1.
Semble that the borrowing of money by a city for the
development of its natural resources for manufacturing purposes is
within the provision of the Illinois Constitution of 1848 that
corporate authorities may be empowered "to assess and collect taxes
for corporate purposes," as interpreted by the supreme court of the
state.
2. If a city issues bonds under its corporate seal and in
accordance with its charter, which empowers the council, with the
sanction of a majority of voters attending an election for the
purpose, to borrow money generally and to issue bonds therefor, and
the bonds recite upon their face that they are issued in accordance
with certain ordinances of the city, the titles of which, being
quoted alone in the bonds, characterize the ordinances as providing
for a loan for municipal purposes, the city is estopped, in a suit
upon the bonds by an innocent purchaser for value, to set up that
the ordinances appropriated the money to other purposes, and that
the bonds were therefore void.
This action is upon certain bonds issued by the City of Ottawa,
Ill., in the year 1869, and of which the testator of plaintiffs in
error became the holder and owner for value before maturity. They
are in the usual form of municipal bonds, and besides pledging the
faith of the city irrevocably for their payment, contain these
recitals:
"This is one of one hundred and twenty bonds of like amount and
even date herewith, numbered one to one hundred and twenty
respectively, issued by the city of Ottawa by virtue of the charter
of said city, wherein it is provided that the city council shall
have power to borrow money on the credit of the city and to issue
bonds therefor, and pledge the revenue of the city for the payment
thereof, provided that no sum or sums of money shall be borrowed at
a greater interest than ten percent per annum. Art. 5, sec. 3."
"No money shall be borrowed by the city council until the
ordinance passed therefor shall be submitted to and voted for by a
majority of the voters of said city attending an election for that
purpose. Art. 10, sec. 20. And also in accordance with a certain
ordinance passed by the city council of said city on the fifteenth
day of June, A.D. 1869, entitled 'An ordinance to provide for a
loan for municipal purposes,' which ordinance was ratified by a
majority of all the
Page 99 U. S. 87
qualified voters of said city at an election holden on the
twentieth day of July, A.D. 1869, and in conformity with an
ordinance passed by the city council of said city on the thirtieth
day of July, 1869, entitled 'An ordinance to carry into effect the
ordinance of June 15, 1869, entitled an ordinance to provide for a
loan for municipal purposes.'"
"Witness the signatures of the mayor and clerk of said city and
the corporate seal thereof this twentieth day of August in the year
of our Lord one thousand eight hundred and sixty-nine."
"[SEAL]"
"HENRY A. SCHULER,
Mayor"
"R. N. WATERMAN,
Clerk"
The defendant below filed two special pleas. The first, after
setting forth the ordinance of June 15, 1869, and also that of July
30, 1869, and what is alleged to be the substantial privileges
granted to the Ottawa Manufacturing Company by an act of the
General Assembly of Feb. 15, 1851, and an act amendatory thereof
passed Feb. 16, 1865, avers that the first act and the amendatory
act were the same franchises and powers referred to in the
ordinance passed July 30, 1869, as having been granted for that
purpose by the Legislature of the State of Illinois, under which
one Cushman was authorized and directed to expend the proceeds of
the bonds aforesaid; that the manufacturing company was a private
corporation, not connected with or controlled by the city, and that
the bonds were issued and delivered to Cushman as a donation to
him, or to the company, to aid in the prosecution of a private
enterprise, and were not issued for any municipal purpose whatever;
that their issue was without authority of law, and that they are
void.
The second plea is in all respects like the first except it
avers that Cushman has failed to comply with his contract, as
provided by the ordinance of July 30, 1869.
To each of these pleas a general demurrer was filed by the
plaintiffs, which was overruled by the court below, and they having
elected to stand by the demurrer, judgment was rendered for the
city. The plaintiffs then sued out this writ of error.
The ordinances of the city and the acts of the General Assembly
of Illinois referred to in the pleas are substantially set forth in
the opinion of the Court.
The Illinois Constitution of 1848 declares that
"The corporate
Page 99 U. S. 88
authorities of counties, townships, school districts, cities,
towns, and villages may be vested with power to assess and collect
taxes for corporate purposes."
Art. 9, sec. 5.
