WATSON v. CITY OF HURON, 97 F. 449

CALDWELL, Circuit Judge (after stating the facts as above). Municipal corporations possess no power to incur debts, and issue negotiable instruments therefor, unless specially authorized to do so by their charter or statutes, or the power to do so can be clearly implied from some power expressly given, which cannot be fairly exercised without it. Dill. Mun. Corp. § 406; Wells v. Supervisors, 102 U. S. 625; Claiborne Co. v. Brooks, 111 U. S. 400, 4 Sup. Ct. 489; Concord v. Robinson, 121 U. S. 165, 7 Sup. Ct. 937.

The warrants in this case were issued “for the purpose of obtaining money with which to carry on the Huron capital campaign.” It is not claimed in behalf of the plaintiff in error that any such power was granted to the city, either expressly or by implication; but it is urged that the warrants reciting on their face, as they did, that they were issued for public improvements, and the resolution authorizing ilieir issuance stating that they were intended for public improvements, the city is estopped from showing the truth, and that this resolution was a mere subterfuge, and false in fact.

To sustain this contention we are referred to a large number of decisions in which it has been held that when a municipal corporation is authorized by law to issue negotiable bonds, and certain of its officers are constituted as the authority to determine whether the conditions precedent have been complied with, their certificate that all conditions prescribed by law have been carried out is conclusive, and the municipality is thereafter estopped from showing the falsity of its certificate after the bonds have been issued, and sold to innocent purchasers.

But the certificates of indebtedness issued in this case are not negotiable bonds, but mere warrants or orders of the city treasurer, directing him to pay to the holder thereof the sum of money out of funds in the treasury. Such instruments are not subject to the rules of the law merchant, or in any manner to be treated like negotiable bonds.

Whatever differences of opinion may have existed among the courts 50 years ago as to the negotiability of such warrants, the courts are now unanimous that while such warrants establish, prima facie, the validity of the claims allowed, and authorize their payment, they have no other effect; that they are in form negotiable, and transferable by delivery, so far as to authorize the holder to maintain in his own name an action on them, but they are not negotiable instruments, in the sense of the law merchant, so that, when held by a bona fide purchaser, evidence of their invalidity or defenses available against the original payee would he excluded.

Shirk v. Pulaski Co., 4 Dill. 209, Fed. Cas. No. 12,794; Mayor, etc., v. Ray, 19 Wall. 468; Wall v. Monroe Co., 103 U. S. 74; Ouachita Co. v. Wolcott, 103 U. S. 559. The rule established by these decisions is now universally recognized, and it has ceased to be an open question. The purpose for which these warrants were issued was to influence the people of the state to vote for the city of Huron as the capital of the state, or, in other words, as a corruption fund for the purpose of locating the capital in the city of Huron.

It is not claimed that there was any authority from the legislature to borrow money or issue certificates of indebtedness for any snch purpose. The fact that the resolution ordering these warrants to be issued falsely and fraudulently recited that they were intended for public improvements cannot aid the plaintiff in error, because he occupies no better position than the original payee, who had full notice of the object for which the warrants were issued.

But it is urged that, even if the warrants are void and were fraudulent, the plaintiff in error is entitled to recover the amount paid for these warrants, as for money had and received by the city.

Whether there could be such a recovery it' the money had been paid into the city treasury, and by the city used for legitimate purposes, it is unnecessary to determine in this case, as the trial judge, in his sixth finding of fact, specially found, “And the Huron capital commissioners negotiated said warrants, and received and paid out said money obtained by the sale thereof for capital purposes.” This finding brings the case directly within the ruling of the supreme court of the state in the case of Huron Waterworks Co. v. City of Huron, 7 S. D. 9, 62 N. W. 981, 30 L. R.

A. 848, which holds, in substance, that the city is not liable for money received by its treasurer unless be had a right to receive it, and it was used for legitimate corporate purposes. Upon the facts found by the circuit court, these warrants are absolutely void in the hands of all persons, and the judgment of the circuit court is affirmed.