1. Where a demurrer to a declaration in the circuit court is
improperly sustained and judgment is rendered accordingly, the case
may be reexamined here upon a writ of error without any formal bill
2. Power "to borrow money for any public purpose" gives
authority to a municipal corporation to borrow money to aid a
railroad company, making its road as a way for public travel and
transportation, and, as a means of borrowing money to accomplish
this object, such municipal corporation may issue its bonds, to be
sold by the railway company to raise the money.
3. Power to issue the bonds being shown, the municipal
corporation, as against bona fide
holders of them for
value, is estopped to deny that the power was properly
The act of incorporation of the city of Burlington, in Iowa,
vested the government and legislative power of the city in a city
council, composed of the mayor and a board of aldermen. In addition
to conferring various police powers, it authorized the city council
to establish and organize fire companies and provide them with
proper engines and such other instruments as might be necessary to
extinguish fires; to establish and construct landing places,
wharves, docks, and basins within the city; to cause all grounds
within the city, where water should at any time become stagnant, to
be raised, filled up, or drained; and to cause to be opened, paved,
repaired, or improved, any street, lane, alley, market space,
public landing, or common. The act then provides, in its 27th
section, as follows:
"That whenever, in the opinion of the city council, it is
expedient to borrow money
for any public purpose, the
Page 70 U. S. 655
shall be submitted to the citizens of Burlington, the nature and
object of the loan shall be stated and a day fixed for the electors
of the said city to express their wishes; the like notice shall be
given as in cases of an election. The loan shall not be made unless
two-thirds of all the votes polled at such election shall be given
in the affirmative."
Assuming to act under this section, the city council, on the 23d
of June, 1856, passed
"Ordinance No. 44"
"An ordinance to authorize a loan of city bonds
Burlington & Missouri River Railroad Company &c."
"Whereas, at a meeting of the city council held on the 19th of
May, 1856, a resolution was adopted authorizing the mayor to call
an election and to submit the question whether or not the city
issue and lend to the Burlington & Missouri River Railroad
in the bonds
of said city, said bonds
payable in twenty years from date of issue, with an interest of 10
percent per annum, and to be secured by the first mortgage bonds of
said company &c. And whereas the said election was duly and
legally held on the 2d of June, 1856, and the said question was
legally decided in favor of the same, whereby said loan is duly
authorized to be made. Therefore,"
"Be it ordained, by the City Council of the City of
"1st. The bonds of the city, to the extent of $75,000, and in
such amounts as the mayor may direct, bearing interest, and payable
as aforesaid, and duly signed, sealed, and authenticated, and with
coupons for interest, be issued by said city."
"2d. That the mayor execute, with the said company, a contract
of loan thereof, taking therefor the obligation of said company,
and as collateral security therefor the mortgages aforesaid, and
deliver said bonds to said company, and receive said
Under the authority of this ordinance, bonds of the city to the
amount of $75,000 were issued. The bonds were coupon bonds in the
ordinary form, except insofar, perhaps, as they declared on their
face that they were issued, by the City of Burlington, under
Ordinance 44, to authorize a loan of city bonds, to the amount of
$75,000, to the Burlington
Page 70 U. S. 656
& Missouri Railroad Company and as they contained a copy of
the ordinance printed at large upon their back.
Certain of these instruments having got, after this, into the
hands of one Rogers, a bona fide
holder for value, and the
interest being unpaid, he brought suit in the Circuit Court for
Iowa to recover it.
The defendant demurred, among other grounds, on the
1st. That the petition did not aver nor show that the city had
any authority to issue the bonds therein described.
2d. That the bonds on their face showed that they were not
issued for any municipal purpose, but as a loan of the credit of
the city to the Burlington & Missouri River Railroad
3d. That there was no law of the State of Iowa authorizing the
city to issue such bonds, or to lend her credit to any railroad
The demurrer was sustained, and judgment rendered for the
defendant. To review this judgment, the case was brought here on
writ of error.
Page 70 U. S. 659
Mr. Justice CLIFFORD delivered the opinion of the Court.
