In this case, certain negotiable bonds, issued by the Town of
Milan, Tennessee, were held to have been issued without lawful
authority.
A municipal corporation, in order to exercise the power of
becoming a stockholder in a railroad corporation, must have such
power expressly conferred by a grant from the legislature, and even
such power does not carry with it the power to issue negotiable
bonds in payment of the subscription unless the latter power is
expressly, or by reasonable implication, conferred by statute.
Certain provisions of the statutes of Tennessee considered and
held not to confer power on the Town of Milan to issue the bonds in
question.
In a suit in chancery brought by the town authorities to have
the bonds declared invalid, a decree had been entered declaring
them valid on a consent to that effect signed by the mayor of the
town.
Held that the consent of the mayor could give no
greater validity to the bonds than they before had, and that the
decree was not an adjudication of the question of such
validity.
This is an action at law brought in the Circuit Court of the
United States of the Western District of Tennessee by Albert Kelley
and Lawrence D. Alexander, co-partners under the firm name of
Kelley & Alexander, citizens of New York, against the Mayor and
Aldermen of Milan, a municipal corporation organized under the laws
of Tennessee, to recover the sum of $5,040, being the amount of 144
coupons, for $35 each, cut from twelve bonds purporting to have
been issued by the defendant, bearing date July 1, 1873, each for
the payment of the sum of $1,000, payable to _____ or bearer on the
1st of July, 1893, 24 of which coupons matured on the 1st of July,
1876, 24 on the 1st of July, 1877, 24 on the 1st of July, 1878,
Page 127 U. S. 140
24 on the 1st of July, 1879, 24 on the 1st of July, 1880, and 24
on the 1st of July, 1881. Interest was claimed on each coupon from
its maturity. Each of the bonds was in the following form, all
being alike except as to the numbers:
No. 1 State of Tennessee, Town of Milan $1,000
"Be it known that the Town of Milan, by its Mayor and Aldermen,
in consideration of the location of the Mississippi Central
Railroad by said town, the citizens thereof in pursuance of the
laws of Tennessee authorizing the same, having agreed to issue
bonds, payable on twenty years' time, to the amount of twelve
thousand dollars, with annual interest at seven percent, with
coupons attached, in bonds of one thousand dollars each."
"And whereas the people of Milan voted the same by a majority
and in the form required by law, the vote being in pursuance of due
notice and in all respects according to the laws of Tennessee, said
bonds to be payable to the Mississippi Central Railroad, under
lease and control of the Southern Railroad Association,"
"Now be it known that the Town of Milan, by its Mayor and
Aldermen, in pursuance of the authority given by the people thereof
and in obedience to the duty required of them, issues and delivers
this bond, being one of twelve, and said Town of Milan hereby
acknowledges itself to owe and be indebted to _____, or bearer, in
the sum of one thousand dollars, which sum said Town of Milan binds
itself to pay in lawful money of the United States to the
Mississippi Central Railroad Company or to the order of the
Southern Railroad Association or bearer in the City of New York on
or before the 1st day of July in the year of our Lord 1893, with
interest at the rate of seven percent per annum, payable annually
on the 1st day of July of each year on presentation of the proper
coupons hereto annexed."
"And the Town of Milan, by its Mayor and Aldermen, hereby
pledges the legal responsibility and the faith of said
Page 127 U. S. 141
town for the payment of said coupons and bond according to the
terms and effect hereof."
"In testimony whereof the mayor and aldermen of the Town of
Milan have caused the signature of the Mayor to be hereto set and
the seal of the corporation to be affixed this 1st day of July,
1873, A.D."
"[L.S.] A. JORDAN"
"
Mayor of the Town of Milan"
The declaration alleged that the twelve bonds constituted the
entire number of the issue by the defendant, and that the
plaintiffs owned the bonds and coupons by the purchase of them in
good faith. The defendant, for plea, averred that it did not make
the bonds or the coupons, nor was any person authorized to make the
same for it, and that the coupons were not its act and deed. The
plaintiffs, for replication to the plea, averred that theretofore,
in the Chancery Court for the County of Gibson, in Tennessee, the
defendant instituted suit against the payee of the bonds and
certain other persons, holders thereof, by filing its bill in said
chancery court against the Mississippi Central Railroad Company, H.
