1. Where a charter gives a city power to borrow money for any
object in its discretion, and a statute of the state where the city
is enacted that "bonds of any city" issued to railroad companies
"may have interest at any rate not exceeding" a rate named, and may
be sold by the company "at such discount as may be deemed
expedient" --
held that the city had power to issue bonds
to aid the construction of railways, even although the power to
borrow, as given in the charter, was found among powers of a nature
strictly municipal; such, in fact -- except as, under the decision
now made, might respect the power to "borrow money" -- being the
only powers given in the charter at all. The statute, in connection
with the power, gives the requisite authority. MILLER, J.,
dissenting.
2. A city having power to borrow money may make the principal
and interest payable where it pleases.
Page 68 U. S. 385
3. Where a statute fixes the rate of interest per annum, a
contract may lawfully be made for the payment of that rate, before
the principal comes due, at periods shorter than a year.
4. The statute of Iowa of January 25, 1855 (chap. 128),
authorizes cities in that state to give their bonds in payment of
subscriptions to railroad stock, and authorizes them to be sold at
a price even greatly below their par value. MILLER, J., dissenting
from the doctrine as applied.
5. Where the votes of three hundred and twenty-six citizens were
given in favor of a municipal loan, and of five only against it,
and the city issued the bonds, no one interposing to prevent the
issue, all parties acting in good faith, the city cannot afterwards
object to the regularity of the preliminary proceedings and set up
that the vote was not taken in the form in which, under the
charter, it ought to have been taken. If the legal authority under
which the agents of the city, in issuing the bonds, acted was
sufficiently comprehensive, a holder of them
bona fide and
for value has a right to presume that all precedent necessary
requirements had been complied with.
6.
Gelpcke v. City of Dubuque, ante, p. <|68 U.S.
175|>175, affirmed, the whole case asserting the validity of
municipal bonds made payable to bearer and issued for the
construction of railroads when such bonds are in the hands of
innocent holders for value.
The City of Muscatine was incorporated, A.D. 1851, by the
Legislature of Iowa, and by its charter made "a body corporate, and
invested with all powers and attributes of a municipal
corporation." "The legislative authority of the city," says this
charter by its 19th section, "is vested in a city council;" which
council, the charter goes on to declare, "is invested with the
following powers," the powers being set forth essentially as
follows:
"1. To secure the inhabitants against fire and violations of the
law and the public peace; to suppress riots, drunkenness, gambling,
and disorderly conduct, and generally to provide for the safety,
good order, and prosperity of the city and the health, morals, and
conveniences of the inhabitants."
"2. To impose penalties for the violation of its
ordinances."
"3. To establish and organize fire companies, and to provide
them with fire apparatus."
"4. To regulate the keeping and sale of gunpowder within the
city and to provide that no building of wood shall be erected
within designated parts. "
Page 68 U. S. 386
"5. To have the control of the landing on the Mississippi River,
and build wharves, and regulate the landing, wharfage, dockage
&c."
"6. To provide for the license, regulation, or prohibition of
exhibitions &c.; billiard tables, ball and ten-pin alleys, and
places where any games of skill or chance are played."
"7. To make ordinances in relation to the cleanliness and health
of the city."
"8. To regulate cartage and drayage within the city, and make
prohibition of animals running at large within the city."
"9. To provide for the establishment and support of schools in
the city, and for the government of the same."
"10. To audit all claims against the city; to provide for the
keeping of the public money of the city, and the manner of drawing
the same from the treasurer."
"11. To establish the grade of the streets, alleys, and
wharves."
"12. To prescribe the manner of calling the meetings of the
citizens, except for the election of officers."
"13. To appoint street commissioners and officers."
"14. To cause the streets and alleys of the city to be
paved."
"15.
To borrow money for ANY object in its discretion
if at a regularly notified meeting, under a notice stating
distinctly the nature and object of the loan, and the amount
thereof, as nearly as practicable, the citizens determine in favor
of the loan by a majority of two-thirds of the votes given at the
election."
"16. To fill vacancies occurring in any of the city offices by
appointment of record, to hold, in the case of election officers,
until the next regular election and the qualification of the
successor."