Corporation defendants were authorized by their charter to
borrow money for any public purpose whenever in the
Page 70 U. S. 660
opinion of the city council it should be deemed expedient to
exercise that power.
Material conditions annexed to the power, as conferred, were
that the question of borrowing, when proposed, should be previously
submitted to the citizens of the city and that the loan should not
be made unless two-thirds of all the votes polled at such election
should be given in the affirmative.
Pursuant to that authority, the defendants voted to issue and
lend to the Burlington & Missouri River Railroad Company
seventy-five thousand dollars in the bonds of the city, payable in
twenty years, with an interest of ten percentum per annum and to be
secured by the first mortgage bonds of the company on the second
section of the road. Directions to the mayor of the city, as
expressed in the ordinance, were that he should issue the bonds and
execute with the company a contract of loan thereof, taking
therefor the obligation of the company, and the stipulated mortgage
as collateral security for the bonds.
Ordinance under which the bonds were issued was passed on the
twenty-third day of June, 1856, and the same is fully set forth in
The action was assumpsit, and the declaration was founded upon
certain interest coupons annexed to the bonds which had become due
and payable prior to the commencement of the suit.
Declaration contained twenty counts, and the defendants demurred
specially to the entire series. Principal causes shown for the
1. That the declaration did not aver nor show that the city had
any power or authority to issue the bonds therein described.
2. That the bonds on their face showed that they were not issued
for any municipal purpose, but as a loan from the city to the
3. That there is no law of the state authorizing the city to
issue such bonds or to loan her credit to any railroad.
Parties were fully heard in the court below, and the court
Page 70 U. S. 661
sustained the demurrer and rendered judgment for the
I. Plaintiff excepted to both those rulings and a bill of
exceptions to that effect in due form is exhibited in the record,
but it is unnecessary further to advert to it, as it is well
settled that the ruling of the circuit court in sustaining or
overruling a demurrer to a declaration and rendering judgment for
the wrong party may be reexamined in this Court by a writ of error
without any formal bill of exceptions. [Footnote 1
Reason for the rule is that the error is apparent on the record,
and it is generally true that where the error is apparent on the
face of the record, a bill of exceptions is unnecessary. [Footnote 2
II. Substance of the defense in this case upon the merits, as
presented in argument, may be stated in three propositions:
1. That the defendants, under their charter, had no lawful
authority to issue the bonds described in the declaration, and that
inasmuch as the bonds were issued without authority, they were null
and void, and consequently the plaintiff cannot in any point of
view maintain the suit.
2. That municipal corporations are limited as to their powers by
the objects to be accomplished by their creation and to the sphere
of action prescribed in their charters, and that the corporation
defendants, under a fair application of those rules, could not
borrow money or issue their bonds for the object specified in the
ordinance, because such an object was not a public purpose within
the meaning of their charter.
3. That the defendants, even if they have authority to borrow
money for objects other than those pertaining to the good order and
proper government of the city, could not issue the bonds in this
case because the contract under which
Page 70 U. S. 662
the bonds were issued was a contract of lending and not of
borrowing, and that the power given to the defendants to borrow
money did not authorize them to lend either their money or their
1. Reasonable doubt cannot be entertained that the terms of the
charter, if valid, are sufficiently comprehensive to confer upon
the defendants the power to borrow money for such a public purpose
as that described in the ordinance under which the bonds were
issued unless it be shown that those terms have in some way been
shorn of their usual and ordinary signification.
Charter of the defendants was granted on the tenth day of June,
1845, by the territorial legislature, acting under its organic act.
Subject to certain exceptions not material to be noticed, the
sixth section of the act provided that the legislative power of the
territory should extend to all rightful subjects of legislation,
and there can be no question that the territorial legislature,
acting under that general delegation of legislative power, had the
authority to incorporate the defendants and confer upon them, as
such corporation, the functions specified in their charter.
