A city issued its bonds, engraved with vignettes on banknote
paper, of various denominations, ranging from $1 to $100, and
having the form and appearance of treasury notes of the United
States or bank bills, and it paid them out to its creditors for
property sold, materials furnished, and labor performed. It
received them for taxes and other dues, and to some extent reissued
them. They formed a considerable portion of the circulating medium
of the city and vicinity. Under the authority of a statute of the
state empowering the city council of any city to issue bonds for
the purpose of extending the tune of paying its indebtedness, which
it was unable to meet at maturity, the city passed an ordinance
providing for the redemption of the bonds first described. A., the
lawful holder of some of them, which had been issued to other
parties in payment of valid claims against the city and were
overdue, surrendered them to the city, and received in lieu of the
amount due thereon bonds for which the ordinance provided, and a
credit on the books of the city. The city failing to pay, A.
brought suit against it. A recovery was resisted on the ground that
the bonds engraved on banknote paper had been issued in violation
of law, and that the surrender of them was not a valuable
consideration for the bonds and the credit received by A.
Held that whether the original bonds were issued in
violation of law or not -- a point which this court does not decide
-- A. is entitled to recover.
Page 98 U. S. 309
This was an action brought by the Merchants' National Bank of
Little Rock, Ark., against the City of Little Rock. The first count
of the complaint is upon a bond in the words and figures
following:
"
No. 1] STATE OF ARKANSAS [$500"
"
Bond of the City of Little Rock"
"Know all men by these presents, that the City of Little Rock,
in the said State of Arkansas, acknowledges itself to owe and be
indebted unto the Merchants' National Bank or bearer the sum of
$500 in lawful money of the United States of America, which sum the
said city promises to pay, for value received, at the office of the
Treasurer of said City of Little Rock, one year from the date
hereof, together with interest thereon, at the rate of ten percent
per annum, until this bond shall be paid."
"This bond is issued under and in pursuance of the provisions of
sec. 3298, c. 72, entitled 'Incorporations,' Gantt's Digest of the
Statutes of Arkansas, and is for indebtedness of said City of
Little Rock, incurred previous to the time of the passage of said
act."
"In testimony whereof, the said City of Little Rock, by an
ordinance of the council of said city, passed Aug. 15, 1873, has
caused this bond to be issued and signed by the president of said
council and attested by the clerk of said city, and to be sealed
with his official seal."
"Dated at Little Rock, in the county of Pulaski, State of
Arkansas, this ninth day of October, 1874."
"D. P. UPHAM,
President City Council"
"[SEAL] C. M. BARNES,
City Clerk"
The bond bears the following endorsement:
"
Little Rock $100 Ten percent City Bond"
"AUDITOR'S OFFICE, STATE OF ARKANSAS"
"I hereby certify that this bond is registered in my office
according to law, that it is regularly and lawfully issued, and
that the signatures thereto are genuine."
"In testimony whereof, I have hereunto set my hand and affixed
the seal of my office, at the City of Little Rock, this
twenty-second day of October, A.D. 1874."
"[SEAL] J. R. BERRY,
Auditor of State"
Page 98 U. S. 310
There are one hundred and fifty-five counts of a similar nature
describing other like bonds. There is also one count for the
recovery of certain amounts, for which the bank had received credit
on the books of the city, and which remained unpaid.
The section mentioned in the bond is as follows:
"The city or town council of any city or town, for the purpose
of extending the time of payment of any indebtedness heretofore
incurred, and which from the limit of taxation such city or town is
unable to pay at maturity, shall have the power to issue the bonds
of such city or town, or borrow money, so as to change, but not
increase, the indebtedness, in such amounts, not less than fifty
dollars, and for such length of time, and at such rate of interest,
not more than ten percent per annum, as such city or town council
may deem proper."
In August, 1867, the city provided for the issue and redemption
of its bonds which were printed on banknote paper, in the form and
having the ordinary appearance of United States Treasury notes, and
were in denominations varying from $1 to $100, payable in one, two,
three, five, eight, and ten years respectively, with eight percent
interest from maturity.
By issuing this currency the city obtained the means with which
it proceeded to build a city hall and schoolhouses, grade streets
and culverts, purchase cemeteries, improve public landings, provide
fire equipments, pay interest to several railroad companies, and
pay salaries of officers and agents.