In addition to the power thus given by the charter to borrow
money, the Legislature of Iowa had, on the 25th of January, 1855,
passed certain acts; [the same acts referred to
ante, p.
<|68 U.S. 220|>220,
Gelpcke v. City of Dubuque, No.
81]. One is entitled
"An act regulating the interest on city
and county bonds." [
Footnote
1] The first section enacted
"That railroad companies might issue their bonds at such a rate
of interest and sell them at such discount as might be necessary,
and that they should
Page 68 U. S. 387
remain legal and binding."
The second section,
"That whenever any company shall have received or may hereafter
receive the bonds of any city or county, upon subscription of stock
by such city or county, such bonds may have interest at any rate
not exceeding ten percent, and may be sold by the company at such
discount as may be deemed expedient."
With this charter and these enactments in force, it was proposed
by certain persons that the City of Muscatine, Iowa, should borrow
money and subscribe to the stock of the Mississippi & Missouri
Railroad; an ordinance was accordingly passed, July 23, 1855, to
take the vote of the citizens in order to see whether two-thirds of
them, as required by the article 15,
ante, p. <|68 U.S.
386|>386, were in favor of borrowing the money. The ordinance
enacted essentially as follows:
The election shall be upon the following propositions:
"1st. To rescind a vote given &c., authorizing the council
to borrow $45,000, to be subscribed on stock of the Iowa Western
Railroad, and also to rescind a vote given authorizing the council
to borrow $50,000, to the subscribed on stock of the Muscatine,
Iowa City &c., Railroad."
"2d. To borrow for a term of years, not exceeding twenty, on the
bonds of the city, at a rate of interest not higher than ten
percent per annum, $130,000, to be subscribed on stock in the name
of the city to the capital stock of the Mississippi & Missouri
Railroad Company."
"3d. The vote shall be given by ballot, written or printed, with
the words 'For the rescission and loan,' and 'Against the
rescission and loan,' and if the requisite number of votes are for
the rescission and loan, the council shall cause the bonds to be
issued."
Three hundred and twenty-six votes were given for the rescission
and loan, and five against it.
The city accordingly issued its bonds, the form of them,
somewhat special, being thus:
"
Bond of the City of Muscatine"
"UNITED STATES OF AMERICA"
"
$1000 No. 51"
"Be it known that the City of Muscatine owes to Adam Ogilvie, or
bearer, the sum of one thousand dollars for money borrowed,
Page 68 U. S. 388
the receipt whereof is hereby acknowledged, and which sum the
said City of Muscatine hereby promises to pay, at the office of E.
W. Clark, Dodge & Co.,
in the City of New York, on the
first day of January, eighteen hundred and seventy-six (January
1st, 1876), with interest on said sum of one thousand dollars at
the annual rate of
ten percent, payable
semiannually, on the 1st day of January and 1st day of
July in each year, and the faith of the City of Muscatine is hereby
pledged for the semiannual payments of interest and the ultimate
redemption of the principal."
"
Upon the surrender of this bond to A. C. Flagg, treasurer
in trust, at any time previous to said 1st January, 1876,
the holder hereof will be entitled to ten shares of the capital
stock of the Mississippi & Missouri Railroad Company, in
satisfaction thereof."
"Whereof J. H. Wall. Mayor of the City of Muscatine,
does
hereby certify that by a vote of the legal electors of the said
City of Muscatine, at an election held 13th August, 1855,
in accordance with an ordinance of the Common Council
sanctioning the same, that
the said city was authorized to
borrow the sum of one hundred and thirty thousand dollars, and
to issue its bonds therefor, bearing interest an ten percent per
annum, and that the above is one of the bonds given for said
loan."
"In testimony whereof, I have hereunto set my hand and affixed
the seal of said city this thirty-first day of December, A.D.
1858."
"[SEAL]"
"J. H. WALLACE, Mayor"
"Attested by"
"D. S. JOHNSON, Recorder."
The coupons were in this form:
"The City of Muscatine will pay
the bearer, on the 1st
day of January, 1860, twenty-five dollars, at the office of E. W.
