Case ID: ky_76/html/0101-01.html
Source: Caselaw Access Project
Author: {"author": "JUDGE PRYOR", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Case 14 — PETITION EQUITY
    March 30.
    Daviess County Court v. Howard, &c.
    APPEAL EROM DAVIESS CIRCUIT COURT.
    1. Power to issue county bonds should be strictly pursued, when conferred by legislative authority upon a county court, to pay for capital stock in a railroad company subscribed for by the county.
    
      The Daviess County Court was authorized, by the charter of the Owensboro & Russellville Railroad Co. and by a majority of the voters of the county, to subscribe for $250,000 of the'capital stock of said railroad company, and to pay the subscription by issuing bonds of the county for the amount of the stock subscribed for.
    
      The power to issue bonds under this authority was limited in amount to the sum subscribed for by the county.
    
      The power to issue did not imply the power to sell the bonds.
    2. Under authority to issue county bonds to pay the subscription of the county for $250,000 of the capital stock of the railroad company, the county court was authorized to issue the bonds of the county to the amount of $250,000, and to deliver them to the railroad company in full payment of the subscription.
    
      But the county court and its commissioners had no power to issue and sell at a discount $317,850 of the bonds of the county, or as many bonds as were necessary to raise the money to pay $250,000, the amount of stock subscribed for by the county. The bonds issued in excess of the $250,000 are held to be invalid.
    3. The unauthorized issue of the county bonds by the county court was not ratified by the tax-payers of the county, by the levy of a tax, by the county court and its payment by the tax-payers, to pay the interest on the bonds for several years previous to the question of the validity of the bonds being raised by the tax-payers.
    
      4. A cross-appeal CAN not be CONSIDERED when the parties against whom it is prayed, or who are to he affected by it, are not before the court.
    5. A CIRCUIT COURT HAS NO POWER TO CORRECT ITS JUDGMENT at a subsequent term, unless for a clerical misprision.
    W. N. SWEENEY eor appellant.
    1. The Daviess County Court had authority, under the charter of the Owensboro & Russellville Railroad Company, to subscribe for the $250,000 stock of the company, and to pay for the same in the bonds of the county, and therefore the county court and its commissioners had power to issue such amount of the bonds of the county as might be necessary to pay the subscription, and having issued and disposed of $317,350 of the bonds of the county to pay the subscription of the $250,-000, the county and the tax-payers thereof are bound to pay the interest as it accrues, and the principal at maturity of the full amount of the bonds so issued.
    Allowing authority to issue only $250,000 of bonds, it was still a question as to how much the railroad company would allow for them as a credit on the subscription. The bonds were accepted by the company at a discount, which left due on the subscription the amount for which the over issue, as it is claimed, issued less the discount on the over issue, it follows that the taxes attempted to be enjoined were rightfully levied on account of the bonds up to the $250,000, with interest on them. And if the bonds, in excess of this sum paid to the railroad, were void, it was, in fact, no payment, and taxes were rightfully levied to pay the deficit due on the subscription.
    The bonds in excess of the $250,000 would be valid by the general law, as at least evidencing a balance owed by the county court on its subscription. The power of the county as a quasi corporation to create the debt carried with it the incidental power to issue and subscribe any appropriate evidence of it, attesting the same by its official seal. (41 Penn. St. 278.)
    2. It will be presumed that the bonds of a corporation, issued in compliance with the law authorizing the issue, have been actually issued in conformity to law; and, especially, in the hands of bona fide holders, they will be held to a knowledge of the law authorizing the issue, but they will not be held, in the absence of actual notice, to inquire into the fulfillment of all the formal prerequisites to the issue. (33 Miss. 440; 45111. 139; 3 Wall., jr., 367; 43 Penn. St.; 7 Wright, 391; 1 Wallace, 291; Humboldt Township v. Long, etc., Central Law Journal, August, 1876; Marcy v. Township of Oswego, Ibid. June, 1876; Venice v. Murdock and Calora v. Evans, Ibid. May, 1876.)
    3. The over issue of bonds claimed in this case was ratified and confirmed by the tax-payers, in permitting their agents to issue them, and by levying and paying taxes and paying the interest on the bonds from their issue, in 1869, up to the institution of this suit, in 1875. (34 111. 405; 5 Wallace, 772; 2 Met. 86; Ferguson v. Landram, 5 Bush, 239.)
    JAMES WEIR & SON on same side.
    The demurrer to the plaintiffs’ petition ought to have been sustained,
    
