decided: January 7, 1895.
INDIANA EX REL. STANTON
ERROR TO THE CIRCUIT COURT OF THE UNITED STATES FOR THE DISTRICT OF INDIANA.
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MR. CHIEF JUSTICE FULLER 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, c. 137, 18 Stat. 470; Act of March 3, 1887, c. 373, 24 Stat. 552, 553; but as the suit is upon the bond, and Stanton and his cestuis que trust 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 non-commercial character, are not governed by the law merchant, and are open in the hands of subsequent holders to the same defences as existed against the original payee. Stanton v. Shipley, 27 Fed. Rep. 498; State
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ex rel. Cohen v. Hawes, 112 Indiana, 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 Indiana, 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
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"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 Indiana, 210.
In State v. Hawes, 112 Indiana, 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. 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 any one. . . . 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 Fed. Rep. 498. A township trustee cannot contract a debt for school supplies unless supplies suitable and reasonably necessary for the township have been
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actually delivered to, and accepted by, the township. Bloomington School Township v. National School Furnishing Co., 107 Indiana, 43; Reeve School Township v. Dodson, 98 Indiana, 497; Wallis v. Johnson School Township, 75 Indiana, 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 1883, because the trustee has not, in any legal or equitable sense, contracted a debt. Such paper creates no obligation against any one; it is void. Axt v. Jackson School Township, 90 Indiana, 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 non-commercial 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. Rep. (Indiana,) 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 school house 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
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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 fact 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 school house, 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
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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 ex rel. Cunningham 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 Indiana, 130; Bloomington Township v. National School Furniture Company, 107 Indiana, 43; Litton v. Wright School Township, 127 Indiana, 81; Honey Creek School Township v. Barnes, 119 Indiana, 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.
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