Clark, Dodge & Co.,
in the City of New York, interest
due on their bond No. 51."
"J. H. WALLACE, Mayor"
A number of the bonds thus issued having got into the hands of
the plaintiffs, and the interest being unpaid, they brought suit to
recover it. The city set up various defenses, as follows:
Page 68 U. S. 389
1. That there was no authority in the charter of the City of
Muscatine under which money may be borrowed to aid in the
construction of railroads.
2. Because the interest was made payable in New York city,
instead of at the Treasury of the City of Muscatine.
3. Because, in the stipulation to pay the interest semiannually
at the rate of ten percent, the authority conferred by the vote
which limited the rate of interest to "not higher than ten percent
per annum," was transcended and a usurious rate agreed to be
paid.
4. Because the stock of the Mississippi & Missouri Railroad
Company, for which said bonds and coupons were issued was, without
authority from the city, placed in the hands of a trustee and
entirely beyond its control.
5. Because, under the authority to borrow a sum of money, no
money was ever borrowed by the city, but instead, these bonds were
delivered to the officers of the Mississippi & Missouri
Railroad Company, and by their agents and brokers sold to the
plaintiffs at a price greatly below their par value.
[An amended answer to the claim averred, "that the said bonds
were by the officers of said railroad company, and their agents and
brokers, sold to the plaintiffs at a price greatly below their par
value; that at the time said bonds and coupons were received by
said plaintiffs, they had full knowledge of the fact that said
bonds had been issued for the purpose of aiding in the construction
of said Mississippi & Missouri Railroad."]
6. Because the ordinance on which the vote for a loan was taken
was void, because it submitted three distinct propositions in one,
and in such a manner as to cut off an effective opposition from all
voters who were against the whole of the propositions.
7. Because, finally, the legislature had no constitutional power
to authorize the issue of such bonds, and that hence they are
void.
To these defenses there was a demurrer, which demurrer the court
overruled, giving judgment in favor of the city. On appeal, the
questions here were the same as they were
Page 68 U. S. 390
below -- that is to say, whether the defenses set up by the city
were sufficient defenses to the claim for payment of the coupons in
the hands of
bona fide holders for value.
MR. JUSTICE SWAYNE delivered the opinion of the Court:
The demurrer brings under examination the objections taken by
the defendant to the validity of the coupons upon which this suit
is founded.
These objections will be considered as we proceed.
I.
"That there is no authority in the charter of the City of
Muscatine under which money may be borrowed to aid in the
construction of railroads."
The charter gives the city authority
"to borrow money for any object in its discretion, if at a
regularly notified meeting under a notice stating distinctly the
nature and object of the loan, and the amount thereof, as nearly as
practicable, the citizens determine in favor of the loan by a
majority of two-thirds of the votes given at the election."
When the bonds and coupons were issued, the acts of the
Legislature of Iowa of the 25th of January, 1855, [
Footnote 2] were in force. These acts in
connection with the provision of the charter furnish, in our
judgment, a conclusive answer to this objection.
The effect of the acts was considered in the case of
Gelpcke
v. City of Dubuque, [
Footnote
3] decided at this term, to which we refer.
Page 68 U. S. 391
II.
"Because the interest was made payable in New York city,
instead of at the Treasury of the City of Muscatine."
It was according to the general usage to make such bonds and
coupons payable in the City of New York. It added to the value of
the bonds and was beneficial to all parties. No legal principle
forbids it. The power of a municipal corporation to make any
contract, does not depend upon the place of performance, but upon
its scope and object. A city authorized to establish gas works and
water works, and to gravel its streets, may buy water, coal, and
gravel, beyond its limits, and agree to pay where they are found or
elsewhere. The principal power, when expressed, draws to it by
necessary implication, the means of its execution. This is a
settled rule in the construction of all grants of authority,
whether to governments or individuals. If the subject admitted of
doubt, we should hold that the city, having acted upon its own
construction, and drawn in others to take the securities and
advance their money upon it, is now concluded from denying that
construction to be the true one. [
Footnote 4]
III.
