Young v. Clarendon Township
132 U.S. 340 (1889)

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U.S. Supreme Court

Young v. Clarendon Township, 132 U.S. 340 (1889)

Young v. Clarendon Township

No. 34

Argued October 23, 1889

Decided December 9, 1889

132 U.S. 340

Syllabus

It is settled law that a municipality has no power to issue its bonds in aid of a railroad, except by legislative permission.

The legislature, in granting permission to a municipality to issue its bonds in aid of a railroad, may impose such conditions as it may choose.

Where authority is granted to a municipality to aid a railroad and incur a debt in extending such aid, that power does not carry with it authority to execute negotiable bonds except subject to the restrictions and directions of the Enabling Act.

Page 132 U. S. 341

The act of the Legislature of Michigan of March 22, 1869, "to enable any township, city or village to pledge its aid by loan or donation to any railroad company, etc.," provided that the bonds when "issued" should be "delivered by the person . . . having charge of the same to the treasurer of this state;" that the treasurer should "hold the same as a trustee for the municipality issuing the same and for the railroad company for which they were issued;" that whenever the railroad company should

"present to said treasurer a certificate from the governor of this state that such railroad company has in all respects complied with the provisions of this act . . . , such of said bonds as said company shall be entitled to receive shall be delivered to said company;"

that the treasurer should endorse upon each bond delivered the date of its delivery and to whom it was delivered, and that in case the bonds were not demanded in compliance with the terms of the act within three years from the date of delivery to the treasurer, "the same shall be cancelled by said treasurer and returned to the proper officers of the township or city issuing the same." The township of Clarendon, in Michigan, having complied with the requirements of the act on its part, delivered to the state treasurer its bonds to the amount of $10,000, dated July, 1869, for the benefit of the Michigan Air Line Railroad Company. The company completed its railroad before February, 1871, and became entitled to the governor's certificate under the act, but on May 26, 1870, the supreme court of the state had declared the act to be unconstitutional, and the governor in consequence thereof refused to give the certificate. On the 28th May, 1872, before the expiration of three years from their delivery, the treasurer returned the bonds to the township. November 12, 1884, the appellant obtained judgment against the railroad company and an execution was issued, which was returned nulla bona. On the 24th February, 1880, he filed a bill in equity against the township and the company, claiming that the township was equitably indebted to the company to the amount of the bonds and coupons with interest, and that he was entitled to recover the amount of that indebtedness, and to apply it on his judgment debt.

Held:

(1) That the municipal authorities had no power to deliver the bonds, after their execution except to the state treasurer, and that the word "deliver," as used in the statute with reference to this act, was used in its ordinary and popular sense, and not in its technical sense.

(2) That to the governor alone was given the power to determine whether the bonds should ever in fact issue, and if issued, when they should issue.

(3) That the endorsement by the treasurer upon each bond of the date of its delivery and of the person to whom it was delivered was necessary to make it a completed bond, and that this could not be done until the governor's authorization was made.

(4) That as the bonds were never endorsed and delivered by the treasurer, they never became operative.

(6) That the rule in regard to escrows could be applied to these

Page 132 U. S. 342

instruments, because they were never executed in compliance with the peremptory requirements of the statute.

(6) That if the railroad company had any cause of action against the township by reason of these facts, it was barred at law by the statute of limitations of the Michigan.

(7) That by reason of laches in pursuing the remedy, the bar at law could be set up and maintained in equity.

The constitutionality of the Act of the Legislature of Michigan of March 22, 1869, which is considered in this case, was fully settled in the case of Taylor v. Ypsilanti,105 U. S. 60, to which the Court adheres.

On the 21st of February, 1885, the appellant exhibited, in the Circuit Court of the United States for the Eastern District of Michigan, his bill, in the nature of a creditor's bill, against the appellees.

The bill averred that on the 12th of November, 1884, the appellant obtained a judgment against the railroad company for the sum of $355,865.21; that an execution upon the judgment was issued, and was returned "nulla bona;" that the judgment was still unpaid, and that the railroad company was a corporation, organized on the 28th of August, 1868, by a consolidation of two companies -- one organized under the laws of Michigan and the other under those of Indiana, which consolidated company was itself, on October 8, 1880, again consolidated with the St. Joseph Valley Railroad Company, retaining, however, its name of the Michigan Air Line Railroad Company.

