Where, pursuant to the assent given by two-thirds of the
qualified voters of a county in Missouri at an election therein,
stock in a railway company, which afterwards constructed its road
through the county, was subscribed for by the county court, and the
county exercised its rights as a stockholder, and issued its bonds
to pay for the stock,
held that the bonds are not, in the
hands of a bona fide holder for value, rendered void by the fact
that, at the time of such election, the company was not created
according to law.
The facts are stated in the opinion of the Court.
MR. JUSTICE HUNT delivered the opinion of the Court.
The plaintiff below brought this suit to collect from the County
of Daviess, Missouri, the amount of forty-four interest coupons for
$35 each, formerly attached to bonds issued by the county to the
Chillicothe and Omaha Railroad Company, to aid in the construction
of its railroad. A demurrer to the amended petition was overruled,
and final judgment for the amount of the coupons was rendered by
the court below, which also certified a division of opinion on
points presented.
The questions certified are as follows:
First, whether the bonds, for the collection of the
interest coupons of which the suit was brought, were issued without
due authority of law, and are void in the hands of a
bona
fide purchaser for value, because the railroad company to
which said bonds were issued, in payment of capital stock by it
subscribed, was not created according to law until subsequent to
the favorable vote of the qualified voters and the order of
subscription.
Page 98 U. S. 99
Second, whether the former judgment recovered by the
plaintiffs in a former suit in this Court against the defendant,
upon interest coupons from the same bonds again set forth in this
suit, estops the defendant from pleading in bar to the merits
herein.
The Constitution of Missouri, 1 Wagn.Stat. 62, sec. 14 of art.
11, provides as follows,
viz.:
"The General Assembly shall not authorize any county, city, or
town to become a stockholder in, or to loan its credit to, any
company, association, or corporation, unless two-thirds of the
qualified voters of such county, city, or town, at a regular or
special election to be held therein, shall assent thereto."
The General Statutes provide (1 Wagn. Stat. 295) how railroad
companies may be formed, and further provide,
id.,
305:
"SEC. 17. It shall be lawful for the county court of any county,
the city council of any city, or the trustees of any incorporated
town to take stock for such county, city, or town in, or loan the
credit thereof to, any railroad company duly organized under this
or any other law of the state,
provided that two-thirds of
the qualified voters of such county, city, or town, at a regular or
special election to be held therein, shall assent to such
subscription."
Having paid his money in good faith for the bonds issued by this
county, and the interest becoming payable, it is not unnatural that
the holder and owner should demand payment of such interest. The
subscription by the county to the railroad stock, the receipt and
holding of the stock by the county, the assent by two-thirds of the
qualified voters of the county that such subscription should be
made, the actual issuing of the bonds, and the purchase of the same
by the plaintiff below, without knowledge of any objection to them,
are conceded.
It is said, however, that these things were not done in their
proper order; that the vote of the citizens assenting to the
subscription was taken before the organization of the railroad
company was complete, and that although that act was not under the
control or direction of the holder of the bond, but an irregularity
of the county, if it is an irregularity, the county is thereby
relieved from the payment of its debts, which would otherwise be
not only just and honest, but lawful. This is the point that
Page 98 U. S. 100
is made in the first of the questions presented by the
certificate of the judges. The facts on which this branch of the
case rests are these: the articles of incorporation of the road in
question, which bear date June 18, 1867, contain the statements
required by the statute, giving the length of the road, the amount
of the capital stock, and the names of the directors, and were
subscribed by the subscribers for the amounts indicated. The amount
subscribed was not then as large as that required by the statutes
of Missouri, to-wit, $1,000 per mile for the length of the road.
This sum was, however, obtained as early as the eleventh day of
July, 1868, when the articles were filed in the office of the
secretary of state, and the incorporation became perfect. On the
1st of July, 1869, the county court made its subscription, issued
and sold its bonds, and with the proceeds paid for and received the
stock. The road was built through the county, and for several years
the county levied and collected taxes to pay the interest of the
bonds, and did pay the interest for those years.
The precise question now presented has never been decided in
this Court, but its determination depends upon principles which are
well settled. These bonds are securities which pass from hand to
hand with the immunity given by the common law to bills of exchange
and promissory notes. The persons who execute and deliver them --
the officers of the county court in this instance -- are the agents
of the municipal body authorizing their issue, and not of the
persons who purchase or receive them. If these agents exceed their
authority as to form, manner, detail, or circumstance, if they
execute it in an irregular manner, it is the misfortune of the town
or county, and not of the purchaser; the loss must fall on those
whom they represent, and not on those who deal with them. There
must indeed be power which, if formally and duly exercised, will
bind the county or town. No
bona fides can dispense with
this, and no recital can excuse it. Thus, if the constitution or
the statute should peremptorily prohibit a municipal body from
loaning its credit to or subscribing for stock in a railroad
corporation, a subscription or a loan made subsequently to the
passage of the act would give no right against the county, although
the bond should recite that there was such authority,
Page 98 U. S. 101
and the purchaser should pay full value in the belief of its
truth. There is no difficulty in appreciating the distinction
stated, and we are now to ascertain whether the error we are
considering, assuming it to be one, arises from an irregularity in
the exercise of an existing power, or whether there is total want
of authority to act.
The case concedes that the question of subscription to the stock
of this very company was submitted to the voters of Daviess County,
that two-thirds of the qualified voters of that county assented to
the making of that subscription, and that the bonds, the coupons
from which are here in suit, were issued pursuant to an order of
the county court of Daviess County, made under authority of the
Constitution and General Statutes of the state of Missouri.