S. McComb, and others, alleging that the bonds were invalid and
praying to have the same so adjudged, and to be surrendered to the
defendant and cancelled; that thereafter, in January, 1875, in said
chancery court, a final decree was rendered adjudging that the
bonds and coupons were valid obligations against the Town of Milan,
and that therefore the matter was
res adjudicata. The
defendant put in a rejoinder to the replication, averring that the
decree referred to was produced by combination and fraud between
the vice-president of the New Orleans, St. Louis & Chicago
Railroad Company and the agents and attorneys of the defendant, by
which a decision of the court in the cause upon the matters
involved was prevented, and the decree was consented to for the
purpose of giving it effect as
res adjudicata upon points
in litigation not honestly contested; that the decree was not the
judgment of the court on the issues involved, but was founded upon
the unauthorized consent of certain agents and attorneys of the
Page 127 U. S. 142
defendant, who had no power to give such consent or to bind the
defendant in the premises; that the court had no power to bind the
defendant by the decree; that the decree was not rendered in favor
of a party to the record, but in the interest of a stranger
thereto, and that the plaintiffs were not
bona fide
holders, without notice, of the bonds or the coupons. The
plaintiffs demurred to the rejoinder, alleging various causes of
demurrer. The demurrer was overruled, and the plaintiffs then took
issue upon the rejoinder. The case was then tried by the court on
due waiver in writing of a jury. At the trial, the coupons sued on,
and the bonds from which they were detached, were offered in
evidence by the plaintiffs, the genuineness of the signatures being
admitted. Each coupon was in the following form:
"
Town of Milan"
"$35. Warrant for thirty-five dollars, being for six months'
interest, payable on the 1st day of July, 1880, in the City of New
York, on bond No. ___."
"A. JORDAN"
"
Mayor of the Town of Milan, Tenn."
The defendant objected to the admissibility of the coupons and
bonds on the ground that they were signed, sealed, and delivered by
the constituted authorities of Milan, without any legislative power
having been given to them, or to the defendant or its agents, to
sign, seal, deliver, or issue the coupons or the bonds. The court,
being of opinion that such objection was well taken, sustained it
and excluded the coupons and the bonds, and the plaintiffs
excepted.
There was a stipulation of facts made by the parties, which is
set forth in the bill of exceptions, stipulating (1) that the bonds
in question were issued by the defendant in payment of a stock
subscription made by it to the Mississippi Central Railroad
Company, the subscription being for the sum of $12,000; (2) that at
the time of making the subscription, the railroad company was about
to extend its line from Jackson, Tennessee, to Cairo, Illinois, and
the subscription was to aid in making such extension, and to secure
its location through
Page 127 U. S. 143
the defendant's town; (3) that such extension was completed in
1873, the same running through the town limits of the defendant, as
it stipulated for, and the extension had been operated ever since
that time.
The following facts also appeared by the stipulation:
On the 10th of July, 1874, A. Jordan and six other persons,
residents and taxpayers of the town, instituted proceedings in the
Chancery Court at Humboldt, in Gibson County, Tennessee, against
the Mississippi Central Railroad Company and others for the purpose
of avoiding the liability of the town upon the bonds, the
complainants constituting the board of mayor and aldermen of the
town. The bill alleged that, in the record of proceedings of the
board of the date of May 11, 1872, there was the following
entry:
"The board was convened by order of the Mayor. Present: A.
Jordan, Mayor; W. M. McCall, M. B. Harris, J. H. Dickinson, J. M.
Douglas, W. E. Reeves, W. H. Algea, Aldermen. On motion, it was
ordered that 12 bonds of $1,000 each, with coupons attached,
payable 20 years after issuance, bearing interest at 7 percent per
annum, be issued by the corporation of the Town of Milan,
Tennessee, to the Mississippi Central Railroad Company, upon the
following conditions, namely: that the Mississippi Central Railroad
be extended from Jackson, Tennessee, to the Town of Milan, and
intersect or cross the Memphis and Louisville Railroad at the point
agreed upon by Col. Read, Chief Engineer of the Mississippi Central
Railroad, and the committee on behalf of the corporate authorities
of the Town of Milan, near S. P. Clark's residence, the interest on
said bonds to be paid annually, and that the town marshal open and
hold an election on the 12th day of June, 1872, within the
corporate limits of said town for a ratification or rejection of
said proposition"
That in such record were entered the following proceedings as
having taken place at a meeting of said board on the 17th of June,
1872:
"The board met pursuant to adjournment. Present: A. Jordan,
Mayor; W. M. McCall, M. B. Harris, J. M. Douglas, W. H. Algea, and
W. E. Reeves, Aldermen. The minutes of the former meeting were then
read and adopted. The election was held on the 12th day of June,
1872, for the
Page 127 U. S. 144
ratification or rejection of the action of the Board of Mayor
and Aldermen of the Town of Milan in regard to the issuance of the
$12,000 in bonds to the Mississippi Central Railroad Company upon
certain conditions. The returns of said election show a vote of 117
for subscription, and 2 no subscription."