The city received in payment of taxes and other dues the bills
thus held by others, and to some extent reissued them when its
occasions required. From time to time, their value diminished,
until it became merely nominal; but for a considerable period they
formed the local circulating medium in the city and its vicinity in
lieu of money.
In 1873, the city council adopted an ordinance "for the
redemption of outstanding city bonds on banknote paper."
The bank was the lawful holder for value of a large number of
overdue bonds of that description, issued to other parties in
payment of valid claims against the city. In accordance with the
provisions of the ordinance, the bonds were surrendered to the
council, by whom they were cancelled, and the bank received in lieu
of the amount due thereon the bonds
Page 98 U. S. 311
on which this suit was brought. The bank had also other similar
bonds, which were surrendered and in like manner cancelled, but for
which no new bonds were issued, the city acknowledging its
indebtedness by giving the bank credit therefor on the books of the
city.
The city, among other defenses, pleaded that the bonds
surrendered were issued in violation of the statute, and that the
bonds given in lieu thereof, as well as the credit entered upon the
city books, which form the ledger account, were without authority
of law or valuable consideration.
The jury returned a verdict in favor of the bank for $38,640.40.
The court rendered judgment therefor, with a provision that of that
amount $28,512.16 should bear interest at ten percent per annum.
The city sued out this writ of error.
The statutes of the State bearing upon the questions involved
are set out in the opinion of the court.
MR. JUSTICE HUNT delivered the opinion of the Court.
We do not perceive that there is any difference between the
right to recover for the amount issued to the bank in bonds and for
that credited on the books of the city. If the debt was legally
created, the holder had the right to recover the amount of the
bills held by him. If it derived a new validity from the surrender
of an old debt of a disputed character, it is to be observed that
all of the debt was equally given up. New bonds were issued for a
portion, but all of the debt was surrendered. It was the surrender
of what was claimed to be a legal debt, and the creating a new
obligation thereby, that is said to create the liability. If a city
has power to bind itself by substituting a new liability for a
cancelled one, it may do so by any instrument of acknowledgment
which affords sufficient evidence of a debt. We are of opinion that
the two classes of obligations are governed by the same rule.
The statutes of Arkansas upon the subject of notes issued for
the purposes of currency are complicated and hard to be
understood.
On the 25th of November, 1837, was passed the first act to
Page 98 U. S. 312
which we are referred, entitled "An Act to prevent the
circulation of private notes in the State," prohibiting the
circulation of all money or banknotes by persons unauthorized by
law, and of notes of a less denomination than five dollars.
On the 14th of February, 1838, was passed the act entitled "An
Act to compel the payment of change tickets," which provided that
the holder of any change ticket, bill, or small note should have
the right to sue the issuer or endorser thereof before any justice
of the peace, and recover the amount held by him, and providing
that the act first above mentioned should take effect from the
first day of March, 1838.
The effect of the two statutes would appear to be that the
general circulation of private notes was prohibited by law, but the
holder of notes thus illegally circulated was authorized to recover
the amount from the party issuing or endorsing the same, and to
have execution without appeal or delay.
On the 8th of January, 1855, was passed "An Act to restrain the
circulation of change tickets," prohibiting the circulation by any
person or persons of notes or bills of less denomination than five
dollars, to pass as currency, whether first issued within this
State or not, punishable by fine and imprisonment.
On the 8th of February, 1859, was passed "An Act to prevent the
people from being defrauded with bank paper," and on the 18th of
November, 1861, "An Act to repeal all state laws that prohibit the
circulation of bank bills of any denomination." The last act is in
these words:
"All acts or parts of acts prohibiting the circulation of bank
bills of any denomination or amount and fixing a penalty for such
circulation be, and the same are hereby, repealed; but nothing
herein contained shall be construed so as to authorize the issuance
of shin plasters, change notes, or other irresponsible paper by
individuals, corporations, or others."
"Shin plasters and change notes" we may assume to be paper money
of a less denomination than one dollar, intended to take the place
of small pieces of coin. But what is "other irresponsible
paper"?
It would seem that shin plasters and change notes are
irresponsible
Page 98 U. S. 313
paper, as not only are they expressly required not to exist, but
they are condemned in the company of "other irresponsible
paper."
