Supervisors v. Schenck
ERROR to the Circuit Court for the Northern District of Illinois; the case being thus:
An Illinois statute, passed in 1849, authorized the 'county court' of counties wishing to subscribe to stock in railroads, to make subscriptions and to issue bonds. But the statute provided that no subscription should be made or bonds issued whereby any debt should be created by the county court, except after an election to be held in a mode prescribed in the statute, and after at such election two-thirds of the qualified voters of the county had voted to have it.
In 1851-that is to say, two years after the statute just mentioned had been passed-the legislature passed another statute, called The Township Organization Law, thus:
'No county under this organization shall possess or exercise any corporate powers, except such as are enumerated in this act, or shall be specially given by law, or shall be necessary to the exercise of the powers so enumerated or given.
'The powers of a county as a body politic can only be exercised by the board of supervisors thereof, or in pursuance of a resolution by them adopted.
'The board of supervisors of each county in this State shall have power . . . to perform all other duties, not inconsistent with this act, which may be required of or enjoined on them by any law of this State relating to the county courts.'
One of the counties of Illinois-Marshall County-had adopted the township organization which this statute of 1851 authorized before the 28th day of February, 1853, and was on that day so organized and acting.
In this state of the statute law and of facts Schenck brought assumpsit in the Circuit Court for Northern Illinois against the board of supervisors of this same Marshall County, to recover interest which had become due September 12th, 1865, on the coupons of certain bonds issued nine years before, signed by the board of supervisors of the said county, for stock in the Western Air-Line Railroad. The narr. was in the ordinary form.
Special plea, that on the 28th day of February, 1853, the County Court of Marshall County ordered an election, to vote for and against a subscription, & c. That such election was held under said order; that the board of supervisors, on the 14th of November, 1854, acting by authority of said election, subscribed; that the bonds and coupons were issued in payment of the said subscription; that no election was ever held by order of the board of supervisors, and that the said Marshall County had been organized and was acting under the Township Organization Law since prior to 28th of February, 1853, all of which appeared from the public records of said county. The plea alleged, therefore, that the bonds and coupons had been issued without authority of law, and were void.
Special replication, not denying the facts alleged in the plea, but alleging that the bonds and coupons were issued in payment for stock of the company, which stock was received by the county; that the county enjoyed all the benefits of a stockholder; that the bonds were sold by the railroad compary to the plaintiff, for value, without any notice of any want of authority to execute the same, other than the constructive notice, which might be implied from the record of the said proceedings; that ever since the date of the bonds (1856) the board of supervisors had annually levied and collected the necessary taxes, and paid the interest on them; and that therefore the bonds and coupons had been ratified, and were now valid and binding on the county.
General demurrer and judgment on it against the supervisors of the county for the amount of the coupons declared on.
The county now brought the case to this court; the error complained of being that the Circuit Court had overruled the demurrer, instead of sustaining it, and the question being, whether the bonds were void in the hands of bona fide holders before maturity, because the election which authorized their issue was called by the County Court of Marshall County, instead of the board of supervisors of the county, notwithstanding that all the subsequent proceedings as was admitted were regular, and the county had, for seven or eight years, levied and collected taxes to pay the interest upon them, and had paid the interest as it fell due, until the default stated in the declaration of this case.
Mr. Cook, for the supervisors of the County of Marshall, plaintiff in error:
1. This is a question of power and of its legal exercise. Counties are organized for purposes of government. If they create debts for purposes so alien to the purpose of their creation as building railroads, they must do so under general or special law. Without law, the creation of such a debt is void. If a law exists for the creation of the debt, unless such debt is created substantially according to the law, no liability attaches to the county. These statutes have expressly declared that the bonds should not issue, unless in pursuance of authority conferred by a vote of the majority in favor of such subscription, at an election called in the mode pointed out by the act. It is admitted that these bonds were issued without such an election. A slight deviation from the mode prescribed will not, we may fully admit, invalidate such securities in the hands of innocent holders for a valuable consideration. But there is a wide difference between an act performed without authority, or in violation of law, and an act defectively performed under authority. In the former case the act is absolutely void. Here a ratification is set up. But how could the county authorities ratify a contract which they had no authority to make, and especially without any further or other authority than that which they had at the time they made it? Such a contract is 'incapable of ratification by the county authorities.' 
2. Then it is set up that the plaintiffs are bona fide holders of these bonds without notice. But can there be such holders of bonds like these?
The supervisors derived their authority to act from the law, which was public, and the condition precedent was not only one which was in its nature public, but it was also a matter of record in the public offices. Purchasers of these bonds were bound to look to these records, and if those showed prima facie that the board was not authorized in law to issue the bonds, then the holders took them with notice.
3. The Supreme Court of Illinois has construed these statutes, in Cook v. Supervisors of Marshall County, not yet reported, and held part of the issue of these same bonds to be void. This court follows the rulings of State courts on State statutes.
Mr. S. W. Fuller, contra:
1. The exact question raised here has been decided by this court numerous times. Knox County v. Aspinwall,  is full to the point. In that case it appeared that, under the law of Indiana, it was the duty of the sheriffs to give the notices of the election; but the election authorizing the issue of the bonds was called by the board of commissioners of Knox County, and the court held, that as all the subsequent proceedings were regular, the error in calling the election did not invalidate the bonds in the hands of bona fide holders. The same question was again raised, and decided the same way, in Bissell et al. v. City of Jeffersonville;  and other cases since, are in harmony with these. 
2. By levying and collecting taxes to pay the interest on its bonds, and paying that interest for a series of years in the manner stated in the replication, the county has ratified its bonds. In Keithsburg v. Frick,  in the State where this case comes from, the court say, in regard to bonds similarly issued:
'The corporation is now estopped from setting up any irregularity in their issue, inasmuch as they have repeatedly recognized their validity by paying them out, levying taxes, and paying interest on them for a series of years. . . . It is now too late to raise a question as to the regularity of their issue.'
We need not criticize or discuss the soundness of the decision in Cook v. The Board of Supervisors of Marshall County. It is not one of that class of decisions of the State courts which are binding upon this court. Bonds and coupons like those involved in this suit are commercial securities, negotiable instruments, and the questions pertaining to them must be decided by the rules of commercial law. This court has always expounded that law for itself. Its right to do so was declared in Swift v. Tyson,  a decision never, that we know of, departed from.
Mr. Justice CLIFFORD delivered the opinion of the court.
^1 Clarke v. The Supervisors, 27 Illinois, 305.
^2 21 Howard, 542.
^3 24 Howard, 287.
^4 Moran v. Miami County, 2 Black, 722; Gelpcke et al. v. The City of Dubuque, 1 Wallace, 175; Von Hostrup v. Madison City, Id. 291; Meyer v. The City of Muscatine, Id. 384; Thomson v. Lee County, 3 Id. 327; Rogers v. Burlington, Id. 654.
^5 34 Illinois, 405.
^6 16 Peters, 1.