"W. M. McCall and W. H. Algea were appointed a committee to
correspond with Judge Milton Brown, of Jackson, Tennessee, in
regard to the proposition of Milan corporation in regard to issuing
the $12,000 in bonds to the Mississippi Central Railroad
Company."
That the foregoing entries constitute all the proceedings in
regard to the subscription of the $12,000 in bonds and in regard to
the election held for ratifying or rejecting the action of the
board in directing the issue of the bonds. That there was nothing
to show the manner in which the election was held, or by whom the
returns were made, or that the required number of votes was polled
in favor of the proposition, as required by law. That the order of
the board directing the issue of the bonds was without authority
(1) because the order was adopted and the election ordered without
any application in writing or otherwise to the board for the
purpose, as required by § 1144 of the Code of Tennessee; (2)
because the election was ordered to be held, and was held, by the
town marshal or constable, and not by the Sheriff of the County of
Gibson, as required by § 1143 of the Code; (3) because the marshal,
after the polls were opened and before they were closed, suffered
the box in which the votes were deposited to be removed from the
place in the town fixed for receiving ballots to various other
places in the town and put into the ballot box votes offered at
such places not fixed by law as a place of voting, and without
authority, and (4) because at the time, the entire line of the
contemplated road in which the stock was to be taken had not been
surveyed by a competent engineer, and substantially located by
designating the termini, and approximating the general direction of
the road, and no estimate of the grading, embankment, and masonry
had been made by anyone authorized to make it, and no such estimate
as was required by section 1145 of the Code had ever been filed.
That at the time of ordering
Page 127 U. S. 145
and holding such election, the population of Milan was less than
1,000 inhabitants, and therefore it was not authorized by law to
take stock in railroads, issue bonds, or levy a tax for their
payment; that on the 23d of June, 1873, the said board made the
following order:
"On motion of W. M. McCall, the Mayor was instructed to issue
twelve bonds to the said Mississippi Central Railroad Company, of
the denomination of $1,000 each, with interest from date of
issuance at the rate of 7 percent per annum."
That thereupon said mayor prepared twelve bonds, designated as
the "Bonds of the Town of Milan," of $1,000 each, payable to the
Mississippi Central Railroad Company, or bearer, twenty years from
the date of issue, and dated July 1, 1873, bearing 7 percent
interest per annum, to which bonds were attached coupons for the
payment of such interest on the 1st of July of each year the bonds
had to run, each one of the bonds and coupons being signed by A.
Jordan, Mayor and Recorder, and being made payable in the City of
New York. That on the 4th of August, 1883, the bonds and coupons
were delivered to the Mississippi Central Railroad Company through
one Hall, its treasurer and cashier. That the bonds, with the
coupons, one year's interest being due on July 1, 1874, were still
in the possession of Hall, or some other officer or agent of the
company, and the company was attempting to collect the interest due
on the bonds. That the town was not bound to pay the bonds, their
issue being made contrary to law; but if the company should sell
them to innocent purchasers, the town would be bound in law to pay
them. That the officers of the company would sell and assign the
bonds, with a view to making the town liable, if they had not
already done so in part, and that they were attempting to negotiate
them, and would do so unless restrained by injunction. The bill
prayed that the company and its officers be enjoined perpetually
from transferring or disposing of the bonds and coupons and from
collecting the same, and that they be delivered up and cancelled.
On the 10th of July, 1874 (the same day on which the bill was
filed), a temporary injunction, in accordance with its prayer, was
issued. The defendants thereafter filed a demurrer
Page 127 U. S. 146
to the bill, and on the 9th of January, 1875, the following
final decree was entered in the suit:
"
A. Jordan, W. I. House, J. Q. Boyd, M. L. Baird, W. Y.
Williamson, S. F. Rankin, et als., Mayor and Aldermen of the Town
of Milan"
"
v."
"
The Mississippi Central Railroad Company, H. S. McComb, and
James Hall"
"Be it remembered that this cause, this 9th of January, 1875,
came on to be heard and was heard before Hon. John Somers,
Chancellor, etc., and, it appearing that this suit had been settled
by the following agreement, to-wit."
