Borough of Millerstown v. Frederick

Mr. Justice Clark

delivered the opinion of the Court,

It does not appear that at the time the defendants’ offers of evidence were made, the refusal of which is assigned for error, any witness was called, or that any instrument of evidence was actually produced, competent to establish the facts contained therein; but as no objection was made on that ground, we must assume that the defendants had the means of proof at hand, and that the facts are as the defendants allege them to be. We think, too, that it was proper for the defendants, by any competent proof, to establish the facts set forth in these several offers; the effect of the evidence was to deny the power of the municipality of Millerstown borough to issue the bonds, and if there was no power to issue them, they are of course utterly unwarranted and worthless in the hands of the holders. If, when the present constitution came into operation, the borough of Millerstown was, in point of fact, not indebted in any sum whatever, or, at all events, was not indebted in a sum exceeding $500, the indebtedness, which is conceded to have existed on the 20th November, 1874, was greatly in excess of the constitutional limit, and was for that reason in great part unauthorized by law; and, as the bond in suit is one of a series issued to fund that invalid debt, it could create no binding obligation'upon the borough of Millerstown.

The municipality might, under the eighth section of the ninth article of the Constitution, incur a debt, or increase its existing debt, to an amount not exceeding two per centum upon the assessed valuation of the taxable property therein (Wheeler v. Philadelphia, 27 P. F. S., 538), provided, that the whole indebtedness would not thereby exceed seven per centum of that valuation ; this was the constitutional limit of the power possessed by the municipal authorities. To go beyond this limit, they must procure the assent of the electors in the manner pointed out by the Constitution and the laws of the state.

The last preceding assessed valuation of the taxable property of the borough of Millerstown was $72,529.00 ; therefore, if any debt existed at the time the constitutional provision took effect, the borough officers might increase that debt to an amount not exceeding two per centum of this valuation, that is to say, in the sum of $1,450, provided that the debt would not thereby exceed seven per centum of the valuation ; if there was at that time no existing indebtedness, they might incur a debt or increase the debt since accrued to the sum of $1,450, and in either event this was the extent of their power.

By the statement filed, however, we find that the indebtedness actually existing at the time the bonds were issued was $4,332.74, and it is not anywhere stated that any part of this debt existed when the present Constitution came into effect. Now if it be true, as the defendants offered to show, that on the 1st January, 1874, the borough of Millerstown was not indebted in any sum whatever, and that at the time of the passage of the Act of April 20th, 1874, the indebtedness did not exceed $400.00; it follows, of necessity, that all of the debt of $4,332.74, in excess of $1,450, was incurred without any authority of law, and was without any binding obligation upon the borough of Millerstown. ,

Bonds were subsequently issued to the amount of $5,077.03, which swelled the indebtedness of the borough to the extreme constitutional limit; and thus within the space of a single year, without the assent of the electors, and without any authority of law, the borough was burdened with a debt to the amount of seven per centum upon all the taxable property therein. This was the very evil which the constitutional provision was intended to prevent. The municipal officers had no power to create such a debt, and they could not by any contrivance, whatever, bind the borough for payment of it. It is, of course, impossible to distinguish the valid from the invalid portion of the debt secured by the bonds; the transaction involved in the issue of the bonds is entire and indivisible, and, therefore, the whole is invalid: Felson’s Trustees v. Hines, 5 Barr, 452.

It may be said, however, that the bonds being negotiable in form, the holders are entitled to protection as bona fide purchasers for value, and upon this branch of the case we are referred to Kerr v. City of Corry, 14 W. N. C., 277, and kindred cases. We must distinguish, however, between the mere misapplication of the bonds of a municipality, issued under proper authority of law to objects not authorized, and the issue of bonds without any authority whatever.

In Kerr v. City of Corry, supra, the power of the City of Corry to issue the paper was not called in question. The question then was not one of power, but rather the effect of the perversion of a lawful power, in the application of the bonds to an unlawful purpose. “ If the councils of the City of Cony,” says the court in that case, “had no power to issue the bonds in controversy, then, without regard to their form they would be as worthless as so much blank paper; and the operative legal principle here mentioned applies as well to a natural person and to a private corporation as to a municipality. If one receives the negotiable paper of another, purporting to have been executed by an agent, it is not enough to show that they came to hand in the regular course of business, and that the holder gave a valuable consideration for it, for this is of no avail, unless it be first shown that the alleged agent had authority to execute it.”

But if this were not so, we do not think the holder of these bonds can be considered bona fide purchasers for value. The Act of 20th April, 1874, provides, that before issuing any such obligation, it shall be the duty of the officers of the municipality to prepare a statement, under oath, showing the actual municipal indebtedness; the amount of the last preceding assessment; the amount of debt to be incurred; the form, number, and date of maturity of the obligations to be issued therefor, and the amount of the annual tax levied and assessed to pay the same; which statement they are required to file in the office of the clerk of the Court of Quarter Sessions of the proper county : aud certified copies thereof are- made competent evidence in all the counties of the Commonwealth. Such a statement was filed by the Burgess of the borough of Millerstown to the Court of Quarter Sessions of Butler county. The statement is ex parte only; there is no adjudication upon it, the statute authorizes none; it is filed for the information of all who may have any interest to examine it. As the duty of filing it is imposed upon the officer as a personal duty, subjecting him, for failure therein, to severe penalties, no question of estoppel can arise from the inadequacy of the statement, as against the municipality itself.

The purchasers of these bonds were bound to know that such a statement ought there to have been found; its absence would justly give rise to the gravest apprehensions that the bonds were improperly issued, and they are therefore affected with notice, not only of that which this record disclosed, but also of that which by the terms of the statute it should have disclosed. It was apparent, from this record, that the indebtedness of this borough was greatly in excess of the amount allowed by law, unless that debt, or a great portion of it, existed when the provisions'of the present constitution attached, or was incurred with the assent of the electors, and there was certainly no legal presumption that either the one or the other of the facts existed.

There was enough upon the face of this record, in view of the rigid and .exacting provisions of the Constitution and the laws of the state, affecting the power of municipal corporations, to have put any prudent man upon inquiry; and proper inquiry would have led to a full discovery of the fact, if it be as alleged, that the debt funded in these bonds, had been created in utter disregard of the law, and that there was, therefore, no binding obligation upon the borough of Millerstown for payment thereof.

.The judgment is reversed, and a venire facias de novo awarded.