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in the present inquiry, and arises only under the second proposition above stated.
The Illinois Constitution, adopted in 1870 (section 12, art. 9), forbids municipalities “to become indebted in any manner or for any purpose, to an amount, including existing indebtedness, in the aggregate exceeding five per centum on the value of the taxable property therein, to be ascertained by the last assessment for state and county taxes, previous to the incurring of such indebtedness”; with proviso that it shall not apply to bonds issued in compliance with vote of the people prior to its adoption. Were the issue of bonds in controversy not a funding issue, their date (1898) would be conclusive of violation of this provision. It was, however, a funding transaction, as recited in the bonds and voted by the people, and thus upon its face created no indebtedness-presumptively, under the action of the people and express recitals in the bonds, was a mere change in form and terms of payment of prior obligations of the county, lawfully incurred. As stated in County of Jasper v. Ballou, 103 U. S. 745, 753, 26 L. Ed. 422, in reference to a like transaction, "the issue of the funding bonds did not increase the aggregate of the indebtedness of the corporation, but only changed its form.” The constitutional limitation relates solely to the creation of indebtedness thereafter, and neither authorizes repudiation, nor affects the making of terms for payment of existing legal liabilities. The funding of such liabilities, therefore, authorized by statute and vote, was unaffected by the limitation, and the fact alone that the issue of funding bonds thereupon exceeded that limit neither implies nor amounts to violation of the constitutional provision. County of Jasper v. Ballou, supra; City of Huron v. Second Ward Sav. Bank, 86 Fed. 272, 278, 30 C. C. A. 38, 45, 49 L. R. A. 534, and cases cited; Hughes County v. Livingston, 104 Fed. 306, 317, 43 C.
So, without impeachment of the recitals, that "binding, subsisting legal obligations of said county" were thereby funded, no infringement of the Constitution appears in this issue of bonds. Whether the validity of the obligations so funded is contestable for like cause or upon other alleged grounds, as against the defendant in error, remains to be considered.
2. Upon the conceded state of facts in reference to the original issue of bonds and various adjudications of liability thereunder, a funding arrangement of the outstanding obligations of the county was both needful and authorized by the above-mentioned statute. of litigation, in state and federal courts, with conflicting adjudications in the former as to the validity of that bond issue, the liability of the county was established in favor of the holders of a majority of such bonds, while other portions of the bonds so issued had been adjudged invalid and holders defeated of recovery; other large portions were in the hands of various holders unadjudicated as to such parties, when the funding issue was voted. Thus the occasion for an adjustment of the unpaid judgments against the county, and unsettled claims and differences in a funding arrangement, was clearly presented; and the issue of funding bonds thereupon was authorized by vote of the people, as required by the statute. The contention, therefore, that no funding arrangement was within the power of the municipality is plainly un
After years tenable, for the reason that it ignores the effect of the judgments above mentioned in favor of the bondholders. It rests alone upon the proposition that the entire bond issue thereby funded was void, both (1) for insufficiency of the enabling act, under which the bonds were issued, as expressly determined in People ex rel. v. Hamill, 134 Ill. 666, 17 N. E. 799, 29 N. E. 280, and (2) for excess of the constitutional limit. The judgments referred to were conclusive against either of these grounds of defense in respect of the bonds involved thereinand of the validity of such bonds—under the elementary doctrine of res judicata (Cromwell v. County of Sac, 94 U. S. 351, 352, 24 L. Ed. 195; 9 Notes U. S. Rep. 93; 23 Cyc. 1215), and thus established an indebtedness for which funding bonds were authorized; excluding from the present view the judgment ultimately obtained in favor of the holders of the residue of unadjudicated bonds, which was entered subsequent to the vote for funding. It is further contended that indebtedness under judgments is not within the terms of the legislative provision for an issue of funding bonds, but such objection is clearly untenable, as it was expressly met and overruled in Stone v. City of Chicago, 207 Ill. 492, 69 N. E. 970; and other pertinent authorities of like effect do not require citation. Whatever defense was then available against the holders of the old bonds related only to those upon which no recovery had been adjudged; and (in so far as materiality may now appear) the record discloses that the first above-mentioned ground of defense was not only available in respect thereof, when the funding transaction was voted upon, but had repeatedly been upheld in adjudications. The funding arrangement, however, extended to a compromise of these outstanding bonds not adjudicated for or against the individual holders, together with the amounts allowed to bondholders who had recovered judgments; and this fact raises the crucial question: Are the funding bonds issued thereupon subject to either of the above-mentioned challenges, in the case at bar, because the outstanding bonds so included were impeachable when funded? The solution rests upon the force of the recitals in these bonds, and is free from doubt, as we believe, under the authorities.