"Because in the stipulation to pay the interest
semiannually at the rate of ten percent, the authority conferred by
the vote which limited the rate of interest to not higher than
ten percent per annum,' was transcended, and a usurious rate agreed
to be paid."
This objection has no foundation. When a statute fixes the rate
of interest per annum, it has always been held that parties may
lawfully contract for the payment of that rate, before the
principal debt becomes due, at periods shorter than a year.
[
Footnote 5]
IV.
"Because the stock of the Mississippi & Missouri
Railroad Company, for which said bonds and coupons were issued,
was, without authority from the city, placed in the hands of a
trustee, and entirely beyond its control."
This objection, though urged in the argument, does not arise
upon the record. All that appears touching the subject is that the
bond of $1,000, as set out in the exhibit attached
Page 68 U. S. 392
to the complaint, besides binding the city to pay, provides that
the holder, upon surrendering it at any time before maturity "to A.
C. Flagg, trustee," should be entitled to ten shares of the stock
of the railroad company. To such an arrangement there is no legal
objection. The city had a right to apply the stock for which the
bonds were given, or its proceeds, at any time, in discharge of the
bonds.
V.
"Because, under the authority to borrow a sum of money,
no money was ever borrowed by the city; but instead, these bonds
were delivered to the officers of the Mississippi & Missouri
Railroad Company, and by their agents and brokers sold to the
plaintiffs at a price greatly below their par value."
The amended answer avers,
"That the said bonds were by the officers of said railroad
company, and their agents and brokers, sold to the plaintiffs at a
price greatly below their par value; that at the time said bonds
and coupons were received by said plaintiffs, they had full
knowledge of the fact that said bonds had been issued for the
purpose of aiding in the construction of said Mississippi &
Missouri Railroad."
The city was authorized to issue the bonds in order to borrow
money to pay for the stock. If the company chose to receive the
bonds in payment for the stock, retaining a lien on the stock until
the bonds were paid, there was no legal obstacle in the way of
their doing so. The object of issuing the bonds was thus
accomplished, and no injury was done to those who were to pay them.
It is neither averred in the answer nor claimed in the argument
that the railroad company took them at less than their face. It
does not appear that anyone objected then, and no one can object
now. After the bonds passed into the hands of the railroad company,
the company was at liberty to sell them on such terms as it might
deem proper.
The Act of January 25, 1855, [
Footnote 6] by a clear implication, authorizes cities to
give their bonds in payment of their subscriptions of railroad
stock, and expressly authorizes the
Page 68 U. S. 393
bonds to "be sold by the company at such discount as may be
deemed expedient." What is implied has the same effect as what is
expressed. [
Footnote 7]
VI.
"The ordinance on which the vote for a loan was taken
was void, because it submitted three distinct propositions in one,
and in such a manner as to cut off an effective opposition from all
voters who were against the whole of the propositions."
The record shows that all the votes cast except five were in
favor of the loan. The city and citizens adopted and acted upon the
ordinance as valid and sufficient. The citizens voted and the city
authorities issued the bonds. No one interposed to prevent their
issue. It is not questioned that all the parties acted in good
faith, and the city can not now be heard to object to the
regularity of its own proceedings. A party taking the bonds was
bound to look to the legal authority under which the public agents
acted. If that were sufficiently comprehensive, he had a right to
presume that those empowered to act and acting under it had
complied with its requirements. [
Footnote 8]
VII.
"It is insisted that the legislature had no
constitutional power to authorize the issue of such bonds, and that
hence they are void."
This is sufficiently answered by the opinion of this Court in
Gelpcke v. City of Dubuque, decided at this term.
[
Footnote 9]
The judgment below must be reversed and the cause remanded for
further proceedings in conformity to this opinion.
Judgment accordingly.
[
Footnote 1]
Statutes of Iowa, p. 223; Revision of 1860.
[
Footnote 2]
Chaps. 128 and 149.
[
Footnote 3]
Ante, <|68 U.S. 220|>220, No. 81, note.
[
Footnote 4]
Van Hostrup v. City of Madison, ante, p. <|68 U.S.
291|>291.