The bill also alleged that after the first consolidation as aforesaid, and on the 22d of March, 1869, the Legislature of Michigan passed

"An act to enable any township, city, or village to pledge its aid, by loan or donation, to any railroad company now chartered or organized or that may hereafter be organized under and by virtue of the laws of the Michigan in the construction of its road."

Said act authorized the issue of aid bonds. In its fifth and sixth sections it provided as follows:

"SEC. 5. Whenever any such bonds as provided by provisions of this act shall have been issued as therein specified, the same shall be delivered by the person, persons or officers having charge of the same to the treasurer of this state, who

Page 132 U. S. 343

shall give a receipt therefor and hold the same as trustee for the municipality issuing the same and for the railroad company for which they were issued, and to be disposed of by said treasurer in discharge of his trust, as hereinafter provided."

"SEC. 6. . . . Such bonds shall be safely kept by such treasurer for the benefit of the parties interested, and be disposed of by him in the following manner -- that is to say, whenever any railroad company in aid of which any of such bonds may have issued shall present to said treasurer a certificate from the governor of this state that such railroad company has in all respects complied with the provisions of this act and is thereby entitled to any of such bonds, the same or such of said bonds as said company shall be entitled to receive shall be delivered to said company, the treasurer first cutting therefrom, cancelling and returning to the municipality the past-due coupons. The treasurer shall endorse upon each of said bonds the date of such delivery and to whom the same were delivered, and the same shall draw interest only from the time when so delivered, and the treasurer shall notify the clerk of the township or recorder or clerk of the city issuing the same of the date of the delivery of its bonds to such railroad company. . . . And in case any bonds so delivered to said treasurer by any such township or city shall not, within three years from the time when the same were received by him, be demanded in compliance with the terms of this act, the same shall be cancelled by said treasurer and returned to the proper officers of the township or city issuing the same."

The bill further averred that in conformity with the provisions of this act, the electors of the township, on the 21st day of June, 1869, voted to pledge the aid of the township by the loan of $10,000, to be paid by its 10 percent bonds at par, upon certain terms and conditions in said vote stated, among which were that the road should be located and constructed through said township; that the time of payment of each of those bonds was to be postponed a year in the event of the noncompletion of the roadbed and the ironing before the 1st of November, 1869, and that the company would pay yearly

Page 132 U. S. 344

to the township a sum equal pro rata to the dividends paid stockholders, and said sums were to be in extinguishment of the interest on the bonds, and the excess over 10 percent, if any, to be applied on the principal. The bonds thus voted were issued in pursuance of said act, and were delivered to the state treasurer, to be by him held as trustee for both the township and the company on the terms and conditions of the act as aforesaid.

The bill then averred that the railroad company, in consideration of the township's action and relying thereon, entered upon the construction of said railroad, and, previous to the 1st of February, 1871, had fully constructed and ironed said road through the township, and at the time of the delivery of the bonds to the state treasurer as aforesaid, had duly executed and delivered to the township the agreement specified in the terms on which the aid was voted and had performed every condition precedent to the earning of said bonds, and had become fully entitled to have the same delivered by the treasurer, except that it had not secured the certificate of the governor as required by said act. While the road, however, was in the process of construction, the Supreme Court of the Michigan, on the 26th of May, 1870, declared the act in question to be unconstitutional, but as the railroad company had already expended the sum of a million of dollars and upwards in construction, it could not stop, but went on and completed the road in full compliance with all the conditions of the vote. The company then applied to the governor for his certificate under the statute, exhibiting to him proofs of its title to receive the bonds; but he refused to give the same, giving as his sole reason for such refusal the judgment of the Supreme Court aforesaid.

The bill then averred that on May 28th, 1872, the township, knowing the premises, and without the knowledge or consent of the company and in violation of the law and of the trust aforesaid and in fraud of the company's rights, induced the state treasurer, who had full knowledge of the foregoing facts, to surrender to the township the said bonds and the coupons thereunto attached; that the township had since retained the

Page 132 U. S. 345

same, and withheld them from the company; that said bonds and coupons, by reason of all the premises, became in justice and equity the property of said railroad company, and the township became bound thereon according to their tenor and effect; that the said township was therefore equitably indebted to said company, to the whole amount of said bonds and coupons, with the interest thereon to the present time, and that the appellant was entitled to the said amount toward the satisfaction of his judgment against the company.

To this end, an account was prayed to be stated between the company and the township, the appellee, and a final decree against the township for the sum shown to be due in favor of the appellant was asked.

The bill was dismissed by the Circuit Court on demurrer (26 F. 805), and the cause came here on appeal by the complainant.

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