Citation of authorities in support of the proposition seems to
be unnecessary, as it is not denied and therefore it may be assumed
in the further consideration of the case that the corporate powers
vested in the defendants, as expressed in their charter, were
Power to borrow money for a public purpose within the meaning of
the provision is conferred by the charter in express terms, and
there is nothing in the constitution of the state which limits the
authority so conferred, or renders it invalid. On the contrary, the
Constitution of the state, as originally adopted, provided that all
laws in force in the territory which were not repugnant to the
constitution should remain in force until they expired by their own
Page 70 U. S. 663
or should be repealed by the general assembly of the state.
When the new constitution was adopted, it contained no such
provision, but the omission was shortly afterwards substantially
supplied by a general law reenacting and reviving all acts in force
at the time it went into effect except such as had been repealed by
the general assembly or were repugnant to its provisions. [Footnote 6
Validity of the charter, therefore, is established beyond the
possibility of a doubt unless it be assumed that the particular
provision authorizing the defendants to borrow money for a public
purpose exceeds the constitutional authority of the
In considering this question, it will not be necessary again to
advert to the fact that the charter was granted by the territorial
legislature, because it has already been shown that it has the same
validity that it would have had if it had been reenacted by the
legislature of the state.
Municipal corporations are created by the legislature, and they
derive all their powers from the source of their creation, and
those powers are at all times subject to the control of the
legislature. Such powers also, in the absence of any constitutional
regulation forbidding it, may be enlarged or diminished, extended
or curtailed, or withdrawn altogether, as the legislature shall
determine. Construction and repair of highways or streets for
public travel within their limits are among the usual purposes of
their creation, and the expenses of accomplishing those objects are
among their usual and ordinary burdens. Railways also, as a matter
of usage founded on experience, are so far considered by the courts
as in the nature of improved highways and as indispensable to the
public interest and the successful pursuit even of local business
that a state legislature may authorize the towns and counties of
the state through which a railway passes to borrow money, issue
their bonds, subscribe for the stock of the company, or purchase
Page 70 U. S. 664
with the view of aiding those engaged in constructing or
completing such a public improvement, and that a legislative act
conferring such authority is not in contravention of any implied
limitation of the power of the legislature. Decisions to that
effect have very much increased in number within the last few
years, and are constantly increasing both in the state and federal
courts, until it may be said that the rule here laid down pervades
the jurisprudence of the United States.
Exceptional opinions advancing the opposite doctrine may be
found, but they cannot be regarded as sound in view of the fact
that the weight of authority is very greatly the other way.
Printed argument of the plaintiff shows that the supreme court
of the state for a series of years held the same views, as appears
in some seven or eight of their reported decisions, and it is
proper to remark that the reasons given for the conclusions in
those several cases are much more satisfactory than those assigned
in the more recent decisions which adopt the opposite rule.
Repeated determinations of this Court embracing a period of ten
years have expressed the concurrence of the Court in the general
current of the decisions upon the subject in the state courts, and
it is vain for parties to expect that the Court, in the face of
those recorded judgments, can come to any different conclusion.
Recent as many of those decisions are, it seems unnecessary to
encumber the opinion with the names of the cases or to reproduce
the reasons assigned as the basis of the respective judgments.
Irrespective of the state decisions, it is quite obvious that the
decisions of this Court control the question under consideration,
and consequently that no further remark upon the proposition is
necessary, except to say that the decision in the case of
Gelpcke v. City of Dubuque,
] although the opinion of the Court contains a
reference to other statutes, was chiefly founded upon the
construction of a provision in the charter
Page 70 U. S. 665
of that city expressed in the same words as the provision
contained in the charter of the defendants. Decision, also, in the
case of Meyer v. City of Muscatine
] is to the same effect. Unless,
therefore, it be assumed that no prior decision of this Court can
furnish the rule in a subsequent controversy, it would seem that
the present case is controlled by those decisions.
2. Second proposition submitted is that the defendants could not
borrow money or purchase bonds in aid of the improvement specified
in the ordinance, because such a work is not within the usual and
ordinary objects to be accomplished by a municipal corporation, and
consequently was not a public purpose within the meaning of that
phrase as employed in the charter of the city. They admit that the
construction of a railroad is a public improvement, and they insist
that the phrase "public purpose," as employed in the charter, must
be limited in its signification to such public purposes as fall
within the usual and ordinary sphere of municipal corporations.
