Page:Federal Reporter, 1st Series, Volume 8.djvu/794

T^O FEDERAL REPORTER. �taiuing a eystem of water-works, The bonds recitod that they were issued under and in pursuance of a particular act of the legislature and a city ordinance, which authorized the issue, and the plaintiff waa a bona fide holder. The court held that the bonds were void, because they created an indebtedness in excess of the amount to which the municipality was restricted by the state constitution. "As, therefore," says Justice Harlan, in delivering the opinion of the court, "neither the constitution nor the statute prescribed. any rule or test by -which persons contracting with municipal corporations should ascertain the extent of their indebtedness, it would seem that, if the bonds in question had oontained recitals which, upon any fair con- struction, amounted to a representation upon the part of the con- stituted authorities of the city that the requirements of the constitu- tion were met — that is, that the city indebtedness, increased by the amount of the bonds in question, was within the constitutional limit — then the city, under the decisions of this court, might have been estopped from disputing the truth of such representations as against that hona fide holder of its bonds. * » * The present action cannot be maintained unless we should hold that the mere fact that the bonds were issued, without any recital of the circumstances bring- ing them within the limit iixed by the constitution, was in itself con- clusive proof in favor of a hona fide holder that the circumstances existed which authorized them to be issued. We cannot so hold." �This case clearly supports the doctrine that municipal bonds which contain no recitals are not unimpeachable in the hands of bona fide holders for value; that is to say, they are not commercial paper. �It is not claimed that the town of Covington had any general or incidental power to issue bonds or other commercial papei', but it is asserted for the plaintiff that when a municipality has express au- thority, as in this case, to issue bonds for one purpose, it may issue its securities with or without recitals, and it will be conclusively pre- sumed, in favor of purohasers for value without notice, that the issue was authorized. It would follow, if this be true, that when express authority exists for the issue of municipal bonds for one purpose, bonds which are issued without recitals, for an unauthorized and fraudaient purpose, will be enforced against the tax-payers, in favor of purchasers for value without notice; and that an act confer- ring authority upon municipalities to issue bonds, under clearly-de- fined conditions and restraints, for a particular purpose, confers authority, as between the municipality and bona fide third parties, to issue commercial securities for all purposes. ��� �