      First, Because the Code (secs. 36, 37) does not contemplate such ah action, or such a junction of interests in the plaintiffs as are set forth in the petition.
    
      Second, Because they show no injury about to be inflicted upon them, against which they seek an injunction; neither do they show that the defendants, the county court, or the bondholders are collecting any tax from them; nor do they show any direct or positive right or interest in themselves to any thing for which they seek a judgment.
    GEO. W. JOLLY eor appellees Howard, &c.
    1. The plaintiffs, the appellees, have capacity to sue, arid therefore the court properly overruled the demurrer as to that ground. (Civil Code, secs. 30, 36, 37; Newman’s PL & Pr. pp. 114, 115; Clay, &c. v. Nicholas Co. Ct., 4 Bush, 154; B. & L. R. R. Co. v. Metcalfe, 4 Met. 199; Flint v. Spurr, &e., 17 B. Mon. 513; Christian Co. Ct. v. Rankin, 2 Duvall, 503; Story’s Eq. secs. 94-97.)
    2. The construction given by this court to the statutes of this state is a part of such statutes. (Leffingwell v. Warren, 2 Black, 599.)
    3. By the act of February 27 (Session Acts, vol. 2, pp. 75-85), incorporating the Owensboro & Russellville Railroad Company, the county court of Daviess County was authorized, if a majority of the voters of the county so voted, to subscribe for stock in said railroad company, and to issue the bonds of the county to pay for the stock so subscribed for; but was not authorized to issue any bonds in excess of the amount of stock subscribed for. In making the subscription and issuing the bonds, the county court acted as the special agent of the voters or tax-payers of the county, and it was therefore the duty of those who received the bonds, or purchased them from the county court or its commissioners, to know whether or not they exceeded their authority, and that if they issued any bonds in excess of the amount of the subscription, that the bonds so issued in excess of that amount were unauthorized and void. (Story on Agency, secs. 126, 127; Howard v. Braithwaite, 1 Yes. & B. 209; Stainer v. Tyson, 3 Hill, 279; Barnard v. Wheeler, 24 Maine, 412; Marsh v. Fulton Co., 10 Wallace, 676; Floyd’s Acceptances, 7 Wallace, 666; 4 Duer, 480; Sedgwick on Con. and Stat. Law, pp. 193, 196, 209; Bosley v. Mattingly, 14 B. Mon. 72; People v. Utica Ins. Co., 15 Johns. 358-380; 1 Dillon on Mun. Cor., sees. 372-381; Bank v. Winchester 8 Allen, 109; 1 Daniel on Nego. Insts., secs. 422, 423, 440, 444; 2 Ibid. pp. 424 to 486, secs. 1486 to 1555; Harshman v. Bates, U. S. Supreme Court, Oct. Term, 1875; Marcy v. Township of Oswego, TJ. S. Supreme Court, Oct. Term, 1875.)
    4. In the absence of authority to issue bonds in excess of the $250,000-subscribed for, all the bonds issued in excess of that amount by appellant were absolutely void, into whosesoever hands they may go. (1 Dillon on Mun. Cor., secs. 426-55; Aspinwall v. Dáviess Co., 22 Howard, 378; C. & L. R. R. Co. v. Kenton Co. Ct., 12 B. Mon. 148; Marsh v. Fulton County, 10 Wallace, 676; Parcel v. Barnest & Bro., 25 Arle. 261; 2 Am. Rep. 43; 20 Md. p. 10; 26 Wendell, 122, 193; Smith’s Mer. Law, 3d ed., chap. 5, sec. 4; 1 Daniel on Nego. Insts., secs. 422, 423, 440; Gen. Stat., secs. 1, 2, art. 2, chap. 26.)
    5. A delivery of the bonds of the county to the railroad company at less than par would be usurious. (3 Parsons on Contracts, chap. 7, sec. 12; Dillon on Mun. Cor., sec. 414.)
    6. The tax-payers of Daviess did not ratify the over- issue of county bonds by paying taxes levied by the county court to pay interest. If legislative authority was necessary, as it was, to empower the people of the county to contract, it would he necessary to have legislative authority to empower them to ratify the unauthorized over issue. (Dillon on Mun. Cor., secs. 373, 381, 385, 386, 387; 10 Wallace, 684; McCracken v. City of San'Francisco, 16 Cal. 624; Loan Association v. Topeka, 20 Wallace, 655-667; Martin v. Zullerbaek, 38 Cal. 300; 37 Cal. 543; Murphy v. Louisville, 9 Bush, 189.)
   JUDGE PRYOR