Undoubtedly there is much force in the latter suggestion, and it
would seem that, as applied to many improvements of great public
utility, the proposition may well be conceded. None of the decided
cases which maintain the power of the state legislatures to
authorize such material aid in the construction of railroads
decides or even intimates that the power may be exercised without
limit or be extended to a public enterprise entirely foreign to the
general objects which the corporation was created to subserve.
Those adjudications are not obnoxious to any such charge, but the
theory maintained is that a railroad is nothing more than an
improved highway, and that it is as competent for the legislature
to authorize a municipal corporation to furnish material aid in the
construction of a railroad connected with the same as to construct
Regarded in that point of view, they are analogous objects, and
experience shows that the railroad as well as the highway
Page 70 U. S. 666
is promotive of the highest and best interest of the
corporation. [Footnote 9
3. Third proposition is in substance and effect that the
defendants, even if they could borrow money for the object
described in the ordinance, could not lawfully issue the bonds in
this case because the contract under which they were issued was a
contract of lending, and not of borrowing, within the meaning of
the charter. Evidently the proposition admits that the defendants
might borrow money in aid of the improvement described in the
ordinance, but the argument is that, in issuing the bonds and
delivering them to the company, they did not exercise the power in
the manner which the charter authorized. Where a municipal
corporation was authorized to subscribe to the stock of a railroad
company and to borrow money to pay for the stock subscribed, the
Supreme Court of Pennsylvania held, in the case of Middleton v.
] that the issuing of their bonds as a means of making the
payment was borrowing money for that purpose within the meaning of
the provision conferring the power, especially as it appeared that
the bonds had been received in payment of the subscription. Same
court also held, in the case of Reinboth v. Pittsburg,
] that where an
act of the legislature authorized a municipal corporation to
subscribe for stock in a railway as fully as an individual, that
the provision gave authority to the corporation to issue their
negotiable bonds in payment of the stock, and this Court, upon a
reexamination of the case, came to the same conclusion. [Footnote 12
Common experience shows that the issuing of bonds by a municipal
corporation as material aid in the construction of a railroad is
merely a customary and convenient mode of borrowing money to
accomplish the object, and it cannot make any difference so far as
respects the present question
Page 70 U. S. 667
whether the bonds as issued by the defendants were sold in the
market by their officers or were first delivered to the company and
were by their agents sold for the same purpose. Money was what the
company wanted to be expended in the construction of the railroad,
and the bonds were issued by the defendants to enable the company
to accomplish that purpose. Technically speaking, it may be said
that the transaction, as between the company and the defendants,
was in form a contract of lending, but as between the defendants
and the persons who purchased the bonds in the market it was
undeniably a contract of borrowing money, and the same remark
applies to the transaction in its practical and legal effect upon
all subsequent holders of the securities who have since become such
for value and in the usual course of business.
III. Viewed in that light, it is unmistakably a contract of
borrowing money in the open market, and the rule that a
corporation, quite as much as an individual, is held to fair
dealing with other parties applies with all its force, and we
repeat that corporations cannot by their acts, representations, or
silence involve others in onerous engagements and be permitted to
defeat the calculations and claims which their own conduct has
Perfect acquiescence in the action of the officers of the city
seems to have been manifested by the defendants until the demand
was made for the payment of interest. They never attempted to
enjoin the proceeding, but suffered the bonds to be issued and
delivered to the company, and when that was done, it was too late
to object that the power conferred in the charter had not been
properly executed. [Footnote
] Precisely the same objection was made in the case of
Meyer v. City of Muscatine,
] but the objection was overruled by this
Court upon the ground that the object of issuing the bonds was as
effectually accomplished by their delivery to the company as they
would have been if the defendants
Page 70 U. S. 668
themselves had sold them in the market, and that the obligors
were not injured by the transaction.
Judgment of the circuit court is reversed with costs, and the
cause remanded for further proceedings in conformity to the opinion
of the court.
15 Pet. 115; Suydam
20 How. 436.
11 How. 669; Slocum v.
6 Cranch 221; Garland v.
4 How. 131; Cohens
6 Wheat. 410.
5 Stat. at Large 235.
Vincennes University v.