The charter of the City of Ottawa, granted in 1853, confers upon
its council the power to establish hospitals; provide the city with
water; open, widen, extend, and otherwise improve and repair
streets and other public highways; establish, erect, and keep in
repair bridges; erect market houses; provide all needful public
buildings for the use of the city, and grants various other
municipal powers the exercise of which necessarily involves the
raising and disbursement of large sums of money. Laws of Ill.,
1853, p. 296.
Among the powers expressly delegated to the council is the power
"to appropriate money and provide for the payment of the debts and
expenses of the city," and, with the sanction of a majority of
voters attending at an election for that purpose, "to borrow money
on the credit of the city, and to issue bonds therefor, and pledge
the revenue of the city for the payment thereof."
Page 99 U. S. 90
MR. JUSTICE HARLAN delivered the opinion of the Court.
The bonds in suit upon their face import 1st, that the faith of
the city is irrevocably pledged for their payment; 2d, that they
were issued in pursuance of the power which the council possessed
to borrow money on the credit of the city and issue bonds therefor,
and also in accordance with certain ordinances which provided for a
loan for municipal purposes. The recitals of the bonds, in
themselves, furnish no ground whatever to suppose that the council
transcended its authority or issued them for other than such
purposes. They justify the opposite conclusion.
The city, however, claims that they were not issued for
municipal purposes, but as a simple donation to a private
corporation, formed for business ends solely and in no wise
connected with or under the control of the city -- all of which, it
is further claimed, appears from the ordinances, whose date and
title are given in the face of the bonds.
The ordinance of June 15, 1869, authorizes the mayor to
Page 99 U. S. 91
borrow, in the name, for the use, and upon the bonds of the
city, the sum of $60,000, "to be expended in developing the natural
advantages of the city for manufacturing purposes," and
provides
"that no application shall be made of the proceeds of the said
bonds except for the purpose aforesaid and in pursuance of an
ordinance to be duly passed for that purpose by the city council,
nor until the faithful application of the proceeds of such bonds to
the purpose aforesaid shall be fully secured to the city."
It further provides that a sufficient sum to pay interest on the
loan should be annually provided by taxation, and set apart as a
separate fund to be applied solely to the payment of the interest
on the bonds. That ordinance was ratified at an election held on
the 20th of July, 1869, by a majority of all the legal voters of
the city. The ordinance of July 30, 1869, was to carry into effect
that of June 15, 1869. It directed the mayor to deliver the bonds
to one Cushman,
"to be used by him in developing the natural resources of the
surroundings of the city, and that the said Cushman is authorized
and directed to expend the sum in the improvement of the water
power upon the Illinois and Fox Rivers within the city and in the
immediate vicinity thereof, under the franchises and powers which
have been granted for that purpose, in the manner which, in his
judgment, shall best secure the practical and permanent use of said
water power in the city and its immediate vicinity."
It provided that Cushman should execute and deliver to the mayor
his obligation that he would, without unreasonable delay and by
proper appliances, bring into use all the available water of the
two rivers at Ottawa as fast as it might be required for actual use
and as fast as it could be leased at fair and reasonable rates,
"the intent of this ordinance being to secure the improvement
and development of said water power in this city by appropriating
the loan obtained under the ordinance aforesaid for that purpose,
or
pro rata so far as said water power shall be made
available for practical use."
The ordinance of July 30, 1869, further provided that Cushman
should bind himself to return the bonds and save the city harmless
from all loss if the work should not be constructed.
The city avers that the franchises and powers referred to in
Page 99 U. S. 92
the ordinance of July 30, 1869, were those granted to the Ottawa
Manufacturing Company by an act approved Feb. 15, 1851, and by an
act amendatory thereof, approved Feb. 16, 1865. The first act
created certain persons therein named a corporation under the style
of "The Ottawa Manufacturing Company," with authority to erect a
dam across Fox River at a designated point "for the purpose of
creating a water power," and to
"use, lease, or otherwise dispose of the same and construct such
other works, buildings, and machinery as may be deemed necessary or
proper to use such water power to promote the interests and objects
of the company."