delivered the opinion oe the court.

This is an' appeal in the name of the Daviess County Court against A. G. Howard and others, tax-payers of the county of Daviess. The Owensboro & Russellville Railroad Company was chartered by an act of the legislature passed in the year 1867. By the 19th section of the act of incorporation it was provided “that the county courts of Daviess, Ohio, Muhlenberg, and Logan counties shall have power, and are hereby authorized, to subscribe to the capital stock of the company in such number of shares as may be determined by said county courts, respectively, and to levy upon the tax-payers of- such counties, respectively, such taxes as may be necessary to pay the stock subscribed; and the said county courts may, if they shall deem it prudent, issue the bonds of said counties, respect ively, for the amount of stock subscribed, or any part thereof; said bonds to be in such sums, and payable at such times, as said county courts may determine upon. But before such stock shall be subscribed by the county courts, the said county courts shall submit to the voters of said counties the proposition to subscribe stock, and the amount thereof (to be suggested and fixed by the commissioners named herein), at an election to be held after due notice,” etc. The commissioners for Daviess County, in accordance with this provision of the charter, suggested to the county court a submission to the voters of the question, “Will the voters instruct the county court to subscribe ten thousand shares to the capital stock of the company ?” The vote was regularly and properly taken, and, a majority of the voters favoring the subscription, the sum of $250,000 was subscribed and taken by the county as stock in the corporation, the shares being $25 each.

At the July term of the Daviess County Court, held in the year 1868, it was ordered that Geo. W. Triplett, the county judge, W. B. Tyler, and E. C. Berry be and are hereby appointed a committee, on behalf of the county court of Daviess County, “to have bonds executed and prepared of a sufficient amount to satisfy and pay off the subscription, on the part of the county of Daviess, to the Owensboro & Russellville Rail- ■ road Company; that said bonds be executed and made payable as follows, viz: $50,000 five years from date, $50,000 ten years from date, $75,000 fifteen years from date, $75,000 twenty years from date; the bonds bearing interest at six per cent per annum, payable semi-annually; for the payment of which coupons were attached,” etc. The committeé, or a majority, were authorized by this order “to sell or dispose of the bonds either to the Owensboro & Russellville Railroad Company, or to individuals, or to other corporations, on such terms as said committee may deem best and most advisable to the interests of the county of Daviess, in paying the subscription,” etc.

At a subsequent term of the court, held in the same month— July, 1868 — it was recited “that as the court had ordered the committee to have bonds prepared and executed, in a sufficient amount to satisfy and pay off the subscription, and to sell and dispose of said bonds, either to individuals or corporations, it is now ordered that said order he so amended as to authorize said committee to appoint agents to sell said bonds.”

