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Norton v. Dyersburg

127 U.S. 160 Court SCOTUS Decision date 1888-04-23 Docket No. 207 English

Delivered by Blatchforu J.

Contents

Majority — Blatchforu J.

p. 160
NORTON v. DYERSBURG.

Syllabus

ERROR TO THE CIRCUIT COURT OF THE UNITED STATES FOR THE WESTERN DISTRICT OF TENNESSEE.
No. 207.
Argued April 5, 1888.
Decided April 23, 1888.
In this case, certain negotiable bonds issued by the town of Dyersburg, Tennessee, were held to have been issued without lawful authority.
Certain provisions of the statutes of Tennessee considered and held not to confer power on the town of Dyersburg to issue the bonds in question.
The grant to a municipal' corporation of the power to subscribe for stock in a railroad company .does not carry with it the implied authority to issue negotiable bonds therefor; and such is the view of the Supreme Court of Tennessee.
In a suit at law against the town to recover on' the bonds, no question i growing out of the liability of the town for the subscription to the stock can be inquired into. '
The court stated the case as follows:
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This is an action at law, brought in the Circuit Court of the United States for the "Western District of Tennessee, by Extein Norton, a citizen of New York, against the mayor and aldermen of the .town of Dyersburg, a municipal corporation created by the State of Tennessee, to recover sundry sums of money, as due for the principal of 36 bonds, for $500 each, and 58 bonds for $250 each, and 62 bonds for $100 each, all due May 10, 1883, and on sundry coupons cut from such bonds, due at various times between the date of the bonds and their maturity.
The bonds and coupons were in the following form :
“Bond No. — . $250.
“The mayor and aldermen of the town of Dyersburg, in the State of Tennessee, a corporation duly chartered by act of the General Assembly of the State of Tennessee, by the qualified voters of said town, under the provisions of an. act of Legislature- empowering them so to do, by this bond promise .to pay to the bearer hereof, ten years after the date hereof, the sum of two hundred and- fifty dollars, with interest at seven per centum per annum from this date,, payable semiannually, at the city hall in Dyersburg, on presentation of the coupons hereto attached, to. aid in the construction of the Paducah and Memphis Kailroad; upon the express condition, however, that the said railroad shall be constructed to the town of Dyersburg, Tennessee, and have a depot of said railroad located within half a mile of the court-house in said town.
“In testimony- whereof the mayor and aldermen of the town of Dyersburg, Tennessee, have caused this bond and the coupons attached to be. signed by the mayor of said town, and countersigned by the recorder, on this 10th day of May, 1873.
“ [Seal, Mayor and Aldermen,. Dyersburg, Tenn.]
“ C. P. Glare, May<n\
“Countersigned:
“ "W. C. Doyle, Recorder.”
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“ $8.75. $8.75.
•‘The mayor and aldermen of Dyersburg, Tennessee, will pay the bearer on the — day of-, 18 — , eight dollars and seventy-ñve cents, being the semi-annual interest due on Paducah and Memphis Railroad bond No. —.
“ C. P. Clark, Mayor.
“ W. C, Doyle, Recorder.”
The defendant pleaded nil debet and non, est factum. The cause was tried by the court, on the written waiver of a jury, and it found the issues of law and fact- with the defendant, and rendered a judgment for it, to review which the plaintiff has brought a writ of error. There was an agreed statement of facts, which is embodied in a bill of exceptions, and there is a finding of facts and of conclusions of law, also contained therein. From this, the following facts appear :
The plaintiff bought the bonds and coupons before maturity, for full value, and without any knowledge or notice of any defect, infirmity, equity, or condition against the liability of the town therefor, unless, as matter of law, the face of the bonds charges him with notice. The bonds and coupons were signed, sealed and delivered by the properly authorized municipal officers of the.defendant, but the want of authority so to do is controverted, the defendant insisting that no proper legislative or other authority existed for making the subscription and issuing the bonds that were made and issued, the plea of non est factum only going to that extent. The Mississippi River Railroad Company, to which, it is claimed, the subscription was originally authorized to be made by the defendant, was afterwards consolidated with and. became a part of the Paducah and Memphis Railroad Company.- That company mortgaged its properties and franchises, the mortgage was foreclosed, and the purchaser at the sale reorganized, under the statute of Tennessee, as the Chesapeake', Ohio and Southwestern Railroad Company, by which the road was built and finally completed on January 1, 1882, and is now operated as a railroad its entire length. The bed and track are now, and were at the date of the bringing of the suit, fully built and