[
Footnote 5]
Mowry v. Bishop, 5 Paige 98.
[
Footnote 6]
Chap. 128.
[
Footnote 7]
United States v.
Babbit, 1 Black 55.
[
Footnote 8]
Commissioners of Knox Co. v.
Aspinwall, 21 How. 539. [
And see Mercer Co. v.
Hacket, ante, 68 U. S. 83 --
REP.]
[
Footnote 9]
Ante, <|68 U.S. 175|>175.
See also Rowan v.
Runnels, 5 How. 134;
Pease
v. Peck, 18 How. 599;
State
Bank of Ohio v. Knoop, 16 How. 392;
Jefferson Branch Bank v.
Skelly, 1 Black 436.
MR. JUSTICE MILLER, dissenting:
I dissent from the judgment and opinion of the Court just
delivered.
In the case of
Gelpcke v. City of Dubuque, decided at
this term,
* I have given the
reasons which I thought required
Page 68 U. S. 394
this Court to follow the recent decisions of the Supreme Court
of Iowa in holding that all bonds given by municipal corporations
for stock in railroad companies were void for want of any
constitutional authority in the legislature of that state to enact
the laws under which said bonds were issued. I do not now propose
to add anything to what I there said upon that subject, but refer
to it as fully applicable to the present case.
In the case now before us, however, it is not claimed that there
was any act of the legislature authorizing the City of Muscatine to
take stock in railroad companies. The principle on which the
validity of the bonds is sustained is that the charter of the city
confers on it an unlimited right to borrow money, and that, having
issued its bonds, which have been sold in the market, they must be
held to be valid, although the purchaser knew they were issued for
railroad stock.
The plea of the defendant is that the City of Muscatine "had no
authority to assist in building a railroad, or to take stock in the
same, nor to issue the bonds of the city to pay for stock in the
same," and that at the time said bonds were sold to plaintiffs by
the officers of the railroad company, they had full knowledge that
said bonds had been issued for the purpose of aiding in the
construction of the Mississippi & Missouri Railroad. The
plaintiffs demurred to this plea, and the district court overruled
the demurrer. This Court holds the plea to be bad and the demurrer
well taken.
The authority to borrow money by the City of Muscatine is found
in the 19th section of its charter. That section undertakes to
enumerate, in sixteen subdivisions, all the powers intended to be
conferred on the city council. They are those which are usually
conferred on such bodies, and none others.
Among them is the authority to establish fire companies and
provide them with engines, to build wharves, to provide for the
establishment and support of schools, to audit all claims against
the city, to establish the grade of streets and alleys, and
wharves, and to cause them to be paved. The
Page 68 U. S. 395
fifteenth subdivision is in the following language:
"To borrow money for any object in its discretion, if at a
regularly notified meeting, under a notice stating distinctly the
nature and object of the loan, and the amount thereof, as nearly as
practicable, the citizens determine in favor of the loan, by a
majority of two-thirds of the votes given at the election."
It seems to me that the discretion here confided to the council
as to the objects for which money may be borrowed must be construed
in one or the other of two modes.
1. That the discretion is in its largest sense unlimited, except
by the voice of two-thirds of the voters. This construction would
authorize the city to borrow money to enter into the banking
business, to speculate in gold, or flour, or grain, or to establish
mercantile houses, or to build steamboats, and enter into the trade
which flows past the city on the waters of the Mississippi River,
or to organize mining companies in Colorado. In short, to take the
money or property of the citizen against his will and employ it in
any of the diversified pursuits by which the individual man makes,
or fails to make, money.
A proposition which leads directly to such consequences cannot
be supposed to have entered for a moment into the minds of the
legislature. It makes every man's entire property within the limits
of the city the common property of the community, and converts the
citizen against his will into a member of one of those Shaker or
French communities in which the individual merges his rights into
those of the association. No such construction can be tolerated
unless it is impossible that the legislature could have meant
nothing else.
2. That the objects on which this discretion may be exercised
must be limited to the execution of some of the powers granted in
the charter.
