Municipal bond

“ These have generally arisen upon municipal bonds, authorized by statute, upon the vote of the majority of the citizens of a particular city, county, or town, and in which certain persons or officers are designated to ascertain and certify as to the result. If, in such cases, the bonds refer to the statute, and recite a compliance with its provisions, and have passed for a valuable consideration into the hands of a bona fide purchaser, without notice of any defect in the proceedings, the municipality has been held to be estopped from denying the truth of the recitals. ”

“ It is true that by the tenth section of the act of congress of June 25, 1890, the loan commissioners were authorized to refund municipal bonds 'upon the official demand of said authorities' of the municipalities ”

“ On the other hand, the bonds of counties, townships, and small cities are usually quite inactive. Transactions rarely occur in them, dealers do not make a market in them, and they can be sold only to genuine investors. It is often impossible to have them even quoted.
At first sight, it would appear that active municipal bonds would be much more desirable, but inactive municipals possess a special advantage which the active ones do not enjoy. ”

“ The power to issue certificates of indebtedness or bonds is given in terms, and it is contemplated that these instruments may be sold to raise money for the purpose named. But, however narrowly we may construe the power of municipal corporations in this respect, when they are authorized to raise money by the sale of bonds we must take it that they are authorized to put the bonds in the form that would be almost a necessary condition to obtaining a purchaser,-the usual form in which municipal bonds are put upon the market. ”

“ The rate of income to be derived from investment in municipal bonds varies in accordance with the obligations selected. Like other forms of security, municipal bonds are controlled by market conditions, and their price is determined by the relations of supply and demand, and by adjustment to prevailing money rates. While differing only moderately from one another in point of safety and income return, municipal bonds may be divided into two distinct classes in accordance with the degree of convertibility which they possess. Some municipal bonds possess great convertibility ”

“ But in favor of a purchaser of municipal bonds all this is to be disregarded, and a debt contracted without authority, and in violation of express statute, is to be collected out of the property of the helpless man who owns any in that district. ”

“ These bonds, therefore, carried upon their face unmistakable evidence that the forms of the law under which they purported to have been issued had not been complied with, because thirty days had not elapsed between the time the law took effect and the date of the election. If a purchaser may be, as he sometimes is, protected by false recitals in municipal bonds, the municipality ought to have the benefit of those that are true. ”

“ Dealers in municipal bonds are charged with notice of the laws of the State granting power to make the bonds they find on the market. This we have always held. If the power exists in the municipality, the bona fide holder is protected against mere irregularities in the manner of its execution, but if there is a want of power, no legal liability can be created. When the bonds now in question were put out, the law required that to be valid they must be certified to by the auditor of state. ”

“ Such was the earliest exposition of the Constitution, made by the court of last resort in the State, twice since recognized by it, and recognized also by repeated legislative action. There is every reason to believe that the rule has been relied upon, and that on the faith of it many municipal bonds have been issued, bought, and sold in the markets of the country. ”

“ The bonds in suit upon their face import: 1st, That the faith of the city is irrevocably pledged for their payment. 2d, That they were issued in pursuance of the power which the council possessed to borrow money on the credit of the city and issue bonds therefor, and also in accordance with certain ordinances which provided for a loan for municipal purposes. The recitals of the bonds, in themselves, furnish no ground whatever to suppose that the council transcended its authority, or issued them for other than such purposes. They justify the opposite conclusion. ”

“ The further award of the annual sum of $10,000 to the relator, payable out of the remaining seventenths of the one per cent. levy cannot be justified. That fund, by the terms of the charter of the city, under which the bonds were issued, is authorized for the purpose of paying the necessary current expenses of administration, not including payments on account of the bonds of the municipal corporation. ”

“ The city railroad and machine shop 7 per cent. bonds to be refunded, at 50 cts. on the dollar, into a 30-year 5 per cent. bond, payable at any time after 10 years, and the school-district funding and bridge 10 per cent. bonds to be refunded into a like bond, at the rate of 75 cts. on the dollar of the present amount of bonds outstanding. This would make the amount of our city and school-district debt about 20 per cent. of our valuation, leaving out of consideration our proportion of the county indebtedness, which, if considered, would still leave our debt about 30 per cent. ”

“ If no such act was ever passed by the legislature of Illinois, the bonds are void. A municipal corporation cannot issue bonds in aid of extraneous objects without legislative authority, of which all persons dealing with such bonds must take notice at their peril. ”

“ Money may be borrowed by a county to aid in the erection of public buildings, and it is well settled law that a municipal corporation, in exercising such an authority, may issue its bonds as the means of accomplishing the object. ”

“ At the time-May 26, 1869-the county court ordered an election to ascertain the popular will as to the proposed subscription, to be paid by bonds of the county, the act of April 16, 1869, entitled 'An act to fund and provide for paying the railroad debts of counties, townships, cities, and towns,' was in full force. That act was referred to in the indorsement made on each bond by the auditor of state, as well as in the official communication of the county judge of Perry county, transmitting them for registration. ”