The rule is well recognized that municipal bonds must contain recitals showing authority for their issuance to make them marketable, as no indebtedness can be contracted by the municipality, unless (1) the Legislature has granted power to that end, and (2) all contingencies are met, as provided by Constitution or statute for its exercise. Recitals are of no avail to cure the want of fundamental power to issue bonds, but they are needful and commonly made to save the purchaser from examination and proof in respect of the contingencies of fact upon which a grant of power was exercised; and upon this distinction in their legitimate office and bearing must their force be determined. When power appears, however, to issue bonds for the purpose stated, and defense is sought, through violation of Constitution or statute in its exercise-in exceeding the limit of indebtedness or like restrictions of the grant—such departure from the power has given rise to difficulty in ascertaining the true line of distinction and just effect of recitals in bonds so issued; and it may be conceded that the authorities have not been harmonious in stating the rule applicable in such cases, particularly when a constitutional provision is violated. Thus, in the opinion cited for plaintiff in error, in Hedges v. Dixon County, 150 U. S. 182, 187, 14 Sup. Ct. 71, 37 L. Ed. 1014, it is remarked, in substance, on reference to the prior Lake County cases (130 U. S. 662, 9 Sup. Ct. 651, 32 L. Ed. 1060; 130 U. S. 674, 9 Sup. Ct. 654, 32 L. Ed. 1065; and 117 U. S. 230, 13 Sup. Ct. 318, 37 L. Ed. 145), that recitals in bonds may estop against denial of legislative authority, but no such estoppel can arise when a constitutional provision is violated. Nevertheless, later decisions of the Supreme Court have, as we believe, set aside the exception from the elementary doctrine of estoppel above indicated, and upheld and established the rule as equally applicable to recitals of fact, within the knowledge of the municipality, and necessarily committed to its proper officers to ascertain and certify, as to a constitutional limit of indebtedness or like restrictive provisions upon the exercise of the power. Gunnison County Commissioners v. Rollins, 173 U. S. 255, 263, 19 Sup. Ct. 390, 43 L. Ed. 689; and authorities there reviewed; Waite v. Santa Cruz, 184 U. S. 302, 320, 22 Sup. Ct. 327, 46 L. Ed. 552; and, in this court, Wesson v. Saline Co., 73 Fed. 917, 920, 20 C. C. A. 229, and Wesson v. Town of Mt. Vernon, 98 Fed. 804, 807, 39 C. C. A. 301; King v. City of Superior, 117 Fed. 113, 115, 54 C. C. A. 499. So the fact alone that defense is sought for violation of a constitutional provision, instead of a legislative requirement, in the issue of bonds, is insufficient, under these controlling authorities, to avoid such estoppel from recitals of fact thereupon in the bonds. It goes without saying that the Constitution is paramount in all its provisions, and the statutory grant, which is the direct source of municipal authority, must conform to such provisions; that Constitution and statute are alike binding upon the municipality and those claiming under it; that transactions on its part, in derogation of the authority thus conferred, are without validity as to parties or privies; and that the sovereign source of municipal power may, in clear terms, provide against recovery, through estoppel by recitals or otherwise, upon bonds so issued, even in the hands of the bona fide purchaser under such restraint of authority. But the present inquiry is not within either of these premises, and the defenses set up can be upheld only upon the broad ground that the nature of the alleged violation of Constitution and statute prevents estoppel by recitals in the bond, and that the bona fide purchaser was bound to take notice of the facts constituting the violation.
The statutory authority, as before mentioned, was to fund the indebtedness of the county, outstanding in bonds or other obligations, "which are the binding, subsisting legal obligations of such county, with new bonds to be issued by “the proper corporate authorities,” when such arrangement was authorized by vote of the people. This power became operative for funding, as both of the conditions precedent were in existence—an indebtedness in legal obligations to be funded and an affirmative vote for funding. For exercise of the power the character and amount of the various obligations must be ascertained, and necessarily by the corporate authorities referred to,
in the absence of other provisions. Waite v. Santa Cruz, 184 U. S. 302, 320, 22 Sup. Ct. 327, 46 L. Ed. 552. In such case-as pertinently said in Dixon Co. v. Field, 111 U. S. 83, 93, 4 Sup. Ct. 315, 28 L. Ed. 360, and quoted with approval in Gunnison Co. Commissioners v. Rollins (page 264 of 173 U. S., page 390 of 19 Sup. Ct. [43 L. Ed. 689]), supra—“the meaning of the law granting power to issue the bonds is that they may be issued, not upon the existence of certain facts, to be ascertained and determined whenever disputed, .but upon the ascertainment and determination of their existence, by the officers or body designated by law to issue the bonds upon such contingency”; and their determination and recital thereupon are "conclusive of the fact and binding upon the municipality.” The county authorities determined the character and amount of legal obligations for this funding issue, their finding was ratified by the vote thereupon, and the bonds were issued with express recital of fact in conformity with such finding. If any portion of the original bonds so funded were open to defense for invalidity-either for want of competent statutory authority for the issuance, or for exceeding the constitutional limit, if the limitation were applicable under the vote for such issue—it was only the outstanding portion for which no judgment had then been recovered; and the fact that such questions were then involved in nowise appears from the recitals. 'I'hat the purchaser was not bound to examine the records for such particulars, under the recitals, is settled (Evansville v. Dennett, 161 U. S. 434, 443, 16 Sup. Ct. 613, 10 L. Ed. 760; Waite v. Santa Cruz, 184 U. S. 302, 317, 22 Sup. Ct. 327, 46 L. Ed. 552); and, under the abovestated doctrine applicable to such recitals, we believe it to be equally well settled that this purchaser was entitled to assume that the county authorities performed their duty, ascertained all the facts upon which liability depended—necessarily including the inquiries of fact upon which the applicability of the constitutional limitation depended-and that no obligations entered into the funding issue which were not so established as a valid indebtedness. The testimony is clear and undisputed that he purchased the bonds in suit, for value, relying upon their recitals, and with no information to raise doubt of their truthfulness.