Under these orders of the county court the bonds of the county were executed, not only for the $250,000 and its interest, but for the additional sum of $67,350, making the whole amount of interest-bearing bonds, with coupons attached, $317,350. These bonds, as is alleged in the petition, were sold to the railroad company, in discharge of the county subscription, and many of them are now in the hands of parties unknown to the plaintiffs in the action. A tax has been levied on the tax-payers of the county to pay the bonds as they matured, and the accruing interest on the whole amount. The plaintiffs, the tax-payers of the county, instituted the present action, in which they seek to enjoin the county court from collecting either the principal or interest upon the bonds issued in excess of the $250,000, insisting that the county court, as the agent of the tax-payer, exceeded its authority in making sale of any of the bonds, and that the bonds, other than those directed to be issued by the order of the county court, made in July, 1868, are void. The county court, or its committee, acted upon the idea that it was invested with the power to execute and sell at a discount as many bonds as were necessary to raise the money to pay the subscription of $250,000. This is the sole question presented by the record.

It is alleged in the petition that the railroad company, the Planters Bank, and others are the holders of some of these bonds, and as they were made defendants to the action, and the court refused to pass upon the question as to the liability of the county to them, the appellees, the tax-payers, have prayed a cross-appeal. This cross-appeal can not be. considered, as the parties against whom it is prayed, or who are to be affected by it, are not before the court. The court below has enjoined the county court from proceeding to collect the interest on the bonds in excess of the $250,000. The defendants, if they hold any such bonds, are not complaining, as they have failed to prosecute any appeal. The appeal is here by the Daviess County Court against the tax-payers, that tribunal insisting upon its right to levy the tax to pay the interest on all the bonds issued and sold to satisfy the county subscription. The controversy is between the agent and principal.

The county court, by virtue of the 19th section of the act incorporating the railroad company, was invested with the power to pay the county subscription by levying a tax upon the property of the citizen, or by issuing county bonds in whole or in part discharge of the indebtedness. The power to issue bonds was limited in amount to the sum subscribed by the county to the capital stock, and the county court, looking to the extent of the power with which it was clothed by the act in question, designated the number and amount of bonds to be issued by an order of that court made in July, 1868. This order directed the execution of bonds for $50,000 payable in five years, a like amount payable in ten years, $75,000 payable in fifteen years, and a like sum payable in twenty years, with interest coupons attached, payable semiannually. This covered the entire subscription, and when issued it was proper for the county court to deliver them over to the railroad company in payment of the subscription made by the county. These were all interest-bearing bonds, and when executed by the county for the amount of stock subscribed, the county court acted within the scope of the authority conferred by the act, and exhausted all the power that tribunal had to discharge the indebtedness in that manner.

The act expressly authorized the county court to issue bonds for the amount of stoclc subscribed; but we find no power conferred by the charter upon the county court to issue bonds for $317,350. It was a cash subscription, and the interest-bearing bonds are to be regarded as equivalent to a cash payment, and if the railroad company declined to accept them in discharge of the subscription, it was the duty of the county court to raise the money by taxation. That tribunal had no right, either by reason of its jurisdiction over the subject-matter, or by the letter or spirit of section 19 of the railroad charter, to issue bonds for an unlimited amount, and then- place them upon the market at a discount, in order to satisfy the debt to the railroad company. The power to issue the bonds does not imply the power to sell. No general power is conferred upon county courts to issue such bonds or to subscribe stock in behalf of the county, in which the tribunal exists, to railroad companies or other corporations, and when this extraordinary power is conferred by legislative enactment, by which a bare majority of the votes cast may impose upon a large minority of the citizens or tax-payers a taxation by which they are to be burdened for years, courts should not be inclined to disregard, although it may be done by a liberal construction, the conditions and restrictions placed by the legislature upon such an exercise of power.

