Case ID: ohio_7/html/0320-01.html
Source: Caselaw Access Project
Author: {"author": "Judge Hitohoock", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

President, Directors, and Company of the Bank of Chillicothe v. The Mayor and Commonalty of the Town of Chillicothe. — John Woodbridge, Cashier of the Bank of Chillicothe v. The Mayor and Commonalty of the Town of Chillicothe.
    Where a town corporation is invested with the power's usually conferred upon-such bodies, a contract borrowing money for the use of the town is obligatory and binds the corporation for repayment, although no express-power to borrow money be given in the law of incorporation.
    These two cases originated in the court of common pleas of Boss county, from which they were appealed to this court.. Although not precisely alike, they both depend upon the same-principle.
    The actions are debt. The declaration in the. first case is upon a written instrument, of which the following is a copy :
    
      “The State of Ohio, Boss County, Mayor's Office, Chillieothe, ss.
    
    “ I have borrowed of the president, directors, and company of the Bank of Chillieothe five hundred dollars, for tbe use of the-corporation; and in the name of the mayor and commonalty of the town of Chillieothe, do promise to pay the same at their banking house, in six months from the date hereof. In testimony whereof, I, William Steele, mayor of the town of Chillieothe, have-hereunto set my hand and affixed the seal of the said corporation, this 19th day of October, in the year of our Lord, one thousand eight hundred and thirty. William Steele.”
    The second suit is upon three several instruments which are? alike in all respects, except as to the time of payment, the same-being payable in two, three, and four years after date. Of one of these instruments, the following is a copy :
    *« The State of Ohio, Boss County, Mayor’s Office, Town of Chillicothe, ss.
    
    “Whereas, the mayor and commonalty of the town of Chillicothe, on the 8th instant, pursuant to a vote of the citizens of said town, directed the undersigned to issue certificates or evidence of debt in stock, principal amount two thousand dollars, bearing interest, payable and redeemable at the Bank of Chillicothe, in ten equal installments, the first to be redeemed in the year 1832 ; the money to be applied toward the improvement of Water street in said town, by a change of the Ohio Canal line as .contemplated by the citizens aforesaid.
    “Now, therefore, these presents testify that, pursuant to the promises aforesaid, we, the mayor and commonalty of the town of
    • Chillicothe, do hereby promise to pay at the Bank of Chillicothe aforesaid, to John Woodbridge, Esq., cashier thereof, or to his successor in office, within two years from this date, two hundred dollars, with interest thereon, at the rate of six per cent, per annum, payable semi-annually from the date hereof. In 'testimony whereof, I, William Steele, mayor of the town of Chillicothe, have hereunto set my hand and affixed the seal of the corporation of
    • Chillicothe, this 12th day of July, A. d. 1830. ■
    “William Steele.”
    All these instruments were under the seal of the corporation.
    In each case the defendants having craved oyer, demurred generally.
    Wm. Allen, in support of the demurrer :
    The pleadings in these two cases present the same and but one general question, to wit: Have the mayor and commonalty of the town of Chillicothe the power under the charter to borrow money ?
    