The second act conferred the additional right to build a dam
across the Illinois River and to construct races so as to introduce
the water into the pool of the dam authorized to be erected across
the Fox River. And for all the purposes indicated in the original
and amendatory act, the company was authorized to "take and use
such portion of any highway, street, alley, or public ground as may
be deemed necessary." But neither of the ordinances, it will be
observed, designates by name that or any other private company. Nor
is it distinctly alleged by the city nor asserted in argument that
the testator of the plaintiffs understood the ordinances as
referring to that company or that he read them or had any actual
knowledge of their terms at the time of his purchase. If the
council intended the general public, and particularly purchasers of
its bonds, to know that the proposed development of the natural
advantages of the city for manufacturing purposes was to be made
under the franchises and powers or for the benefit of that or any
other private corporation, common fairness required that it should
have so declared in the ordinances and thereby distinctly informed
all who should examine them of what it now avows was its real
purpose -- namely, by a simple donation to give aid to a particular
private corporation, established for business ends exclusively. If,
by reason of the general reference, in the bonds, to the two
ordinances of June and July, 1869, the purchaser is chargeable with
notice of their provisions (a proposition to be hereafter
examined), the utmost which the city, in view of the indefinite
language of the ordinances, can claim is that he had notice that
the bonds were issued for the
Page 99 U. S. 93
purpose of "developing the natural resources of the city for
manufacturing purposes." Nothing more. This brings us to a question
which counsel have discussed with some elaboration in their printed
arguments.
We have seen that the charter of the city confers upon the
council power to borrow money upon the credit of the city and to
issue bonds therefor. No limitation is prescribed as to the amount
which may be borrowed. Nor is any express restriction imposed as to
the objects or purposes for which bonds may be issued. It is clear,
therefore, that the council, having secured the assent of the
requisite majority of voters, might rightfully borrow money upon
bonds of the city for every purpose which could fairly be deemed
municipal or corporate. But the specific contention of the city is
that the development of the natural resources of the city for
manufacturing purposes is not, upon principle or within the meaning
of the Illinois Constitution of 1848, a corporate purpose. After a
careful examination of the decisions of the Supreme Court of
Illinois to which our attention has been called, we find this
question by no means free from difficulty. The leading case,
Taylor v. Thompson, 42 Ill. 9, involved the question
whether a tax levied, under the authority of an act of the
legislature, passed in 1865, upon the property of a township to pay
bounties to persons who should thereafter enlist or be drafted into
the army of the United States, was for a corporate purpose within
the meaning of the state constitution. The person who complained of
the tax in that case was a nonresident of the township, but he
owned taxable property within its limits. The Supreme Court of
Illinois, through Judge Lawrence, in an opinion of marked ability,
sustained the validity of the tax, defining the phrase "corporate
purposes" to mean "a tax to be expended in a manner which shall
promote the general prosperity and welfare of the municipality
which levies it." It is suggested by learned counsel for the city
that that and similar decisions, rendered during the late civil
war, were exceptional and were made almost
ex necessitate
because the courts were unwilling to cripple the power of the
government to raise troops by denying to counties, cities, and
towns the right to offer bounties when authorized by the
legislature. An answer to this
Page 99 U. S. 94
suggestion is found in the fact that the same court reaffirmed
the doctrine of
Taylor v. Thompson in the cases of
Briscoe v. Allison, 43
id. 293;
Misner v.
Bullard, id. 470; and
Johnson v. Campbell, 49
id. 317. In the subsequent case of
Chicago &c.
Railroad Co. v. Smith, 62
id. 268, decided in 1871,
the court, referring to the definition of corporate purpose as
given in
Taylor v. Thompson, announced their acceptance of
it. In
People v. Dupuyt, 71
id. 651, the same
definition was referred to without disapproval. The court,
declaring that it had gone far enough in upholding that tax,
said:
"It may be difficult to determine with precision what is a
corporate purpose, in the sense of the constitution, but it is less
difficult to determine what is not such a purpose. The true
doctrine is, such purposes, and such only, as are germane to the
objects of the welfare of the municipality, at least such as have a
legitimate connection with these objects and a manifest relation
thereto."
Again, in
Burr v. The City of Carbondale, 76
id. 455, the court sustained a tax imposed by the city in
support of the Southern Illinois Normal University, to which the
people of that city had voted a tax, and, referring to
Taylor
v. Thompson, said that a corporate purpose was there
"held to mean a tax to be expended in a manner which should
promote the general prosperity and welfare of the municipality
which levied it. But in that case, a vote of the people authorizing
the tax was first to be taken, and the people in fact voted the
tax. This was an important fact in determining that case. We
thought it difficult to determine with precision what was a
'corporate purpose' in the sense of the constitution, but came to
the conclusion that it was such a purpose, and such only, as might
have a legitimate connection with objects and purposes promotive of
the welfare of the municipality, and a manifest relation
thereto."