We are satisfied that the recitals were within the authority conferred upon the county officers, who executed and issued the bonds, and are sufficient to support the direction of verdict and judgment for recovery. The judgment, accordingly, is affirmed.
(157 Fed. 29.) CASTAGNINO et al. v. MUTUAL RESERVE FUND LIFE ASS'N et al. (Circuit Court of Appeals, Sixth Circuit. November 20, 1907.)
INSURANCE-SUIT OR CONSTRUCTION OF LIFE POLICY-JURISDICTION TO GRANT
RELIEF AGAINST FOREIGN COMPANY.
Where a life insurance company incorporated under the laws of one state has subjected itself to suit in another state in which it does business, has agreed in accordance with its laws that service of process may be made upon the insurance commissioner of such state, and has issued policies to its citizens, such a policy holder has the right to maintain a suit against it in his own state in either the state or federal courts for a construction of his policy and a determination of his rights thereunder and the legality of acts of the company as bearing thereon, and such right may not be denied on the ground that such a suit is an interference with the internal management of a foreign corporation.
[Ed. Note.-For cases in point, see Cent. Dig. vol. 28, Insurance, g 33.) Appeal from the Circuit Court of the United States for the Western District of Tennessee.
The bill was filed against the Mutual Reserve Fund Life Association and its successor, the Mutual Reserve Life Insurance Company, to interpret and enforce a contract in the form of a policy or certificate of insurance issued by the defendant corporations for $5,000 on the life of Emanuel Castagnino, in favor of the other plaintiff, his wife. The Mutual Reserve Fund Life Association was incorporated under the laws of New York, February 9, 1881, and reincorporated December 23, 1883. It accepted the provisions of the insurance laws of New York of 1892, and received an amended charter February 25, 1902; its name being then changed the Mutual Reserve Life Insurance Company. The present policy was issued August 31, 1888, when the plaintiff Castagnino was 43 years old, and after the Mutual Reserve Fund Life Association had accepted the provisions of the law of Tennessee authorizing the service of process on the insurance commissioner of that state. It was issued, as usual in such cases, in consideration of the application and its statements, and the payment of the admission fee, of the annual dues for expenses, and all mortuary premiums, payable at the home office in New York City, within 30 days from the first week day of February, April, June, August, October, and De cember, of every year during the continuance of the policy, and subject to all the provisions, requirements, and benefits stated in the policy, which were made a part of the contract, and are set out in an exhibit to the bill. The plaintiffs claim that the dues for expenses were fixed at the sum of $15 for each year, and that the defendants, before the delivery of the policy, established the amounts to be paid for the mortuary premium every two months during its existence, and that the plaintiffs have paid such amounts for the expenses and for mortuary premiums during the existence of the policy and up to the present time.
The policy contains certain provisions respecting the reserve or emergency fund, the organization of the so-called mortuary departinent of the association, and the contract between the association and the Central Trust Company of New York, and states that the policy contains a certificate that the association had deposited with such trust company, as a reserve or emergency fund, on March 31, 1888, the amount of $1,463,283.38, of which $1,024,.700 was in bonds, and $86,672.78 in cash. According to the policy 25 per cent. of the net receipts of the mortuary premiums during a period of 15 years from the date of the policy was to be added to the reserve or emergency fund, which should be properly invested and the interest placed to the credit of the death fund. It was further provided that the reserve fund above $100,000 should be applied to the payment of claims in excess of the actuaries' table of mortality, and to make up any deficiency that might exist in the death fund, when any claim by death was due after the mortuary premium call. The policy