 6007, but the trustee did not at any time procure
an order from the board of commissioners of said county, in which
the township was situated, authorizing him to contract such
indebtedness, and that plaintiff loaned the money to the township
in good faith, and without any knowledge of the facts that there
were no funds in hand, or a sufficient amount of funds arising from
the current levy, to pay the debt so made. The Supreme Court of
Indiana held that the note, which was signed, "Trustee of Sugar
Creek Township, Indiana," was, under the circumstances, the note of
the township, and not of the trustee individually; that a municipal
or
quasi-corporation can make, in a proper case, a
promissory note, and thereby bind itself for any debt contracted in
the course of its legitimate business, for any expenses incurred in
any matter or thing which it is authorized to do, or any matter
which is not foreign to the purposes of its creation; that where
money is loaned to a township trustee for building a suitable
schoolhouse, the trustee not then having the funds on hand to
complete the same, and the money is applied to such purpose, the
school township represented by such trustee, and receiving the
benefit of such money, is liable therefor; that under the averments
in the complaint, the trustee did contract a debt in the name of
and in behalf of his township; that as the complaint charged the
violation of sections 6006 and 6007 by the trustee, but that he had
secured the money in the name of the township by virtue of and
under color of his office, he and his bondsmen were liable under
the Act of March 5, 1883, for the amount of money so received and
converted.
Township v. Litton and
State v. Hawes,
supra, were cited.
It will be perceived that the consideration of the notes was
Page 155 U. S. 522
fully set forth in the pleading, that it appeared therefrom that
the indebtedness was contracted in the line of official duty and
authority, and that the money was loaned in good faith.
Tested by these principles, the defect in the complaint before
us lies in the failure to show that any debt was contracted within
the meaning of the act of 1883.
The first paragraph contains no averment as to what the
certificates were given for. The certificates stated that the sums
specified therein were due for "school supplies," or "for maps,
charts, and supplies," "bought for and received by this township;"
but the action was upon the official bond, and not upon the
certificates, and the latter could neither add to nor take from the
pleading, and, "to withstand a demurrer, the pleading must be good
within itself, without reference to the writing."
State v.
Helms, supra. If, however, resort were had to the recitals in
the certificates to aid the complaint, the paragraph would still be
lacking, for it would not appear therefrom that the supplies were
suitable and necessary for the township.
The second paragraph alleged that the consideration of the
certificates was "a large amount of goods for the use of the
schools of said Mill Creek Township," but it was not averred that
the goods were suitable and necessary, or were delivered to and
received by the township.
There was no averment as to value, and it appeared in neither
count that school supplies suitable and necessary for the township
formed the consideration of the certificates. No basis was laid for
the claim that they were taken by the payee in good faith, as
issued either in virtue or under color of office.
Grimsley v.
State, 116 Ind. 130;
Bloomington School Township v.
National School Furniture Co., 107 Ind. 43;
Litton v.
Wright School Township, 127 Ind. 81;
Honey Creek School
Township v. Barnes, 119 Ind. 213.
We do not regard the averments as sufficient under the Act of
March 5, 1883, as interpreted by the supreme court of the
state.
Judgment affirmed.
