Case ID: tenn_33/html/0698-01.html
Source: Caselaw Access Project
Author: {"author": "MoKmNEr, J.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Cook & Steadman vs. The Sumner Spinning and Manufacturing Company.
    1. Corporation. Power of a municipal corporation to take stock in a manufac- ' luring company. A corporation is the creature of the law, possessing no power or authority except such as is expressly granted by the charter of incorporation, or as is necessarily implied. So the power to levy and collect taxes in the charter of a municipal corporation, does not authorize the purchase by said corporation, of stock in a manufacturing company, or the issuance of bonds for the payment thereof, and bonds issued for such purpose under said charter are utterly void.
    2. Ignorance of law. Application of the principle. The maxim that ignorance of the law is no excuse for the breach or non-performance of any agreement, only applies to the general or public laws of the land, which affect and prescribe a universal rule of action for the whole community ; and has no application to special or private acts of the legislature, which are designed only to operate upon particular persons, or to regulate private concerns.
    FROM SUMNER.
    This was a hill filed in chancery at Gallatin. The complainants, Cook & Steadman, contracted with the defendants to build their factory near the town of Gal-latin, and to furnish and put up the machinery therefor. In part payment therefor, the complainants agreed to take $5,000 in corporation bonds of the town of Gallatin, at ten per cent discount. The corporation became a stockholder in the manufacturing company to the amount of $4,500, and issued their bonds for the payment thereof for $5,000, payable ten years from date, with interest at six per cent, payable annually. The complainants filed this bill to be relieved from accepting the bonds, and for other purposes not necessary to be stated. The ground assumed in the bill, is, that the bonds -were void and worthless, for the reason that the .corporation were not legally authorized to issne them. The answer insists that the bonds are valid and binding upon the corporation. Other issues are presented in the record, which it is not necessary to state. Chancellor Ridley decreed upon this point in favor of the respondents, from which the complainants appealed.
    JoRDAsr Stokes, for the complainants,
    said:
    1. The corporation of Gallatin had no power under its charter, to bind itself by - a subscription of five thousand dollars of stock, to aid in the construction of the Sumner mills; and that, as a consequence of this want of power, the bonds of the corporation, issued to pay this subscription, are null and void; not binding on the corporate body, or the individual members thereof, although they may have assented to the exercise of the power in this instance. Municipal corporations are the creatures, the handiwork of the legislative power; which creative power belongs, as matter of inherent right and of necessity, to all such sovereignties as the States of this Union. Hope vs. Deacleriok, 8 Humph. Rep., 1. Niohol vs. Corporation of Nashville, 9 Humph. Rep., 263. Their powers, and the mode of exercising them, when created by statute, depend alone upon the true construction of the act of incorporation, having no other powers than those expressly given, and such as are incidental to their very existence. 9 Humph. Rep., 261-2. 13 Peters’ S. 0. Rep., 587. 6 Gond. Rep., H. S., 444. And all their acts or contracts are utterly null and void, unless embraced within the powers thus delegated. 13 Peters’ Pejs., 587. 9 Ilumpli. Pep., 262-3. Union Ba/iik vs. Jacob, 6 Humph. Pep., 520.
    2. The act, incorporating the town of Gallatin, does not confer, in express terms, the power to subscribe stock to aid in building up manufacturing establishments; it delegates just such powers as are usually given to such corporate bodies, looking only to the good government of the town, the improvement of the streets and alleys, and the preservation of the health and morals of its citizens. See charter. 2 Scott’s Pevisal, 375. The power to hold real and personal property, given by the first section, and the power to “levy and collect taxes,” given by the second section, were relied upon in the court below as conferring the power expressly; but we presume that this position will not be seriously pressed in this court. These powers point to no object or purpose for which property can be held, or taxes levied and collected; each one of them is referable to, and limited and controlled by, the other powers, which define the purposes and objects of the corporation. These powers are incidental to all municipal corporations, which they possess as fully without being mentioned in the charter, as by being embraced in it.
    3. The power of embarking the corporation of Gal-latin in an enterprize of the character under investigation, is not a power incidental to its corporate existence, nor is it a means, necessary and proper, to carry into effect any power expressly conferred, or duty expressly imposed on the corporate body under its charter. It could not have been intended by the legislature to confer such power, either in terms or by implication, for the act of incorporation was passed on the 17th November, 1817, when the idea of manufacturing cotton and woollen goods, in an establishment like the Sumner mills, had not attracted the attention of individual enterprize in this State.
    4. It is well settled, however, that to enable a municipal corporation to subscribe stock and issue its bonds for such a purpose as the construction of railroads and turnpikes, and the same reasoning will equally apply to the erection of manufacturing establishments, the power to do so must he delegated in express and unequivocal terms. It cannot be resorted to by implication. It cannot be used as a.means to carry out some other power. It can only be used when expressly delegated.