14 How. 273.
Code 1851, p. 557.
Code 1860, p. 8.
68 U. S. 1
68 U. S. 1
Redfield on Railways 533; Rome v. Rome,
18 N.Y. 38;
Prettyman v. Tazewell Co.,
19 Ill. 406; Bushnell v.
10 Wis. 195; Reinboth v. Pittsburg,
37 Pa.St. 241.
1 Wall. 272.
24 How. 300.
Knox County v.
21 How. 544.
68 U. S. 1
MR. JUSTICE FIELD, in whose opinion concurred the CHIEF JUSTICE,
and GRIER and MILLER, JJ., dissenting.
I am compelled to dissent from the judgment of the Court in this
case. I am unable to find any authority for the City of Burlington,
either in her charter or in any other legislation of Iowa, to issue
the bonds, to recover the interest upon which the present action is
brought. Municipal corporations differ from private corporations
only in the purpose of their creation. They are equally dependent
for their existence and the powers they can exercise upon the
legislative will. They are limited to the powers specifically
granted, and such other powers as are necessary to carry into
effect those granted. They can exercise none other, and the plea of
may always be interposed as a defense to the
enforcement of any contract or obligation not made or incurred
within the limits prescribed. And the rule rests upon the most
obvious reasons. The corporation consists of all the inhabitants
within the corporate limits; they are the corporators. Thus, in the
charter of Burlington, the first clause, after defining the limits
of the city, declares that "the inhabitants thereof shall
constitute a body corporate and politic." The officers of the
corporation, the mayor and city council, constituting its
legislative body, are merely the public agents of the corporation,
and are bound by all the restrictions which bind other agents
acting for their principals. The charter is to them the letter of
authority, to which everyone may look when called upon to consider
the validity of their acts. The corporation can only be bound when
these agents keep strictly within their prescribed limits.
Page 70 U. S. 669
But this is not all -- the power granted must be exercised
substantially in the mode designated. The adoption of the mode to
this extent is essential to the validity of any act done. If the
charter provide that a measure shall be authorized by ordinance of
the council, it cannot be authorized by resolution of that body; if
it prescribe a sale at auction, a sale in any other manner is void;
if it authorize a borrowing of money upon a vote of the citizens,
the money cannot be borrowed in any other way. In all such cases,
the mode becomes the measure of the power. This is too obvious to
require argument, and so are all the adjudications. Thus, in
Head v. Providence Insurance Company,
] Mr. Chief Justice Marshall, in
speaking of bodies which have only a legal existence, says:
"The act of incorporation is to them an enabling act; it gives
them all the power they possess; it enables them to contract, and
when it prescribes to them a mode of contracting, they must observe
that mode or the instrument no more creates a contract than if the
body had never been incorporated. [Footnote 2/2
But still more: the power granted must be exercised for the
purpose designated; it is limited to the objects to be
accomplished, to the sphere of action prescribed by the charter. If
it be given for the construction of a city building, it cannot be
exercised for the construction of a city railroad; if it be allowed
for the establishment of a public library, it cannot be exerted for
the opening of a public market; if it be conferred to enable the
corporation to borrow money, it cannot be used to enable the
corporation to lend money or to lend its credit.
These observations are legal truisms. They are elementary
principles. They are recognized by all the authorities both of
England and America. They are controverted in none, and they
envelop the present case on all sides.
Here the authority conferred is to borrow money,
Page 70 U. S. 670
money was borrowed, but the bonds of the city were lent.
Borrowing money and lending credit are not convertible terms. The
two things which they indicate are essentially distinct and
different. The utmost which can be said is that the railroad
company might have borrowed money on these bonds, and thus the
transaction would amount to a borrowing of so much money by the
city through the railroad company as its agent. The answer to this
suggestion is that there is no authority to be found for
constituting the railroad company the fiscal agent of the city. The
company having possession of the bonds might dispose of them at any
rate of discount which it deemed proper. Could the legislature have
intended that the city should be liable in any event to taxation on
the supposition that a public enterprise had been aided by its
money to a specified amount, when in fact no such sum was ever
given for the enterprise?