    It being conceded that the power is not expressly granted. Hoes it exist by implication from other powers which are expressly granted as incident to those powers?
    I shall assert and attempt to maintain the following propositions :
    1. That the delegated power to borrow money is, in its nature, •.& high, independent, substantive, sovereign power, and can, therefore, in no instance pass from its primitive source but by express grant.
    2. Thatif tbe power be not in its nature a substantive *power, and if it may be fairly referable to the class of implied powers, yet it could pass by implication only in the case of a government possessing by express grant other high, sovereign powers, to some one of which this power could be drawn by necessary implica-, tion; and that a mere municipal corporation has not, nor ever can have, even by express grant, such a sovereign power as will draw" this after it as an incident.
    3. That if the power to borrow money may be taken by implication as incident to other powers expressly granted to a municipal corporation, yet it can not be in the instance of the corpora-tion of Chillicothe, because the amendatory act expressly defeats such implication by removing the necessity for a resort to such a power, and therefore negatives its exercise.
    These propositions the counsel proceeded to elucidate and maintain in a very elaborate argument, in which he examined the nature of government generally, and of the government of the United States and of the several states. He insisted that it was • only in virtue of power expressly granted that ‘the United States could borrow money. That it was the want of this power and the power to raise money annually, in the confederation, that led to the adoption of the constitution; and to sustain this position, he • cited the numbers of the “ Federalist.” He contended that to the state “the power is expressly given, because that is among the sovereign powers of legislation, and because all legislative power is expressly given in the first article of the constitution, which declares that the legislative authority of the state shall be vested in a ■ general assembly.”
    He also descanted upon the difference between substantive and incidental powers at some length, and examined critically the - several acts incorporating the town of Chillicothe. In support of his proposition, he cited 2 Kent’s Com. 239, 240; 2 Craneh, 127; 15 Johns. 358 ; 3 Barn. & Aid. 1; 4 Wheat. 573; 12 Wheat. 64; 5 Ohio, 393. He also referred to several acts of the state legislature expressly granting this power to municipal corporations, as containing a legislative interpretation upon the subject, and came to - the conclusion that the corporation had no power to borrow this-money; and, therefore, although they have the use of it, still they were under no obligation to pay it.
    Swan, of counsel for the plaintiffs,
    insisted that a corporation possessed not only the power expressly granted, but all others *are incidental thereto, which are necessary to carry the powers thus granted into effect. 2 Kent’s Com. 239; 4 Wheat. 316; 8 Wheat. 339; 4 Wheat. 636; 15 Johns. 358.
    He admitted that the power to borrow money was not expressly granted to the mayor and commonalty of Chillieothe, but insisted it was incidental to, and necessary to carry into effect the powers which were granted. These powers he enumerated. He cited in addition 6 Wheat. 595; 8 Wheat. 350; 10 Johns. 706; 7 Conn. 550.
    Upon the hypothesis that the corporation had no power to borrow this money, he insistéd that this was no defense to the action. It might be a reason why the charter should be forfeited, but could be none why the debt should not be paid. 16 Mass. 94.
    Leonard,
    m reply, submitted an argument at length, in which he sustained the propositions of his associate counsel, and with ■much force attempted to refute the arguments of the opposing counsel.
   Judge Hitohoock

delivered the opinion of the court:

These cases are of great importance, on account of the principles involved, and have been argued by counsel with the ingenuity and ability which the importance of those principles demands. It must be admitted, too, that the cases are of that description where there is danger that a court, from its earnest desire to do justice, may be led astray upon points of law,' notwithstanding all its anxiety to the contrary. For it is certain that if the defense be legal, it is manifestly unjust, and such a defense as no court would sustain unless impelled to it by some well-settled and unbending principle of law. The corporation of Chillieothe have borrowed the money, for the recovery of which these suits are brought. In one instance it was done in pursuance of a vote of the people of the town constituting the corporation. This money has been used, as we are bound to believe, for the interest of the •town ; and non-payment is resisted, upon the ground that this same corporation had not the power to borrow the money, and that in doing so, they violated their charter. The language of the defendants to the plaintiffs is in substance this : True, you loaned to us this money, you did it at our earnest solicitation, we have used it for our own benefit; but we have no power to borrow, we violated our charter in so doing, and we will take advantage of this *our own wrongful act, to protect ourselves from the paynaent of that which is your honest due. No. rule of decision which will lead to such manifest injustice ought to be adopted without careful examination and much deliberation.