I do not propose to cite the numerous authorities which settle
that, as matter of law, this is the rule of construction applicable
to the case. It is so well known that it would be a waste of time
to refer to adjudged cases.
To establish fire companies and provide them with engines
Page 68 U. S. 396
is a proper and indeed a necessary object to which the money or
the credit of the city may be applied. The building of wharves also
requires more money than can be well levied at one tax in such a
town as Muscatine. And in building schoolhouses and other
expenditures necessary to establish schools, the citizens may well
be consulted whether the credit of the city may be used. So of
grading and paving the streets of the city. All these are purposes,
and perhaps there are others enumerated in the act, about which
this discretion may well be exercised. It is not necessary, then,
to impute to the legislature the injustice and absurdity of
intending the first construction of the charter above mentioned.
Here are certain powers conferred, objects to be accomplished by
the council named in fourteen paragraphs. The fifteenth authorizes
them to borrow money for any object in their discretion if
sustained by a two-thirds vote of the citizens. Nothing can be more
reasonable than to suppose that the discretion so conferred was
limited to the objects enumerated in the fourteen preceding
paragraphs.
None of these include railroads, nor does any of them include
anything from which railroad enterprises can possibly be implied.
In order to get the power to borrow money to build railroads, some
other authority than that given by this section must be shown. I do
not think any such exists, nor has any been pointed to by counsel
unless it be that such a power is inherent in municipal
corporations without regard to their charters. I do not think, at
this day, any court can be found to hold such a doctrine.
But what is wanting in original power to issue these bonds is
supposed to be supplied as a ratification or confirmation of them
by the Act of January 25, 1855, which may be seen on page 223 of
the Revision of 1860 of the laws of Iowa. This is entitled
"An
act regulating the interest on city and county bonds." The
first section declares that railroad companies may issue
their
own bonds at such a rate of interest, and sell them at such
discount as may be necessary, and they shall remain legal and
binding. Section 2 -- the one relied on in this case -- is as
follows:
"That whenever any company shall
Page 68 U. S. 397
have received or may hereafter receive the bonds of any city or
county upon subscription of stock by such city or county, such
bonds may have interest at any rate not exceeding ten percent, and
may be sold by the company at such discount as may be deemed
expedient."
It is obvious that the whole purpose of the statute was to
relieve such bonds as might have been or might hereafter be issued
from liability to the charge of usury. This is not the language in
which the legislature or anyone else would undertake to make valid
bonds, issued without any authority whatever in the municipal body.
The bonds in this case were issued before the act passed. It says
never a word about ratifying them or confirming them, or making
good the want of power to issue them. It is said, however, that the
act itself implies that there was authority to issue such bonds in
the cities and counties. This is a clear
non sequitur. An
examination of the acts of the legislature will show that the
Cities of Dubuque, of Keokuk, of Davenport, and perhaps many
others, had been authorized by the legislature to take stock in
railroads, and to issue bonds in payment of it, and the supreme
court of the state had then twice decided that, by a general law,
all the counties in the state could do so.
These cities, then, and all the counties having the authority to
issue bonds for stock, and some of them having done so, and others
intending to do so, the legislature meant no more than to say that
in the cases where they had been or might hereafter be issued
lawfully in other respects, they should not be held usurious
because of the rate of discount at which they might be sold.
To infer from this act that the legislature intended to make
valid the bonds of the City of Muscatine issued without any
authority is a stretch of fancy only to be indulged in railroad
bond cases, and which it is hoped may be confined to them as a
precedent. The act applies to bonds issued after its passage as
well as before, and in precisely the same terms. Its effect is the
same on both. Now will it be urged that this was intended to confer
on all the cities whose charters had theretofore denied them such
power, the right to take
Page 68 U. S. 398
stock in railroad enterprises? Is this the language in which an
act of such importance, and affecting so many persons and so much
property, would be framed? Yet it is by such latitudinary
construction of statutes as this that it is attempted to fasten
upon owners of property, who never assented to the contract, a debt
of twenty millions of dollars, involving a ruin only equaled in
this country by that visited upon the guilty participants in the
current rebellion.
*
Ante, p. <|68 U.S. 175|>175.