    5. So far, the argument has proceeded on the assumption that the legislature could delegate to a municipal corporation the power in question; but we deny that the legislature of this State has any such power, under the old or new constitution; and we hold that, if the legislature had conferred upon the corporation of Gallatin the right or authority to subscribe stock and issue bonds in aid of the Sumner mills, it would be an unconstitutional exercise of power. The grant of the power in question to, and its exercise by a municipal corporation, implies necessarily, the right -to levy and collect a tax for the payment of the stock, or the bonds, if bonds are issued in extinguishment of the subscription. It is a well settled principle in all free governments, that the legislative power cannot take by taxation, or otherwise, the private property of the citizen, except for some public, use. This principle is as well known to the parliament of England, under magna charia, as to the legislature of this State, under the constitution and hill of rights. Bill of Bights, § 21. Ha/rdin vs. Goodlett, 3 Ver. Bep., 41. Glande vs. White, 2 Swan’s Bep., 548. Story on Con., § 1790. 2 Kent’s Com., 392, 7th ed. 1 Black. Coin., 139. 2 Dev. & Bat. L. Bep., 455. And it will follow, as a necessary consequence, that the legislature of this State could not, either under the old constitution, or under the 29th sec., art. 2, of the new constitution, delegate to a municipal corporation the power to levy and collect a tax for any other but a public use; or, in the words of the constitution, for a “ corporation purpose.”
    Now, the Sumner spinning .and manufacturing company is a private corporation; the use, purpose, and object of its establishment, are solely the private gain and emolument of its owners; its entire property, with its profits or losses, is governed and controlled by the law, applicable to private property; its stockholders have the right, to the exclusion of all other persons, to the possession and enjoyment of the establishment, to the same extent that any one has to his dwelling-house or farm; the public has no right of enjoyment, use, or easement in the establishment, or its profits, in any event. It is, therefore, peculiarly a private enterprize, in no sense belonging to that class of public enterprizes embraced by the expression “public use or corporation pux*pose; ” and it is no such purpose, for the promotion of which a municipal corporation could be empowered to levy and collect a tax. Sha/rpus et als. vs. Mayor of Philadelphia. Boston Water Power Co. vs. City of Boston, 9 Met. Bep., 199. Ang. & Ames on Oorp., § 449-50. Hardin vs. Goodlett, 3 Ter. Bep., 41. Swan vs. Williams, 2 Michigan Bep., 427.
    
      If we are correct in the foregoing positions, it is clear tliat the corporation of Gallatin had no power to subscribe the five thousand dollars of stock, and that the bonds, issued in payment of the stock, are not binding on the corporate body, but are utterly void, and of no effect. This being so, it will not he insisted that Cook & Steadman are bound to take them. To force them to take the bonds, under such circumstances, would he such gross injustice, such unconscionable advantage and iniquitous over-reaching, that the just and liberal principles of a court of equity would not tolerate the injustice for one moment.
    Solomon, for the complainants,
    said:
    1. In every bond there must be an obligor, and a sum upon which the obligor is bound. An instrument upon which no one is bound is no bond. An instrument issued by the agents of a corporation without authority, or where they have exceeded the powers granted in their law of incorporation, is not binding upon the corporation, and therefore no bond. A corporation is bound by the acts of its officers or agents, only so far as these acts are authorized by the charter of the corporation. 2 Iredel, 338. If the bonds tendered be not binding on the corporation, complainants are not bound to take them.
    2. The corporation is not bound upon the bonds tendered with the record. The subscription of the stock is unauthorized by the charter of incorporation, and the bonds issued in payment thereof is a mere nullity. Eo tax could be levied for their payment. See charter of incorporation, Scott’s Kevisal, 378, yol. 2. 6 Humph., 515. Niohol vs. Nashville, 9 Humph. This latter case differs from this one in this. The purposes of the subscription are different; and there was a special act of the legislature authorizing that subscription. Hnder these decisions, I contend that the corporation of Gal-latin is a public corporation; that it is created by the legislature for certain purposes, and clothed with powers alone necessary to carry out those purposes; that it cannot exceed those powers, and when they do the act is void.
    3. The issuance of the bonds in payment of subscription is not a corporate purpose within the meaning and spirit of the act of incorporation. Ho such power can be directly gathered from the act; and under the decisions of this Court the incidental powers belonging to a corporation are only extended to necessary consequential means to carry out the objects of incorporation. 6 Humph., 515.
    4. The objects of the incorporation of Gallatin is for social and civil purposes. The subscription of stock in a manufacturing company, is, in no way, connected with either of these purposes, and is not a necessary measure to carry out those objects. The establishment is situated outside of the corporate limits. It is not under the control of the officers of the corporation, but the president and directors. The factory would have been built without the subscription. The contracts and the building had been in operation some time before the subscription was made. All benefits conferred are of a private nature. It does not conduce to the morals, nor does it add to the municipal government of the town, nor lias it ever declared any dividend. The proof is, that it was not to the interest of individuals to subscribe. How could_ it have been for a corporation purpose, and that too, to give $5,000 for $4,500 stock. The benefits conferred are simply such as any establishment or trade will confer, but are not benefits to the corporation.