“ The seventh section provided that the surplus, if any, of the premium bond tax of each year, or on hand at the passage of the act, after all the drawn series, interest, and premiums thereon, exigible or due to the holders thereof, had been provided for or fully paid, should also be deposited with the fiscal agent of the board on account of the city debt fund, and applied exclusively in payment of the interest on the outstanding bonds and certificates. ”

“ It often happens that administrators receive money which is not to be administered as part of the general assets, but is to be distributed in a particular way. Whether, upon his general bond, an administrator could be held for the performance of such special duty, might depend upon the local statutes of each state; and congress was not obliged to consider whether the ordinary bond would cover the case, or whether a new bond would be required, or whether additional state legislation would be necessary. ”

“ Leaving out of consideration financially self-sustaining municipal investments, like many municipal water works, which are usually reckoned apart from the municipal debt and which do not impose a burden upon the tax payers as such, the temporary relief from financial difficulties secured as above described, by extending the limit of a city’s borrowing power or by expedients such as the contract method of paying for land, leaves the ultimate burden on the municipality and substantially distributes it over the whole of the taxable property of the city in accordance with valuation. ”

“ In many rural communities, taxing districts are burdened with the costs of building monumental schools or a very elaborate system of roads, undertaken at some time through the flotation of bond issues. The establishment of a sinking fund for payment of interest and amortization of these bonds frequently constitutes a very heavy drain upon the residents of the district. It is, therefore, necessary to determine not only the tax rate in the locality under consideration, but also to know definitely what are the current charges for maintenance of government. ”

“ A large proportion of local expenditures are productive, and should therefore be met by loans which distribute the cost over a long period. Local authorities are, however, frequently inclined to be reckless in the expenditure of resources thus gained. For this reason the central government usually exercises close supervision over the creation of local debts. In the United States, State constitutions frequently fix a limit beyond which localities cannot go in incurring debts; in many cases debt-limitation is provided in municipal charters. ”

“ We have seen that the committee appointed by the company to seek financial aid from the county expressed, officially, the belief that upon the completion of the road its earnings would soon furnish all the equipments required for increased business, pay off the $1,500,000 mortgage, provide for the payment of the county bonds then asked for, and in six or seven years thereafter commence paying on the bonds issued by the State for the benefit of the company. ”

“ This risk is unusually light, for the reason that in a well-managed building association there is little in sight to lose. The money is usually all invested. Any small amount in the hands of the officers is there for only a short time. There are demands in all well-managed building associations for all the money in hand. While this is true, it is always required that the officers who handle the association money give bond for a much larger sum than it is possible for them ever to have in charge. ”

“ It is true that a general obligation bond may be loosely described as a 'lien' on the property within the jurisdiction of the municipality in the sense that the issuer undertakes to levy sufficient taxes to service the bond. In theory if the economy of the issuing city were to collapse, the levy of sufficiently high property taxes on property producing little or no income might result in some cases in defaults, foreclosures, and tax sales. ”

“ The township has paid the interest on the bonds for three years. Under these circumstances, if the bonds and coupons are in the hands of bona fide holders for value, the defenses through which the township can escape liability will be reduced to narrow limits. The charter of the Illinois Southeastern Railway Company declared that any town in any county under township organization might donate to said company any amount not to exceed $30,000. ”

“ Indeed, from the record of the proceedings of the board of mayor and aldermen of the town, there does not appear to have been any submission to the voters of the question of subscribing to the stock of the railroad company, or of issuing the bonds in payment for any such subscription, but only the question of whether the bonds should be issued by the town to the company as a donation or subscription of bonds; and the bonds themselves, on their face, carry out only the same idea. ”

“ The theory of the bill is that the bonds are void only to the extent that they exceed 10 per cent. of the assessed valuation of the property of the county at the time of their issuance, and upon the abatement of that excess the holders are entitled to have the residue thereof, which the county could have lawfully issued, treated as valid, because of the incidental benefits derived from the construction of the road, which was sought to be secured by the donation of bonds. ”

“ Most of the bonds of municipal bodies and private corporations in this country are issued in order to raise funds for works of large extent and cost, and their payment is, therefore, made at distant periods, not unfrequently beyond a quarter of a century. ”

“ The feature which chiefly determines the activity or inactivity of a municipal issue is the size and importance of the municipality, together with the amount of bonds which it has outstanding. The bonds of large and important cities, whose outstanding debt reaches considerable proportions, usually possess great activity. They are constantly traded [96] in and command a broad market because dealers are willing to buy or sell them in blocks at prices within a fraction of 1 per cent apart. ”

“ In 1865, against the advice and almost protest of the Comptroller, the Legislature assumed the bounty debt of the various counties of the State, and for that purpose it became necessary for the State to issue its bonds to the amount of $27,644,000. The act authorizing the creation of the debt provided for a sinking fund, and the managing of this fund and the issuing of the bonds was given to the Comptroller. ”