After admitting that it made a contract with this company to
take its stock, and not with some other company, and that the
contract with this identical company was authorized with the forms
and solemnities set forth, and that it received, and, so far as
known, has ever since held and enjoyed, and now holds and enjoys,
the profits of the stock of this very company issued for such
bonds, and also admitting that when the bonds were so issued and
delivered by it the incorporation had been completed in form and
detail for one year -- can it now be permitted to urge as a defense
that such company was not a legally organized corporation when the
election was held, and did not become such until after that
period?
The Missouri statute already quoted shows that the municipal
body, in regard to its privileges, liabilities, and
responsibilities as a taker and holder of railroad stock, stands
like an individual subscriber. Its eighteenth section is as
follows:
"SEC. 18. Upon the making of such subscription by any county
court, city, or town as provided for in the previous section, such
county, city, or town shall thereupon become, like other
subscribers to such stock, entitled to the privileges granted and
subject to the liabilities imposed by this chapter or by the
charter of the company in which such subscriptions shall be made,
and in order to raise funds to pay the installments which may be
called for from time to time by the board of directors of such
railroad, it shall be the duty of the county court or city council
or trustees of such town
Page 98 U. S. 102
making such subscription to issue their bonds or levy a special
tax upon all property made taxable by law for county purposes, and
upon the actual capital that all merchants and grocers and other
business men may have invested in business in the county, city, or
town to pay such installments, to be kept apart from other funds
and appropriated to no other purpose than the payment of such
subscription; but the total amount of tax levied for railroad
purposes in one year in any county, city, or town shall not exceed
thirty percent of the subscription made by such county, city, or
town."
It shows also that it devolved upon the county court, subject to
the question of power before stated, to determine whether a
subscription had been made and to raise money for its payment. This
included a determination of the questions whether an assent had
been given by the voters and whether a subscription had in fact
been made by the county court. It did determine both of these
questions in the affirmative, and so certified in the bonds issued
by the same authority, and which are now in suit.
Under these circumstances, the authorities in this Court and in
the State of Missouri hold that the decision of the voters and the
action of the county court in issuing the bonds in question, and
their subsequent action in receiving and retaining their benefits,
gave validity to the bonds, and that they are now to be taken as
valid instruments.
Among these authorities are the following:
Town of Coloma v.
Eaves, 92 U. S. 484,
92 U. S. 491;
County of Randolph v. Post, 93 U. S.
502;
County of Leavenworth v. Barnes,
94 U. S. 70;
Commissioners of Douglass County v. Bolles, 94 U. S.
104;
Commissioners of Johnson County v. Thayer,
94 U. S. 631;
County of Cass v. Johnson, 95 U. S.
360;
City of St. Louis v. Shields, 62 Mo. 247;
Smith v. Clark County, 54
id. 58, 81.
These authorities show that if the county had made a contract
with the railroad company in April, 1868, it would not have been
permitted, under the circumstances stated, to deny it. But here was
no contract. It was a simple indication of the pleasure or wish of
the voters of the county that aid should be furnished to this
railroad. The statute was intended as a guard against hasty action
in this respect, and makes no requisition
Page 98 U. S. 103
that the corporation shall be so perfected that a
quo
warranto could not reach it. If assent is given to a specified
aid to a railroad named, we are of the opinion that a perfection of
the corporation before the subscription is made and the bonds
issued is a compliance with the statute.
Ruby v. Shain, 54 Mo. 207, is cited to the contrary.
There are several reasons why that case does not control the one we
are considering.
1. The question of the legality of the subscription was never
properly reached. Whether the tax which was levied to pay the
county subscription for stock was legal or illegal, it was certain
that the collector, who had a warrant for its collection valid on
its face and who was the defendant in that suit, was not liable for
enforcing it. That an officer in such case is protected by his
writ, and that to protect himself he need not even produce the
evidence of a judgment, was held as long ago as in
Holmes v.
Newcaster, 12 Johns. (N.Y.) 395, and has been so held from
that time to the present. Such too is the express holding of the
court in
Ruby v. Shain, and an examination of the merits
of the case was unnecessary.
2. It differed from the present case in the fact that not only
the township vote of assent, but the subscription to the stock and
the issuing of the bonds all occurred before the organization of
the company. The vote was taken in June, 1869, the subscription
ordered and the bonds issued on the 9th of November, 1869, while
the articles of association were executed on the 10th and filed
with the secretary of state on the 12th of the same month and year.
In the present case, the election was held April 7, 1868, the
articles were filed July 14, 1868, the subscription made and the
bonds dated July 1, 1869. The organization was complete for a year
before the subscription was made.
3. In that case, the subscription was needed to complete the
organization. In this case it was not. The court, in
Ruby v.
Shain, said,
"that it is not intended that counties, cities, or towns shall,
by their subscription, form the basis on which a future corporation
is to be erected, a nucleus around which aid is to be gathered from
other quarters, to construct roads, but that they may, by their
subscriptions or loans, aid corporations
Page 98 U. S. 104
already in existence."
There is a broad difference between the cases where the
subscription is actually made and the bonds are issued in fact
after the corporation is complete and where these things are done
while the corporation remains incomplete.
Upon the whole matter, we are of the opinion that the case was
well decided. The first question certified is answered in the
affirmative, and as that disposes of the entire controversy, no
attention need be given to the second question.
Judgment affirmed.