Little Rock v. National Bank - 98 U.S. 308 (1878)
U.S. Supreme Court
Little Rock v. National Bank, 98 U.S. 308 (1878)
Little Rock v. National Bank
98 U.S. 308
A city issued its bonds, engraved with vignettes on banknote paper, of various denominations, ranging from $1 to $100, and having the form and appearance of treasury notes of the United States or bank bills, and it paid them out to its creditors for property sold, materials furnished, and labor performed. It received them for taxes and other dues, and to some extent reissued them. They formed a considerable portion of the circulating medium of the city and vicinity. Under the authority of a statute of the state empowering the city council of any city to issue bonds for the purpose of extending the tune of paying its indebtedness, which it was unable to meet at maturity, the city passed an ordinance providing for the redemption of the bonds first described. A., the lawful holder of some of them, which had been issued to other parties in payment of valid claims against the city and were overdue, surrendered them to the city, and received in lieu of the amount due thereon bonds for which the ordinance provided, and a credit on the books of the city. The city failing to pay, A. brought suit against it. A recovery was resisted on the ground that the bonds engraved on banknote paper had been issued in violation of law, and that the surrender of them was not a valuable consideration for the bonds and the credit received by A. Held that whether the original bonds were issued in violation of law or not -- a point which this court does not decide -- A. is entitled to recover.
This was an action brought by the Merchants' National Bank of Little Rock, Ark., against the City of Little Rock. The first count of the complaint is upon a bond in the words and figures following:
"No. 1] STATE OF ARKANSAS [$500"
"Bond of the City of Little Rock"
"Know all men by these presents, that the City of Little Rock, in the said State of Arkansas, acknowledges itself to owe and be indebted unto the Merchants' National Bank or bearer the sum of $500 in lawful money of the United States of America, which sum the said city promises to pay, for value received, at the office of the Treasurer of said City of Little Rock, one year from the date hereof, together with interest thereon, at the rate of ten percent per annum, until this bond shall be paid."
"This bond is issued under and in pursuance of the provisions of sec. 3298, c. 72, entitled 'Incorporations,' Gantt's Digest of the Statutes of Arkansas, and is for indebtedness of said City of Little Rock, incurred previous to the time of the passage of said act."
"In testimony whereof, the said City of Little Rock, by an ordinance of the council of said city, passed Aug. 15, 1873, has caused this bond to be issued and signed by the president of said council and attested by the clerk of said city, and to be sealed with his official seal."
"Dated at Little Rock, in the county of Pulaski, State of Arkansas, this ninth day of October, 1874."
"D. P. UPHAM, President City Council"
"[SEAL] C. M. BARNES, City Clerk"
The bond bears the following endorsement:
"Little Rock $100 Ten percent City Bond"
"AUDITOR'S OFFICE, STATE OF ARKANSAS"
"I hereby certify that this bond is registered in my office according to law, that it is regularly and lawfully issued, and that the signatures thereto are genuine."
"In testimony whereof, I have hereunto set my hand and affixed the seal of my office, at the City of Little Rock, this twenty-second day of October, A.D. 1874."
"[SEAL] J. R. BERRY, Auditor of State"
There are one hundred and fifty-five counts of a similar nature describing other like bonds. There is also one count for the recovery of certain amounts, for which the bank had received credit on the books of the city, and which remained unpaid.
The section mentioned in the bond is as follows:
"The city or town council of any city or town, for the purpose of extending the time of payment of any indebtedness heretofore incurred, and which from the limit of taxation such city or town is unable to pay at maturity, shall have the power to issue the bonds of such city or town, or borrow money, so as to change, but not increase, the indebtedness, in such amounts, not less than fifty dollars, and for such length of time, and at such rate of interest, not more than ten percent per annum, as such city or town council may deem proper."
In August, 1867, the city provided for the issue and redemption of its bonds which were printed on banknote paper, in the form and having the ordinary appearance of United States Treasury notes, and were in denominations varying from $1 to $100, payable in one, two, three, five, eight, and ten years respectively, with eight percent interest from maturity.
By issuing this currency the city obtained the means with which it proceeded to build a city hall and schoolhouses, grade streets and culverts, purchase cemeteries, improve public landings, provide fire equipments, pay interest to several railroad companies, and pay salaries of officers and agents.
The city received in payment of taxes and other dues the bills thus held by others, and to some extent reissued them when its occasions required. From time to time, their value diminished, until it became merely nominal; but for a considerable period they formed the local circulating medium in the city and its vicinity in lieu of money.
In 1873, the city council adopted an ordinance "for the redemption of outstanding city bonds on banknote paper."
The bank was the lawful holder for value of a large number of overdue bonds of that description, issued to other parties in payment of valid claims against the city. In accordance with the provisions of the ordinance, the bonds were surrendered to the council, by whom they were cancelled, and the bank received in lieu of the amount due thereon the bonds
on which this suit was brought. The bank had also other similar bonds, which were surrendered and in like manner cancelled, but for which no new bonds were issued, the city acknowledging its indebtedness by giving the bank credit therefor on the books of the city.
The city, among other defenses, pleaded that the bonds surrendered were issued in violation of the statute, and that the bonds given in lieu thereof, as well as the credit entered upon the city books, which form the ledger account, were without authority of law or valuable consideration.
The jury returned a verdict in favor of the bank for $38,640.40. The court rendered judgment therefor, with a provision that of that amount $28,512.16 should bear interest at ten percent per annum. The city sued out this writ of error.
The statutes of the State bearing upon the questions involved are set out in the opinion of the court.