These cases, as now presented, are believed to be of the first impression, as counsel, with all their research, have not been able to produce a decision in point. As between natural persons, it is true that inability to contract constitutes a defense. Hence the pleas of infancy and coverture are sometimes interposed to avoid the payment of a debt which an honest man or woman might be desirous to discharge. And such pleas are formed in law, not so much on account of their abstract justice, as from considerations of general policy. But although corporations have existed for centuries, still we have found no case in which inability to contract has been set up to avoid the payment of their debts. There are, it is true, many cases where the powers of particular corporations have been investigated, and where they have been held to have exercised power not granted to them, in consequence of which their acts were void; but these have been cases where the corporations themselves have been striving to set up or enforce powers, not where they have set up as a defense that they themselves had been guilty of a usurpation of power. Such are cases against individuals charged with trespasses or other misfeasances, and where the defense is, that they acted in pursuance of powers delegated to them by corporations. Such was the case of Colter v. Coty, 5 Ohio, 393, relied upon as an authority for the plaintiff. It was an action for replevin for fifty kegs of gunpowder, and the defendant justified under the plea that he was marshal of the city of Cincinnati, and that he retained the gunpowder under an order of the corporation, because it had been forfeited for a violation ofa city ordinance. The court held that the corporation had no power to create a forfeiture, and, therefore, that the defendant was not justified. To have assimilated that case to this, it should have been against the corporation itself, and the corporation should have relied upon the defense that they were exonerated,. because, in the creation of the forfeiture, they had been guilty of usurpation.

■As a general principle, no corporation can exercise powers not-granted in its act of incorporation. This act is its constitution, and whenever it oversteps the limits therein prescribed, *its act so far becomes void. But where certain powers are specifically granted, these carry with them such others,, as incidental thereto, as are necessary to carry those specified into effect. It is proper, too, that these powers should be strictly construed, considering-with how little care chartered privileges are in these days granted. 2 Kent’s Com., 2 ed. 298, 299; 2 Cranch, 127; 4 Wheat. 636; 4 Pet. U. S. 152. But a different rule of construction ought to prevail where a corporation is endeavoring to extend its power to the injury of others, and where it sets up, by way of defense to an action brought against it, that it has itself been guilty of usurpation of power.

In considering this case, it is not my purpose to enter minutely into the arguments of counsel, although there are some principles-advanced for defendants in the opening argument, in-whieh I can not fully concur. In justice to counsel, I will say that this argument evinces much thought and reflection, and as a political production is worthy of great consideration. It seems to me, however, that it might have been better addressed tp the mayor and commonalty of Chillicothe, and to the people of that town, to-dissuade them from contracting their debts, than to this court, to induce us to lend our aid to the corporation in avoiding their payment.

It is said “ that the delegated power to borrow money is in its-nature a high, independent, substantive sovereign power, and can, therefore, in no instance pass from its primitive source but by express grant."

I do not know that I fully comprehend what is intended by this proposition; according to my understanding, it amounts to this: the power to borrow money being a high, substantive, independent sovereign power, has its source with the people, who are the primitive-source of all power, and must remain there until expressly granted. If this be true, it must follow that the corporation of Chillicothe have not power to borrow money, and could not have had, had it. been expressly granted in the act of incorporation, and for the reason that the people have not delegated in the constitution this-power to the general assembly — and no one will pretend that this body can confer upon a municipal corporation a power which it. does not itself possess. Upon this principle debts contracted by the general assembly, for money borrowed, are not binding *npon the state; I am not prepared to admit this question ; it goes at once to destroy all confidence in the public faith.

This is not the doctrine, however, which the counsel intends to-advocate. He supposes this power is expressly given to the general assembly, because, as he says, it' “ is among the sovereign powers of legislation,” and all legislative power is expressly given, in the first article of the constitution, to the general assembly.” That the general assembly have the’ power to borrow money, I have no doubt, and I agree with counsel that this power is conferred by the grant of all legislative power. The only difference between us is in the nature of the power. He considers it as a substantive, independent, legislative power. I consider it as incidental, general legislative power. It is not of that “high, independent, substantive, sovereign” character contended for. This power, resting jn the general assembly, may be granted by that body to a municipal corporation, either expressly, or as it possesses it itself, incidentally or by implication.