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equipped and operated through, the county of Dyer, in which county the town of Dyersburg is situated, and the last-named company had built a depot building within half a mile of the court-house in the town of Dyersburg before this action was brought.
The proceedings of the board of mayor and aldermen of the town, relative to the subscription in controversy, are contained in a paper, Exhibit “ B ” to the stipulation, which is set forth in the margin.[1]
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The question of the subscription referred to in the foregoing proceedings was’ left, under proper notices, to the decision of
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the qualified voters of the town of Dyersburg, and the subscription was carried by a vote largely in excess of the requi
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site constitutional majority. At the date of the subscription the town was without railroad facilities, and the object of the
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subscription was to aid the building of the proposed line near the town.' The railroad has been built, but no part of the
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subscription has been paid except the first instalment of interest, which was paid.
The bill of exceptions states as follows: “ The .court found as facts, 1st, that an ordinance was regularly and legally adopted June 5th, 1872, by the board of mayor and aldermen of the town of Dyersburg, ordering an election to be held by the qualified voters of said town, to determine whether the-said town should subscribe for $50,000 of the capital stock of • the Paducah and Memphis Railroad Company, to be paid for by'said town by issuing to said railroad company its negotiable bonds to that amount, bearing interest at 7 per cent, and payable at 10 years from date; that, on July 6th, 1872, said proposition was voted on by the qualified voters of said town,
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after 30 days’ notice of such election had been duly publisher! in the newspapers of said town, when said proposition was carried by a vote of 126 for the subscription to two against it that, at a meeting of the board of mayor and aldermen of said town, held on July 6th, 1872, the returns of said election were duly and properly canvassed by said board, which, by ordinance then duly passed, declared the subscription on the terms-of the ordinance of June 5th, 1872, was properly and legally carried, in said election, by the vote as before stated, and instructed the mayor to subscribe said sum of $50,000 to the-stock of the said railroad company, upon the terms and conditions of said ordinance; that, acting pursuant to that authority, the mayor of said town, on May 10th, 1S73, subscribed for and in the name of said town said sum to the capital stock of said company, received a certificate of stock therefor, issued and delivered the coupon bonds of said, town for said amount t > said railroad company, including those here in this suit; that, when said coupon bonds were so executed, issued, and delivered by said mayor to said railroad ¡company, the said company had laid the track of said road to the northern and southern line of Dyer County, and commenced work on said railway within' the limits of said county of Dyer; that plaintiff bought the bonds and coupons sued on herein in due course of trade, for full value, before maturity, and without any knowledge or notice of any defect, infirmity, equity, or condition against the liability of said town, except so far as appears on the face of said bonds; that, before the bringing of this suit, the said railroad had been constructed and was being operated its entire length from, Paducah, Kentucky, to Memphis, Tennessee, and was constructed to said town of Dyersburg, Tennessee, and'had a depot located within half a mile of the court-house in said town, the-same having been done by the Chesapeake, Ohio and Southwestern Railroad Company on or about the ■ — ■ day of-, as set forth in the agreed statement of facts filed herein. The court ruled that no legislative authoi’ity whatever existed for the issuance by said defendant of the bonds and coupons sued on in this case. To which finding and ruling plaintiff then and there duly excepted. The plain