" Whereas the Board of Mayor and Aldermen of the Town of Milan
in Gibson County, Tennessee, having filed a bill in the Chancery
Court at Humboldt against the Mississippi Central Railroad Company
to enjoin the collection of certain bonds issued by the Town of
Milan to aid in the construction of said road, to-wit, twelve bonds
of $1,000 each, with coupons attached, and said suit is now pending
in said court, and whereas, it is agreed by and between said
corporation of the Town of Milan and the New Orleans, St. Louis,
and Chicago Railroad Company, into which said Mississippi Central
R. Co. has been merged by contract of consolidation between said
last-named company and the New Orleans, Jackson and Great Northern
R. Co., that said suit be compromised as follows, to-wit: The said
New Orleans, St. Louis and Chicago R. Co. is to issue to the Town
of Milan certificates of stock in the sum of $500 each, dollar for
dollar, for said bonds, and the said Town of Milan on their part
agrees, on receipt of said stock, to let a decree be entered in
said cause in favor of the validity of said bonds, which are to be
redelivered, with the seal of the town affixed, and the costs of
said suit to be paid by the said New Orleans, St. Louis and Chicago
R. Co."
" In testimony whereof we herewith sign our names, and affix our
official seal this December 18, 1874."
"A. JORDAN,
Mayor"
"A. M. WEST"
"
2d Vice-President N. O., St. Louis and C. R. Co."
Page 127 U. S. 147
"In pursuance of this agreement and by consent of the parties,
it is ordered, adjudged, and decreed that the New Orleans, St.
Louis and Chicago R. Co. shall issue to the Town of Milan
certificates of stock in said company in sums of $500 each, dollar
for dollar, for said twelve bonds of $1,000 each referred to in the
bill, and it is further ordered, adjudged, and decreed, that, on
the presentation of these certificates of stock, the Town of Milan
shall have the corporate seal of said town affixed to each of said
twelve bonds and delivered to H. S. McComb, to whom they rightfully
belong, or his authorized agent, and said bonds and coupons
attached are declared to be valid and binding on said town and its
authorities. It is by consent further ordered, adjudged, and
decreed that the injunction be dissolved, the demurrer herein filed
be, and the same is hereby, overruled, and this decree is declared
a final settlement of the right of the parties, the New Orleans,
St. Louis, and Chicago Railroad Company to pay the costs, and this
case only retained on the docket so far as is necessary to enforce
the final execution of this decree."
It was further agreed by said stipulation that the records of
the town were destroyed by fire in 1879; that no census authorized
by law, of the town, had been taken before 1880, when the
population was ascertained to be 1,600; that the railroad was not
completed to the town until after July, 1873; that after the final
decree in the chancery court, the plaintiffs became the owners of
the bonds and the coupons attached, purchasing the same for value
and before they were due, and that, in the proposition submitted to
the voters of the town, the question of subscribing $12,000 to the
stock of the railroad company, payable in the bonds, "was also
submitted in one question and at one and the same time, and was so
approved by the requisite majority." The bill of exceptions states
that the plaintiffs offered in evidence the above-named record of
the Chancery Court at Humboldt, found in the stipulation; that the
defendant, waiving all other objections, objected to the same
because the record showed upon its face that it was not binding in
law upon the town as a matter of adjudication, and therefore
did
Page 127 U. S. 148
not sustain the replication to the plea; that the court
sustained the objection, and the plaintiff excepted, and that the
court found as one of the facts to support its judgment that at the
time the bonds and coupons were issued, the town did not contain
1,000 inhabitants.
The court found that the facts and the law were with the
defendant, and rendered a judgment in its favor for the costs of
the suit, to review which the plaintiffs have brought a writ of
error. The opinion of the circuit court is reported in 21 F.
842.
Page 127 U. S. 149
MR. JUSTICE BLATCHFORD delivered the opinion of the Court.
Two questions arise for consideration in this case: (1) As to
the statutory authority for the issue of the bonds, (2) as to the
effect of the decree of January 9, 1875, in the suit in the state
court of chancery.
Page 127 U. S. 150
The bonds in question were issued in payment of a subscription
made by the town to the stock of the Mississippi Central Railroad
Company. On their face, they do not recite any such subscription to
stock, but recite, as the consideration for the bonds, the
"location of the Mississippi Central Railroad by said town." It is
well settled that a municipal corporation, in order to exercise the
power of becoming a stockholder in a railroad corporation, must
have such power expressly conferred upon it by a grant from the
legislature, and that even the power to subscribe for such stock
does not carry with it the power to issue negotiable bonds in
payment of the subscription unless the power to issue such bonds is
expressly or by reasonable implication conferred by statute. Such
is the law as recognized by the Supreme Court of Tennessee in the
case of
Pulaski v. Gilmore, decided in 1880 and published
in 21 F. 870, and in
Taxpayers of Milan v. Tennessee Central
Railroad, 11 Lea 330, decided in 1883. Such is also the law as
established by this Court.