That this power is not expressly granted to the corporation of Chillieothe is admitted, and the only question is, whether it is. granted by implication. In order to arrive at a correct conclusion, it is necessary to examine the act of incorporation. The original act was -passed on December 28, 1813. In section 1 the limits of the town are specified, and the same is erected into a town corporate by the name of Chillieothe. Section 2 provides for .the election of officers, and section, 3, that the mayor, recorder, treasurer, and common eouncilmen, elected in pursuance of section .2, and their successors in office, shall be a body corporate by the name of the “ mayor and commonalty of the town of Ohillicothe,” with capacity “ to purchase, receive, possess, and convey any real or personal estate for the use of said town of Chillieothe; provided the clear annual income shall not exceed four thousand, dollars.”

In section 5, power is given “to lay a tax within said town,” for the purposes, and to bq assessed in the manner in the act. specified.

In section 6, power is given “to erect and repair pubiic build-. ings for the-benefit of said town, and make and publish laws and ordinances in writing, and the same from time to time alter and repeal, as to them shall seem necessary, for the ^internal safety and convenience of said town of Ohillicothe and the inhabitants thereof.”

From these extracts it will be seen that this corporation, as by that law constituted, had legislative power; this power, it is true, was restricted to such objects as should seem necessary for the internal safety and convenience of said town of Ohillicothe, and restricted, too, so far that the laws made and published, should not be contrary to the laws of the state or of the United States. It had the power further, to purchase, receive, possess, and convey any real or personal estate for the use of the town, to erect and repair public buildings for the benefit of said town,” etc.

If the power to borrow money be, as is insisted by counsel, a substantial legislative power, or, according to my apprehension of the subject, an incident to legislative power, and, if it became necessary, for the safety and convenience of the town, or to carry into effect the power granted to purchase real or personal estate, -or to erect or repair public buildings, to borrow money, there ■could be no objection to passing a law or ordinance to that effect. When passed, it would be obligatory on the corporation, and the money procured would constitute a debt which the corporation must discharge. Such law would contravene no principle of the constitution or laws of the state or of the United States, or any principle contained in the charter of incorporation. To effect •Other subjects than those specified in the charter, money could not, with propriety, be borrowed. But if it should be, that circumstance could hardly be set up as a matter of defense against an action brought for the recovery of the money. It would rather be a question between the individual corporation and their officers, or it might be between the state and the corporation.

This act of December 28, 1813, was amended by an act passed -on February 4, 1825. Although, by this amendatory law, all parts of the original law within its purview were repealed, it added to, rather than diminished the power of the corporation. Like the former law, it conferred power on the corporation to lay a tax, which might be increased to any extent by a vote of the freeholders and householders of the town at an annual election. It also conferred upon the mayor and common council the “ power to pass and publish all such laws and ordinances as to them shall appear necessary for regulating the streets, alleys, and highways, and for cleansing, praising, draining, paving, turnpiking, or otherwise keeping the same in repair,” and also, “ to pass all such laws and ordinances relative to the good government of the town,” etc. If, in affecting any of these objects, it became necessary to borrow money, the corporation might, with propriety, do it. In one of the cases now before the court, the money was borrowed expressly for improving one of the streets.

For the purpose of purchasing real estate, erecting and repairing.public buildings, cleansing, raising, paving, draining, turnpiking and otherwise keeping streets in repair, contracts must necessarily be made. Ultimate payment, it is true, must be made from taxation. But until money, could be thus raised, it seems, to the court that it might be provided otherwise, and in no way better than by borrowing. And really I can not see the. great difference whether a corporation shall be indebted to A. for labor in repairing streets or buildings; or to B. for money borrowed to pay A. for this same labor. The moral obligation to pay would bo the same in either case.

In the cases now before the court, there is nothing illegal in the consideration, and there is no violation of any positive law or moral principle in the premises. The undertakings are not to do an illegal act, but to refund money actually borrowed. The plaintiff violated no principle of law in loaning the money, and certainly there would be nothing immoral in the defendants’ paying it. On the contrary, we think its payment is required by every principle of moral honesty, and prohibited by no arbitrary rule of law.

The demurrers to the declarations will be overruled, and judgment rendered for the plaintiffs.