Nor can we treat this subject as paper or notes issued by those
who are not solvent in their pecuniary affairs, or not able to
respond to the consequences of their actions.
There is no standard known to the law to determine where
responsibility or irresponsibility exists.
We apprehend this expression may have been intended to apply to
fractional paper, which in its form, character, and nature was
considered as a debased and unhealthy circulating medium.
By an act approved Dec. 14, 1875, it was enacted
"that all city warrants, scrip acceptances, or money shall be
receivable for any city purposes except for interest tax, and for
all debts due the municipal corporation, by whom the same were
issued, without regard to the time or date of issuance of such
warrant, scrip acceptance, or money, or the purpose for which they
were issued."
Upon this state of the law the judge at the circuit was of the
opinion that the original issue of its notes by the City of Little
Rock was illegal. It is not necessary that we concur in this view,
or that we should dissent from it. We have referred to the statutes
that the actual position of the parties towards each other might be
understood, and the point on which the decision in favor of the
bank was made be appreciated.
There was evidence that the bonds sued on, and the ledger
accounts sued on, were given and allowed on the immediate
consideration of the surrender of bonds of the form, character, and
material first issued by the city. The court charged as follows,
viz.:
"That the bonds in suit issued by the defendant in lieu of said
bonds on banknote paper -- the last named bonds having been
originally issued under the circumstances above stated for valid
debts against the city to other creditors of the city than the
plaintiff, and the plaintiff not having been connected with their
issue -- constitute a valid ground of action against the city, and
the city is liable thereon to the plaintiff, although the said city
bonds on banknote paper were of such an appearance
Page 98 U. S. 314
and of such a form as to be especially adapted to constitute a
circulating medium, and were, in fact, used in and about the city
as a local circulating medium in lieu of money."
"There is also a claim against the city for the amount of
certain city bonds on banknote paper surrendered by the plaintiff
to the city at its request, for which the city issued no new bonds,
but placed the amount of the bonds surrendered by the plaintiff and
destroyed by the city to the credit of the plaintiff on the ledger
of the city. The same principles of law apply to this claim as to
the claim on the new bonds."
It can scarcely be doubted that whoever is capable of entering
into an ordinary contract to obtain or receive the means with which
to build houses or wharves or the like, may, as a general rule,
bind himself by an admission of his obligation. The capacity to
make contracts is at the basis of the liability. The first
liability of the city was disputed by it. It had gone beyond its
power, as it said, in making a debt in the form of banknotes. If it
had not denied its power, judgment and an execution might have gone
against it, and the creditor would have obtained his money. This
privilege of non resistance every person retains, and continues to
retain. He can reconsider at any time and confess, and admit what
the moment before he denied.
In 1874, the City of Little Rock did reconsider. It said, we
will purge the transaction of its illegality. We had the authority
to accept from you in satisfaction of amounts received by us for
legitimate purposes the sums in question. We did so receive and
expend for legitimate purposes. We erred in making the payment to
you in an objectionable form. We now pay our just and lawful debt
by cancelling the banknotes issued by us, and delivering to you
obligations in the form of bonds, to which form there is no legal
objection.
If the city had borrowed $1,000 of the bank upon its note at a
usurious interest, but the bank had subsequently cancelled the
illegal note, had refunded the excessive interest, and received a
new note for a lawful amount, the new note would be valid and
collectible.
Kent v. Walton, 7 Wend. (N.Y.) 256. So where
the consideration of a contract declared void by statute is morally
good, a repeal of the statute will validate
Page 98 U. S. 315
the contract.
Washburn v. Franklin, 35 Barb. (N.Y.)
599;
S.C. 13 Abb.Pr. 140. If the Act of Dec. 14, 1875
(
supra), repealed the restraining laws absolutely as to
cities, which we do not decide, the notes first issued by the city
were valid from that time.
We think the charge as quoted was right.
Hitchcock v.
Galveston, 96 U. S. 341;
The Mayor v.
Ray, 19 Wall. 468;
Police
Jury v. Britton, 15 Wall. 566;
Mullarky v.
Cedar Falls, 19 Ia. 24;
Sykes v. Laffery, 27 Ark.
407;
Wright v. Hughes, 13 Ind. 109, are authorities to the
point.
See also the numerous cases cited in Dillon,
Mun.Corp., sec. 407, note.
Judgment affirmed.