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tiff requested the court to rule that, under the facts found, the defendant was authorized to execute, issue, and. deliver to said railroad company the said bonds, which request was refused by the court, to which plaintiff then and there duly excepted. The court thereupon rendered judgment in favor •of defendant, supporting its judgment by reading the same •opinion filed in the case of Green v. Town of Dyersburg, 2 Flippin, 477, and directing, by consent of counsel, that the -said opinion be filed as its opinion in this case and sent up with the transcript of the record, as required by the rules of ■the Supreme Court.”
Mr. D. H. Poston (with whom was Mr. W. K. Poston on the brief) for plaintiff in error.
I. Tt will be noticed that the declaration does not aver that these bonds were issued under any particular act, nor do the bonds recite any particular act as authority for their issuance; the declaration sues for the bonds “ executed and issued by .said corporation on the 10th day of May, 1873, upon and in pursuance of lawful authority conferred for that purpose on •.said corporation.”
And the bond simply recites that it is issued “under the provision of an act of the legislature empowering them to •do so.”
Therefore we can look to all the legislation on the subject, .and if there be any, authorizing the same, the bonds must be supported.
It will be observed that paragraph 29, Art. II, of the constitution of 1870 is identical with that of 1834, being verbatim down to the point of lending corporate aid, the only difference being that the constitution of 1870 has an addenda, not in the constitution of 1834, which itself restricts and limits the power •of municipal corporations in lending aid and credit, and provides that it can only be done upon the votes of three-fourths of the qualified voters cast at the election, to determine the question, while the constitution of 1834 authorizes it to be •done as the legislature may from time to time direct.
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However, under both constitutions, it has been held that a subscription in aid of railroads was a corporate purpose, and counties and towns had the right to lend aid and credit, and levy taxes to pay the same. Nichol v. Nashville, 9 Humphreys, 250, 252; Louisville & Nashville Railroad v. Davidson County, 1 Sneed, 637 ; S. C. 62 Am. Dec. 424 ; City of Memphis v. Gayoso Gas Co., 9 Heiskell, 518; Winston v. Tenn. & Pacific Railroad, 1 Baxter, 60 .
We insist that there was express legislative authority for the issuance of these bonds, and that they were executed in strict conformity therewith.
\_Mr. Poston then examined the statutes of Tennessee, and continued:] We further insist that, upon questions of commercial securities, Federal courts are not bound by state decisions. Oates v. National Bank, 100 U. S. 239 , 246; Pine Grove v. Talcott, 19 Wall. 666 , 677.
II. Our second proposition presents the simple question, whether the defendant, having the power to make the subscription and lend the credit, had the implied power and authority to execute and deliver bonds negotiable in form, independent of any express authority conferred.
All the authorities agree that where a municipal corporation has the implied power to borrow money or lend credit, it lms the implied power to execute all proper bonds, notes or other negotiable securities to accomplish these purposes. Seybert v. Pittsburg, 1 Wall. 272 ; Commonwealth v. Pittsburg, 41 Penn. St. 278 ; Police Jury v. Britton, 15 Wall. 566 , 572; Hull v. Marshall County, 12 Iowa, 142 ; Gause v. City of Clarkville, 5 Dillon, 165; Commonwealth v. Pittsburg, 34 Penn. St. 496 ; Griffin v. Inman, 57 Georgia, 370; Black v. Cohen, 52 Georgia, 621; Ketchum v. Buffalo, 14 N. Y. 356 .
This implied power is thoroughly indoctrinated into the laws and decisions of the State of Tennessee, as will be seen by reference to the cases.
On this point, see Union Bank v. Jacobs, 6 Humphreys, 515; Nichol v. Mayor of Nashville, 9 Humphreys, 264; Adams v. Memphis & Little Rock Railroad Co., 2 Coldwell, 645 ; Moss v. Harpeth Academy, 7 Heiskell, 283.
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III. In any event this court should hold the defendant as upon non-negotiable bonds or notes, treating the issuance of negotiable bonds as an excess of authority only, and not invalidating the loan with interest as agreed upon. Nashville v. Ray, 19 Wall. 468 .
Mr. T. B. Turley for defendants in error. Mr. Sjxtral Hill was with him on the brief.