The powers conferred by such legislation should be strictly pursued, and the fact that the county has incurred the liability can not be held to justify any action the county court may see proper to take, in order to secure its payment. In this case the voter agreed to be taxed in the sum of $250,000, the debt to be discharged by a direct tax or by the issuing of bonds for that amount, bearing interest. He has agreed to pay that sum, and to say that because he voted to pay that amount, he is liable to pay the additional sum of $67,350 is not warranted by the letter or spirit of the law conferring the power on the county court to tax him, or consonant with natural justice. If the legislature had been asked to vest in the county- court of Daviess the power to raise by taxation the sum of $317,350, -the whole sum bearing interest, to pay this debt of $250,000, would such a proposition have received serious consideration ? •Or if such authority had been expressly given, is it to be presumed that the tax-payer would have been so regardless of his ■own interest as to east his vote in favor of the measure ?

It was never contemplated that these bonds should be sold .at a discount, either by the county court or by the railroad company, so as to make the county responsible for the deficit. The power to sell the bonds to raise the money to pay for the ■■stock was not given byr the act. The bonds bearing interest were worth as much as the stock subscribed, and were so regarded, no doubt, by the legislature, when enacting the law. The ■county court, in fact, never authorized the issuing of bonds for a greater amount than $250,000, and if that tribunal had the right to exceed the power conferred upon it, still it has not attempted to exercise this right except by a levy of the .tax upon the citizens to pay the interest. It is maintained by the county court that because it has once levied the tax, or ■continued to do so, since the bonds were issued to pay the interest, that this amounts to a ratification of the action of the county court by the tax-payers of the county. ^

That the county court obtained all the power that could be properly exercised with reference to this question of taxation from the 19th section of the act incorporating the railroad ■company is too plain for controversy. The county court, in issuing the bonds in excess of the $250,000, or permitting it -to be done by the committee appointed by the court, transcended the authority given by the legislature, and no subsequent act of the county court or of the tax-payers can make * valid the exercise of a power that had no legal sanction.

The corporation knew the extent of the power given the ■county court by the act incorporating the company. It received the bonds, and is not complaining of the action of the court below. The action of the county court in collecting the tax upon the over issue of bonds, or the interest, was clearly illegal. They were nullities in the hands of either the county court or the corporation, and the payment by the unwilling tax-payer can not justify this unwarranted exercise of power.

The voters of the county had no right to assume the burden except in the manner provided by the act. They could not ratify an act that neither the county court or themselves had the power to perform. If the principal could not exercise the right it is difficult to perceive how. his sanctioning its exercise by an agent could make it legal. In making the over issue the county court or its committee acted beyond the scope of its agency, and outside of the power given by the legislature. The only way in which the people could ratify it would be by a vote under a legislative enactment.

It is argued by counsel for the appellant, the county court, that there is no reason to discriminate between the holders of these bonds on account of the date of the purchase, and that there is no means of determining which of them are valid and which not. This question can not well arise between the county court and the tax-payer, and as there has been an excessive issue,.the county court can not complain of the injunction. It does not appear who has possession of the bonds. It is alleged that they were delivered or sold to the corporation, the railroad company. It was made a party defendant, and does not ask to have any equitable distribution of the fund, or to disclose even to whom it has transferred these bonds. The judgment below, enjoining the county court from proceeding to collect the over issue of bonds, or the in-' terest, by levying a tax upon the property of the appellant, is affirmed, and the cross-appeal of the appellees dismissed without prejudice.

As to the appeal of the tax-payers from the refusal of the court below to modify the judgment, this must also be dismissed without prejudice. The court had no power to correct its judgment at a subsequent term, unless for a clerical misprision, and, as we understand the character of the judgment rendered, it gives to the appellees all they ask; that is, it enjoins the collection of the bonds and interest exceeding the $250,000. (Gould v. Sterling, 23 New York; City of Atchison v. Butcher, 3 Kansas; Marsh v. Fulton County, 10 Wallace; Daniel on Negotiable Instruments, vol. 2, pp. 463, 464.)