Marsh v. Fulton
County, 10 Wall. 676;
Wells v.
Supervisors, 102 U. S. 625;
Ottawa v. Carey, 108 U. S. 110,
108 U. S. 123;
Daviess County v. Dickinson, 117 U.
S. 657,
117 U. S.
663.
The grant of authority to a municipal corporation to subscribe
for the stock of a railroad company does not carry with it the
power to issue negotiable bonds to pay for the subscription, or
anything more than the power to raise money by taxation to pay the
amount of the subscription. If, in the statute granting the power
to subscribe for the stock, no manner of paying the subscription is
provided for, it cannot be paid by issuing negotiable bonds. The
practice in Tennessee, as shown by its statute books, has been to
authorize expressly the issuing of negotiable bonds by municipal
corporations to pay for subscriptions to stock in all cases where
it was desired to confer upon such corporations the power to issue
such bonds.
By a statute passed in 1852 and carried into the Code of
Tennessee of 1857-58 (sections 1142-1161), in force when the bonds
in this case were issued, any county, incorporated town, or city
was authorized (section 1142) to subscribe for
Page 127 U. S. 151
stock to a specified amount of its taxable property "in
railroads running to or contiguous thereto," upon certain specified
terms and conditions. An election was to be held (section 1143)
when ordered (section 1144) in a specified manner, after the entire
line of the road (section 1145) had been surveyed and a certain
estimate of the grading, embankment, and masonry had been made, and
after a specified notice of the election (section 1146) had been
given. The statute (section 1147) prescribed the form of the vote,
and provided (section 1148) that the subscription should be made if
a majority of the votes cast should be in favor of it. Sections
1150, 1154-1157, 1160, 1161 provided as follows:
"1150. As soon as the stock is subscribed, it is the duty of the
county court or corporate authorities to levy a tax upon the
taxable property, privileges, and persons liable by law to taxation
within the county or corporation limits sufficient to meet the
installments of subscription as made, and the cost and expenses of
collection, which tax shall be levied and collected like other
taxes."
"1154. Not more than thirty-three and one-third percent of the
stock subscribed as above can be collected in any one year."
"1155. The tax collector, as fast as he makes collections, shall
pay the amounts over to the company."
"1156. He shall also, as he receives the tax, give to each
taxpayer a certificate in such form as the railroad company may
prescribe showing the amount of such tax paid by him, of which he
shall retain a duplicate to be delivered to the president of the
railroad company, and such certificate is negotiable by delivery or
assignment, and, with a deduction of its proportion of the cost of
collection, is receivable in payment of either freight or passage
on the railroad in which the subscription is taken, after the
expiration of one year from the completion of such road."
"1157. The holder of such certificates, to the amount of one
share or more of the stock of such railroad company, is entitled to
demand and receive from the company, in lieu thereof, a certificate
of stock in the capital stock of such company, which will give him
all the privileges of any other stockholder. "
Page 127 U. S. 152
"1160. For the purpose of meeting unexpected contingencies, the
county or corporation authorities may anticipate the collection of
the railroad tax by the issuance of warrants, bearing six percent
interest and payable at such times as may be desired by the
railroad company, the warrants to be received as payment of so much
stock."
"1161. In such a case, a sufficiency of the railroad tax shall
be paid into the county Treasury to meet the warrants as they fall
due."
These provisions of the statute do not contemplate or authorize
the issue of negotiable bonds. They provide distinctly for the
levying of a tax to meet the installments of the subscription.
Section 1160, in authorizing the issuing of warrants made payable
at such times as may be desired by the railroad company, and to be
received by it in payment for the stock, only contemplates that the
warrants shall be issued in anticipation of the collection of the
tax, which, under the provisions of section 1154, may be entirely
collected in three years, but cannot be collected more rapidly than
one-third in each year, and there is no implication that any
warrants are to be issued except to anticipate the collection of a
tax, after such tax is levied under the provisions of section 1150,
and such levy is to be made as soon as the stock is subscribed for,
and is to be the levy of a tax sufficient to meet the installments
of subscription as made, and the costs and expenses of collection,
subject to the provision of section 1154 that although the levy of
the tax is made, not more than one-third of the stock subscription
can be collected in anyone year. It is solely to anticipate the
collection of the tax, when it is collectible by virtue of the
terms of the levy, that the warrants are authorized by section 1160
to be issued, and there is nothing in the statute which
contemplates that the warrants shall be made payable at any time
later than the time fixed for the collection of the installments of
the tax. These provisions exclude the power of issuing such
negotiable bonds as were issued in this case.