The question presented is not a new one. In Gould v. Town of
statute of New York had authorized the officers of the town to
borrow the sum of twenty-five thousand dollars, and pay it over to
the president and directors of a railroad company, to be expended
by them in grading and constructing a railroad. Instead of
borrowing the money, the officers of the town delivered over the
bonds of the town to the company in payment for stock, for which
they were authorized by the act to subscribe, and the company sold
them at a discount. The question was whether this was within the
authority conferred by the act. Mr. Justice Selden, speaking for
the Court of Appeals of New York, in an opinion of marked ability,
answers the question in the negative. "It is clearly," says that
"not within its language. No money was borrowed, and nothing
else was authorized by the terms of the act. If, however, what was
done was the same in effect as if the money had been borrowed and
paid over to the railroad company, the difference in form would not
be material. But it is plain that neither in respect to the
Page 70 U. S. 671
nor the town was its effect the same. If the statute had been
pursued, the company would have had a sum equal to the par value of
the bonds to expend upon their road. As it was, they were compelled
to sell the bonds at a discount in order to realize the money. . .
. It is true the town did not itself sell the bonds, nor make any
sacrifice upon them. It transferred them to the railroad company at
par in payment for stock for which it was authorized to subscribe.
This, however, does not strengthen the plaintiff's case. It was as
much a departure from the terms of the statute as if the town had
itself sold the bonds as a discount, and was equally inconsistent
with the object and intent of the act, which was that the railroad
company should receive a sum equal to the amount of the debt
incurred by the town to expend upon the road, in the completion of
which the town was supposed to have an interest. There is therefore
in this case not only a literal but a substantial difference
between the course pursued and that pointed out by the statute. It
follows that the bonds were illegally issued, and were consequently
void in the hands of the railroad company, and as the referee has
expressly found that the plaintiff became the purchaser with full
knowledge that the bonds had not been issued for money borrowed,
but in payment for the stock of the company, he is in no better
situation than the railroad company itself."
I can add nothing to this language or to the cogency of the
reasoning of the learned judge. Every word is applicable to the
case under consideration.
I might proceed and show that the purpose for which the bonds in
this case were issued was not within the objects to be accomplished
by the charter of incorporation; that those objects were such as
are usually contemplated in the creation of a municipal corporation
-- the establishment of a local government, the securing of peace,
good order, and health within the corporate limits, and the
promotion of such measures as would conduce to the general good of
the municipality -- and that the power to borrow money was
restricted to the purposes declared. But it is unnecessary to
Page 70 U. S. 672
pursue the matter further. When the authority to borrow money is
made to cover a case of lending credit, it is vain to contend that
the "public purpose" prescribed by the charter was limited to any
of the purposes for which such charter was created.
This is not a case where the doctrine of estoppel has any
application. It is not a case where the purchaser of the bonds was
misled by any recitals of conformity to law. Here, the statute and
the ordinance of the City of Burlington, under which authority to
issue the bonds was assumed to exist, are both printed in full in
the endorsements upon the bonds, and the ordinance is also referred
to on their face. But if this were not so, the case would not be
changed, as the statute did not authorize the issue of the bonds.
No formality of execution and no extent of recitals could give
validity to instruments thus issued. The public agents of the city
could not cure the inherent defect in their action arising from
want of power by any amount of representation that they had the
I am clear that the bonds are void, and that the judgment should
6 U. S. 2
McCracken v. City of San Francisco,
16 Cal. 619;
The Farmers' Loan & Trust Company v. Carroll,
Barbour 649; The New York Fire Insurance Company v. Ely,
23 N.Y. 458.
MR. JUSTICE MILLER:
In addition to what has been said by my brother FIELD, in all of
which I concur, I desire to state that on the 8th of January, 1866,
the Supreme Court of Iowa, by a decision which was unanimous, held
the bonds which are the foundation of this suit to be void on the
ground that the charter conferred no authority on the city to lend
its credit, and that the transaction in this case was a loan of
credit, and not a borrowing of money.