after stating the case, delivered the opinion of the court.

It is insisted by the plaintiff in error that there was express legislative authority for the issue of these bonds. The first statute relied' on is the • act of the legislature of Tennessee, approved January 23, 1871, chapter 50 of the acts of 1870-71, entitled “An Act to Enforce Article 2, Section 29, of the Constitution, to Authorize the several Counties and Incorporated Towns in this State to Impose Taxes for County and Corporation Purposes.” This statute has been fully considered by us in the case of Kelley v. Town of Milan, just decided, and shown to have conferred no such authority.

The act approved December 16, 1871, chapter 122 of the Acts of 1871, entitled “ An Act to legalize and authorize subscription by incorporated Cities and Towns for the benefit of Bailroad Companies created by law,” applies only to cases where an incorporated town or city had subscribed to the capital stock of a railroad company prior to the passage of that act. The subscription in the present case was not made until May 10, 1873, the election having been held on July 6, 1872; and the entire act relates only to the validity and the legality of the subscription to stock, and in no manner touches the question of the issue of bonds.

It is also contended that express authority to issue the bonds in question was granted by section 20 of an act passed February 26, 1869, chapter 59 of the acts of 1868-69, which section is as follows: “ Seo. 20. Be it further enacted, That it shall be lawful for the town of Dyersburg to make a cor

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porate subscription to the capital stock of the Mississippi River Railroad Company, not to exceed fifty thousand dollars, in amount, payable in not exceeding four years by annual assessments levied by the Board of Trustees of said town, and collected as other moneys are, and bonds of the town may be issued in anticipation of such collections, collected for town purposes: Provided, however, That before the Board of Trustees or Aldermen of said town shall make any such subscription, the question shall have been first submitted to the qualified voters of said town, and shall have received a majority of the votes cast therefor after twenty days’ notice of the timé and place of holding said election, and of the amount proposed to be subscribed.”

Reliance is also placed upon section 18 of an -act passed February 8, 1870, chapter 55 of the acts óf 1869-70, which section is as follows: “ Seo. 18. Be it further enacted, That' stock which has been subscribed, or may hereafter be subscribed, by any county, city, or incorporation, to said railroad companies may be payable in six annual payments; and it shall be lawful for county courts and the corporate authorities ■of any city or town making such subscription to issue short bonds bearing interest at the rate of six per cent per annum, to said railroad companies, in anticipation of the collection of annual levies, if thereby the construction of the roads can be facilitated.”

As to the act of 1869, the subscription to the stock, not to exceed $50,000, was made payable, by section 20, in not exceeding four years, by annual assessments of taxes. The express limitation was to the four years, but authority was given to issue the bonds of the town in anticipation of the ■collections of taxes. Of course, under this provision the bonds were to be paid by the four annual collections of the taxes levied by the four annual assessments. That was the fund provided for their payment. No" authority was given for the issue oJLbpnds other than such as were to be paid, one-fourth in one year, one-fourth in two years, one-fourth in three years, and one-fourth in four years; and no authority was given for the issue of any bond payable in ten years.

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As to section 18 of the act of 1870, it gave no power to the town of Dyersburg beyond that conferred by the act of 1869, to subscribe for stock or to issue bonds. The only possible effect it could have as to that town was to modify section 20 of the act of 1869, so as to make the subscription to stock payable in six annual payments, instead of four annual payments, and to authorize the issue of bonds in anticipation of the collection of the annual tax levies, the bonds to be payable in not exceeding six annual instalments, instead of four; but each set of bonds to be still payable by an annual tax levy, and to fall due annually for six years, at the time of the maturity of the levy for each year.

That these statutory provisions did not authorize the issue of bonds payable in ten years is entirely clear. Pulaski v. Gilmore, decided by the Supreme Court of Tennessee, and published in 21 Fed. Rep. 870 ; Milan v. Railroad Co., 11 Lea, 329 .