It is contended by the plaintiffs that express authority for
issuing the bonds in question is to be found in an Act of the
Legislature of Tennessee approved January 23, 1871, being
Page 127 U. S. 153
chapter 50 of the Acts of 1870-1871. In 1870, a new constitution
was adopted in Tennessee, section 29 of Article II of which reads
as follows:
"SEC. 29. The General Assembly shall have power to authorize the
several counties and incorporated towns in this state to impose
taxes for county and corporation purposes, respectively, in such
manner as shall be prescribed by law, and all property shall be
taxed according to its value, upon the principles established in
regard to state taxation. But the credit of no county, city, or
town shall be given or loaned to or in aid of any person, company,
association, or corporation except upon an election to be first
held by the qualified voters of such county, city, or town and the
assent of three-fourths of the votes cast at said election. Nor
shall any county, city, or town become a stockholder with others in
any company, association, or corporation, except upon a like
election and the assent of a like majority. But the Counties of
Grainer, Hawkins, Hancock, Union, Campbell, Scott, Morgan, Grundy,
Sumner, Smith, Fentress, Van Buren, White, Putnam, Overton,
Jackson, Cumberland, Anderson, Henderson, Wayne, Marshall, Cocke,
Coffee, Macon, and the new county herein authorized to be
established out of fractions of Sumner, Macon, and Smith Counties,
and Roane shall be excepted out of the provisions of this section
so far that the assent of a majority of the qualified voters of
either of said counties voting on the question shall be sufficient
when the credit of such county is given or loaned to any person,
association, or corporation,
provided that the exception
of the counties above named shall not be in force beyond the year
1880, and after that period they shall be subject to the
three-fourths majority applicable to the other counties of the
state."
The Act approved January 23, 1871, was entitled
"An act to enforce article 2, § 29, of the constitution, to
authorize the several counties and incorporated towns in this state
to impose taxes for county and corporation purposes."
It read as follows:
"SECTION 1.
Be it enacted by the General Assembly of
the
Page 127 U. S. 154
State of Tennessee that the several counties and
incorporated towns in this state may and are hereby authorized to
impose taxes for county and corporation purposes, respectively, in
the following manner, and upon the following conditions:"
"1st. That all taxable property shall be taxed according to its
value, upon the principles established in regard to state
taxation."
"2d. The credit of no county, city, or town shall be given or
loaned to or in aid of any person, company, association, or
corporation, except first upon the consent of a majority of the
justices of the peace of the county at a quarterly term of the
county court of such county, or a majority of the board of mayor
and aldermen, as the case may be, of such city or town, and upon an
election afterwards held by the qualified voters of said county,
city, or town, and the assent of three-fourths of the votes cast at
said election. The said county court or board of mayor and
aldermen, as the case may be, shall spread upon their records the
proposition, and the amount to be voted upon by the people, and
shall have full power to hold and conduct such elections according
to the laws regulating elections in this state, and if the assent
of three-fourths of the voters of such county, city, or town is
had, then the county court or board of mayor and aldermen, as the
case may be, shall have full power to make and execute all
necessary orders, bonds, and payments, in order to carry out such
loan or credit voted for as prescribed in this act; nor shall any
county, city, or town become a stockholder with others in any
company, association, or corporation, except upon a like election,
and the assent of a like majority, as prescribed in this act."
Section 2 of the act enacts the constitutional exception as to
the specified counties. This act was manifestly passed for the
object stated in its title, to carry into effect the provisions of
section 29 of article 2 of the Constitution of 1870, and to
prescribe the manner and the conditions in conformity with the
provisions of that section, in and upon which the several counties
and incorporated towns in the state should have the right to
impose
Page 127 U. S. 155
taxes for county and corporation purposes. The second clause of
the first section of the act only provides, in the language of the
constitution, that "The credit of no county, city, or town shall be
given or loaned to or in aid of any person, company, association,
or corporation, except" upon the assent of three-fourths of the
votes cast at an election held by the qualified voters of the
county, city, or town. The clause then goes on to provide, in the
exact language of the constitution, as follows:
"Nor shall any county, city, or town become a stockholder with
others in any company, association, or corporation except upon a
like election and the assent of a like majority."