In view of the course of decisions in Illinois, we should
hesitate to declare that money borrowed by the City of Ottawa and
expended in developing its natural resources for manufacturing
purposes, was not, in the sense of the Illinois Constitution of
1848, as interpreted by the supreme court of that state, expended
"to promote the general prosperity and welfare of the
municipality."
Page 99 U. S. 95
But a direct decision of that question does not seem to be
essential to the disposition of this case. We content ourselves
with stating the propositions which counsel have urged upon our
consideration, and without expressing any settled opinion as to
what are corporate purposes within the meaning of the Illinois
Constitution, we pass to another point which, in our judgment, is
fatal to the defense. It is consistent with the pleas filed by the
city that the testator of plaintiffs in error purchased the bonds
before maturity for a valuable consideration, without any notice of
want of authority in the city to issue them and without any
information as to the objects to which their proceeds were to be
applied beyond that furnished by the recited titles of the
ordinances. For all corporate purposes, as we have seen, the
council, if so instructed by a majority of voters attending at an
election for that purpose, had undoubted authority under the
charter of the city to borrow money upon its credit and to issue
bonds therefor. The bonds in suit, by their recital of the titles
of the ordinances under which they were issued, in effect assured
the purchaser that they were to be used for municipal purposes,
with the previous sanction, duly given, of a majority of the legal
voters of the city. If he would have been bound under some
circumstances to take notice, at his peril, of the provisions of
the ordinances, he was relieved from any responsibility or duty in
that regard by reason of the representation upon the face of the
bonds that the ordinances under which they were issued were
ordinances "providing for a loan for municipal purposes." Such a
representation by the constituted authorities of the city under its
corporate seal would naturally avert suspicion of bad faith upon
their part and induce the purchaser to omit an examination of the
ordinances themselves. It was substantially a declaration by the
city, with the consent of a majority of its legal voters, that
purchasers need not examine the ordinances, since their title
indicated a loan for municipal purposes. The city is therefore
estopped by its own representations to say, as against a
bona
fide holder of the bonds, that they were not issued or used
for municipal or corporate purposes. It cannot now be heard, as
against him, to dispute their validity. Had the bonds upon their
face made no reference whatever to the charter of the city, or
recited
Page 99 U. S. 96
only those provisions which empowered the council to borrow
money upon the credit of the city and to issue bonds therefor, the
liability of the city to him could not be questioned. Much less can
it be questioned, in view of the additional recital in the bonds,
that they were issued in pursuance of an ordinance providing for a
loan for municipal purposes -- that is, for purposes authorized by
its charter.
Supervisors v.
Schenck, 5 Wall. 772. It would be the grossest
injustice, and in conflict with all the past utterances of this
Court, to permit the city, having power under some circumstances to
issue negotiable securities, to escape liability upon the ground of
the falsity of its own representations, made through official
agents and under its corporate seal, as to the purposes with which
these bonds were issued. Whether such representations were made
inadvertently, or with the intention, by the use of inaccurate
titles of ordinances, to avert inquiry as to the real object in
issuing the bonds and thereby facilitate their negotiation in the
money markets of the country, in either case, the city, both upon
principle and authority, is cut off from any such defense. What
this court declared through Mr. Justice Campbell in
Zabriskie v. Cleveland,
Columbus, & Cincinnati Railroad Co., 23 How.
381, as to a private corporation, and repeated through MR. JUSTICE
CLIFFORD in
Bissell v. City of
Jeffersonville, 24 How. 287, as to a municipal
corporation may be reiterated as peculiarly applicable to this
case:
"A corporation, quite as much as an individual, is held to a
careful adherence to truth in their dealings with mankind, and
cannot, by their representations or silence, involve others in
onerous engagements and then defeat the calculations and claims
their own conduct had superinduced."
What we have said disposes of the second plea filed by the city.
As to the third plea, it is scarcely necessary to say that it does
not present a defense to the action. The questions raised by that
plea have not been alluded to or discussed in the printed arguments
of counsel.
The judgment will be reversed with directions to sustain the
demurrer to the second and third pleas and for such further
proceedings as may be consistent with this opinion, and it is
So ordered.