The cases of Louisville & Nashville Railroad v. County Court of Davidson, 1 Sneed, 683 , and The State v. Anderson County, 8 Baxter, 249 , do not sustain the position of the plaintiff in error. While, in each of those cases, the statute provided that not more than one-third of the amount of the subscription should be collected in any one year, it did not prohibit its distribution into more numerous instalments, each of less amount. Here, the acts in question prohibited any extension of time beyond four or six years, and the vote of the town distinctly varied the terms fixed by the statute.

It is also contended by the plaintiff in error that the grant of power to subscribe for the stock carried with it the implied authority to issue negotiable bonds therefor. None of the cases cited by the plaintiff in error, decided outside of the State of Tennessee, establish such doctrine. The cases cited in Tennessee, Union Bank v. Jacobs, 6 Humphreys, 515; Nichol v. Mayor of Nashville, 9 Humphreys, 252 ; Adams v. Memphis and Little Rock Railroad Co., 2 Coldwell, 645; Moss v. Harpeth Academy, 7 Heiskell, 283 ; The State v. Anderson County, 8 Baxter, 249 ; and Williams v. Railroad Co., 9 Baxter, 488 , do not maintain the doctrine contended for.

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In the case in 6 Humphreys, it was held that a railroad company, a private corporation, could contract a debt for a corporate purpose, and give a negotiable promissory note therefor. In the case in 9 Humphreys, there was express legislative authority to subscribe for stock and issue bonds, and the point decided was that a subscription by a municipality to railroad stock was a county or corporation purpose, within the-provision of the constitution empowering the legislature to authorize counties and towns to impose taxes for county and corporation purposes. The case in 2 Coldwell was considered by this court in Nashville v. Ray, 19 Wall. 468 , 479, and it was there said that the doctrines propounded in the opinion in 2 Coldwell, with reference to the implied powers of municipal corporations, were not necessary to the decision of that case. In the case in 7 Heiskell, the question was as to the power of a private corporation to borrow money. In the case in 8 • Baxter there was express authority to issue the bonds, and the question of implied power did not arise, as was said by this court in Claiborne County v. Brooks, 111 U. S. 400 , 411. In the case in 9 Baxter, the question now under consideration does not appear to have been raised or discussed, the only question involved being whether the original subscription to the stock of the railroad company was valid.

On the contrary, the decision of the .Supreme Court of Tennessee, in the cases of Pulaski v. Gilmore and Milan v. Railroad Co., above cited, was distinctly, that express legislative authority to issue bonds like those involved in the present suit was necessary. In harmony with this view is the fact of the numerous instances in which the legislature of Tennessee, after granting authority to municipalities to subscribe for stock in railroad companies, has also expressly granted the power to issue bonds therefor.

The views of this court on the subject of the implied power to issue municipal bonds were fully expressed in the cases of Wells v. Supervisors, 102 U. S. 625 , and Claiborne County v. Brooks, 111 U. S. 400 . In the first of those eases it was held, that the mere authority given to a municipality to subscribe for stock in a railroad company did not carry with it

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the implied power to issue bonds therefor, especially where, as in the present case, special provisions were made for paying the subscription by taxation.

Our views as to the proper construction of the general laws of Tennessee, Code of .Tennessee, §§ 1112 to 1161, have been fully expressed in the case of Kelley v. Town of Milan, just decided.

It is further contended for the plaintiff in error, that this court should, in any event, hold the town liable as upon nonnegotiable bonds or notes, treating the issue of the negotiable bonds as an excess of authority only, and not invalidating the loan, with interest, as agreed upon. It is a sufficient answer to this proposition to say that this suit is brought solely for a recovery upon the bonds and coupons, and no question growing out of the liability of the town for the subscription to the .stock can be inquired into in this suit.

The judgment of the Circuit Court is affi/rmed.

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