The enactments in that clause are entirely inhibitory and
negative in their character. They do not confer any authority for
the giving or loaning of credit upon any municipality, nor confer
the right upon any municipality to become a stockholder with others
in any corporation; but they only prescribe the condition that no
credit shall be given or loaned, and no ownership of stock be
created, unless the prescribed election be first held and the
assent of three-fourths of the votes cast at it be first given. But
the authority to give or loan credit and to become a stockholder
under the conditions prescribed in the act of 1871 must be found in
an independent grant of authority, in some other statutory
provision, either general or special. These were the views taken by
the Supreme Court of Tennessee in the case of
Pulaski v.
Gilmore, before cited.
See also Taxpayers of Milan v.
Tennessee Central Railroad, supra.
It is further contended that authority to issue the bonds was
given by an act of the Legislature of Tennessee approved March 23,
1872, chapter 20 of the Acts 1872, entitled
"An act to authorize the mayor and city council or mayor and
board of aldermen of any incorporated city or town in the State of
Tennessee having a population of from one thousand and upwards to
twenty thousand inhabitants to issue bonds of said city or town to
the amount of fifteen thousand dollars."
That act is as follows:
"SEC 1.
Be it enacted by the General Assembly of the
State
Page 127 U. S. 156
of Tennessee that the mayor and city council or the
board of mayor and aldermen of any incorporated city or town in the
State of Tennessee having a population of from one thousand to
twenty thousand are hereby authorized, in their corporate capacity,
to issue the bonds of the said city or town, signed by the mayor
and countersigned by the recorder of said city or town, with
coupons for interest attached, to an amount not exceeding fifteen
thousand dollars. The bonds herein provided for may be executed of
denominations from twenty-five to five hundred dollars at
discretion of said mayor and city council or mayor and aldermen,
and to mature at such times as may be fixed by said mayor and city
council or mayor and aldermen, from one to twenty years after date,
and bearing interest at the rate of eight percent per annum,
payable semiannually; the past-due coupons on which bonds shall be
receivable for taxes, and all other dues to the corporation issuing
the same,
provided that the bonds issued under the
provisions of this act shall be alone for the purpose of paying
outstanding liabilities against the city or corporation issuing
them, and shall not in any case exceed the unsettled and matured
liabilities or debts of such city or corporation at the time of
issuance thereof; but in no event shall the bonds be issued without
the consent of three-fourths of the qualified voters voting at an
election to be held for that purpose under the supervision of said
mayor and city council or board of aldermen."
"SEC. 2.
Be it further enacted that the said mayor and
city council or mayor and aldermen of said city or town are hereby
authorized to issue at par such coupon bonds as are provided for in
this act to the holders of
bona fide claims against said
city or town in liquidation and discharge of such claims and
interest thereon, and to such others as are willing to take them at
par, not to exceed in amount said sum of fifteen thousand dollars,
provided that in no case shall said mayor and city council
or mayor and aldermen of said city or town, as the agent for that
purpose, sell under their par value any of the bonds the issuance
of which is authorized by this act;
provided further that
the proposed rate of interest
Page 127 U. S. 157
the bonds are to bear shall be specified and submitted to the
vote of the inhabitants of such corporations at the time the
election is held in regard to the issuance of the bonds."
By the express provision of section 1 of this act, the bonds to
be issued under it are to "be alone for the purpose of paying
outstanding liabilities against the city or corporation issuing
them," and it is provided that they "shall not in any case exceed
the unsettled and matured liabilities or debts of such city or
corporation at the time of issuance thereof," and by section 2 they
are to be issued
"to the holders of
bona fide claims against said city
or town, in liquidation and discharge of such claims and interest
thereon, and to such others as are willing to take them at
par."
We are of opinion that this statute has no application to the
present case. Its object was manifestly to enable certain
incorporated cities and towns to fund their matured debts by
issuing bonds of the character specified in the act. The debts for
which they were to be issued were not only to be unsettled debts,
but matured debts, and the bonds were not to be issued in any event
without the consent of three-fourths of the qualified voters voting
at an election to be held for the purpose. When the election in the
present case was held, no debt created by any subscription to any
stock had yet been incurred, and it is expressly stipulated in the
agreed statement of facts that the question of subscribing $12,000
to the stock of the company, and the question of paying such
subscription in bonds, were submitted to the voters as a single
question at one and the same time, and were approved by the same
vote. Indeed, from the record of the proceedings of the board of
mayor and aldermen of the town there does not appear to have been
any submission to the voters of the question of subscribing to the
stock of the railroad company, or of issuing the bonds in payment
for any such subscription, but only the question of whether the
bonds should be issued by the town to the company as a donation or
subscription of bonds, and the bonds themselves, on their face,
carry out only the same idea. Still it is agreed that the bonds
were issued in payment of a "stock subscription" made by the town
to the railroad
Page 127 U. S. 158
company. But even in that view, the liability on the
subscription to the stock was not such a matured liability or debt
of the town at the time the election was held, as the act of 1872
refers to. The vote of the people was, at most, a vote to subscribe
for the stock. The terms of the vote appear to have been "For
subscription" or "No subscription." The vote to subscribe for the
stock and the vote to issue the bonds were one and the same vote,
comprehended in the words "For subscription." In order to make the
liability for the subscription a "matured" liability of the town,
it was necessary that the subscription should be actually made in
pursuance of the vote, and that the terms for paying the money in
discharge of it should be determined, and that an election should
be thereafter held to vote in regard to issuing bonds for the
liability, as a matured liability, and in view of all the terms and
circumstances of such liability. No such election was held after
any liability for the subscription became a matured liability.
In regard to the effect of the decree of the chancery court of
January 9, 1875, it is to be said that it was made in a suit by the
town authorities to enjoin perpetually the collection of the bonds
on the ground that they were issued without authority of law. By
the decree it was ordered, by consent of the parties, that the
preliminary injunction should be dissolved and the demurrer be
overruled. This left the bill to stand as it was originally filed.
The decree sets forth that the suit had been settled by an
agreement, a copy of which is embodied in the decree. That
agreement refers to the bonds as having been issued by the town "to
aid in the construction of said road" -- that is, the road of the
Mississippi Central Railroad Company. It does not refer to the
bonds as having been issued in payment of a subscription to the
stock of the company. It then sets forth that it has been agreed by
the town and the New Orleans, St. Louis, and Chicago Railroad
Company (into which the Mississippi Central Railroad Company had
been merged by contract of consolidation between the last-named
company and the New Orleans, Jackson and Great Northern Railroad
Company) that the suit
Page 127 U. S. 159
should be compromised by the issue, by the New Orleans, St.
Louis, and Chicago Railroad Company to the town of certificates of
stock in the sum of $500 each, dollar for dollar, for the $12,000
of bonds, the town agreeing, on the receipt of the stock, to let a
decree be entered in the cause in favor of the validity of the
bonds, which were to be redelivered with the seal of the town
affixed, and the costs of the suit were to be paid by the New
Orleans, St. Louis, and Chicago Railroad Company.
The substance of this is that on the bill, it standing good,
with the demurrer to be overruled, the plaintiffs agree,
notwithstanding the averments of the bill, that the bonds are
valid. The decree then states that in pursuance of that agreement
and by consent of the parties, it is decreed that the New Orleans,
St. Louis, and Chicago Railroad Company shall issue to the town the
certificates of stock in the company referred to in the agreement;
that on the presentation of those certificates, the town shall have
its corporate seal affixed to each of the twelve bonds, and that
the bonds and their coupons are declared to be valid and binding on
the town and its authorities.
This was no adjudication by the court of the validity of the
bonds on the submission to it as a judicial tribunal of the
question of such validity. The declaration of the validity of the
bonds contained in the decree was made solely in pursuance of the
consent to that effect contained in the agreement signed by the
mayor of the town and the officer of the New Orleans, St. Louis,
and Chicago Railroad Company. The act of the mayor in signing that
agreement could give no validity to the bonds if they had none at
the time the agreement was made. The want of authority to issue
them extended to a want of authority to declare them valid. The
mayor had no such authority. The decree of the court was based
solely upon the declaration of the mayor in the agreement that the
bonds were valid, and that declaration was of no more effect than
the declaration of the mayor in the bill in chancery that the bonds
were invalid. The adjudication in the decree cannot, under the
Page 127 U. S. 160
circumstances, be set up as a judicial determination of the
validity of the bonds.
Russell v. Place, 94 U. S.
606;
Manhattan Life Ins. Co. v. Broughton,
109 U. S. 121,
109 U. S. 125
This was not the case of a submission to the court of a question
for its decision on the merits, but it was a consent, in advance,
to a particular decision, by a person who had no right to bind the
town by such a consent, because it gave life to invalid bonds, and
the authorities of the town had no more power to do so than they
had to issue the bonds originally.
There is nothing inconsistent with this view in
Nashville
&c. Railway Co. v. United States, 113 U.
S. 261, where it was held that a decree in equity, by
consent of parties, and upon a compromise between them, was a bar
to a subsequent suit upon a claim therein set forth as among the
matters compromised and settled, although not in fact litigated in
the suit in which the decree was rendered. In that case, both
parties had full power to make the compromise involved.
The judgment of the circuit court is affirmed.