    5. A corporation has no power to vest means in real estate, or other'property, except it be used for corporate purposes. 3 Peck, 232. A corporation cannot be seized of lands in trust foreign to its charter. 8 Johns., 422.
    6. The subscription of stock not being a necessary measure in the carrying out the purposes of incorporation, no tax could be levied to pay the subscription. 11 Humph., 1.
    7. The ordinance authorizing a vote to be taken by the citizens of Gallatin, nor the vote itself, can legalize the bonds, and make them binding. A public corporation is entirely under the control of the legislature, and can only be bound by its authorized officers. 5 Humph., 288.
    WINCHESTER, for the complainants,
    said:
    Has the corporation of Gallatin the authority, under its charter, to subscribe stock in a joint stock company, and issue bonds in payment therefor; and if so, upon the facts of this cause, can O. & S. be compelled to receive them? We deny that any such authority is conferred by its charter of incorporation, upon the town of Gallatin, as is contended for by the defendants. See Scott’s Revisal, —, where, after a specific enumeration of powers usually conferred upon a municipal corporation, the general power is given to lay and collect taxes, from which, by some extraordinary powers of implication, ' the power to subscribe stock in a joint stock company, is deduced. Judge Turley, in the case of Niohol vs. The Mayor and Aldermen of Nashville, says: “A corporation is the creature of the legislative department of the government; it exists solely and alone by virtue of its act of incorporation, and it can exercise no powers but such as are expressly granted to it, and such as are the result‘of necessary and proper implication.” It is not contended, of course, that this power is expressly granted. Ve ask if it is the result of necessary and proper implication? Did the idea of a manufacturing speculation ever enter the brain of the framers of this law, or did they simply mean to carry out any of the enumerated powers, or any other direct corporate purpose — to follow the distinction of a learned judge— you may levy and collect taxes? To imply this power under the general clause alluded to, would be to go further than was done in the case of Nichol; for there was a special act authorizing the subscription, and the hypothecation of taxes or the issuance of bonds in payment thereof. Here it is implied from a general grant of power “ to levy and collect taxes; ” from which, Judge Turley says in that case, it is not contended the power arises. But we submit, may it please the Court, that to levy a tax, and to create a debt and execute bonds in payment therefor, are two very different things, both in their present effects and future consequences; and that while the general power to levy taxes may authorize the raising of funds ad libiimn, and the establishment of free banks, if you please, in every town in tlie State, inasmuch as delegated powers must be strictly construed, it can hardly authorize the creation and rending of a debt for purposes of this sort. If this power exist, the only remaining question is, can the establishment of- a manufactory like this be regarded as a corporate purpose of a municipal town? "We think it cannot. It certainly does not meet the idea of a direct corporate purpose, as defined by Judge Turley in the Mcliol case. See 9 Humph., 269; and certainly- falls short of the idea of an indirect corporate purpose, as defined in the same cause. It is not situated within the corporate limits of the town; nor is the benefit resulting to the town more direct than to the balance of the surrounding country. Unlike the railroad, it is not a constantly increasing source of wealth and prosperity, opening up new avenues of trade, with the construction of new roads and new connexions; opening up new markets, and awakening competition in trades; but its influence upon the trade and commerce of the town has reached its acme, and its future benefits are the dividends of its stockholders.
    But if the bonds be good and valid can C. & S. be compelled to receive them? "We think not. They are utterly worthless; cannot be negotiated in the markets; and it would be unjust and unconscionable to compel them to receive them in part payment of contracts which the proof shows to be worth every dollar stipulated to be paid.
    Guild, for the respondents,
    with whom was Joror J. White, who said:
    
      The principal question here is in regard to the power of the corporation of Gallatin, under their charter, to subscribe for the stock, and issue their bonds for its payment. The view taken of it in the answer to the amended bill, which is sustained by the proof in the cause, is, that the erection of the factory is of great advantage to the citizens of the town; increasing its trade and population; adding some 70 or 80 persons to the laboring hands of the town; increasing the demand for breadstuffs, goods, &c.; and by its mills operating at all seasons by steam-power, furnishing meal and flour to the citizens when they could not elsewhere be procured ; affording employment' to many poor families, and, indeed, advancing every interest of its citizens, and injuring none. That the taking of a reasonable amount of stock in this factory by the corporation, with a view to aid in its erection, is strictly for corporation purposes, and sustained by the case of Nichol et als. vs. Mayor a/nd Aldermen of Nashville, 9 Humph., 268, we think there is no doubt.
    The town of Gallatin was first incorporated in 1815, (see 2 Scott, 279,) with similar powers to the town of EVanklin. See act incorporating this town, 2 Scott, 227. By that act, the power of taxation seems to be given merely for the purpose of carrying into effect certain specific pwposes, which had been before enumerated.
    But, in 1817, there is another act of incorporation of the town, defining their powers, (2 Scott, 375,) in which we find a general power “ to lay and collect taxes,” entirely unlimited as it regards either the object or amount, and only restrained by the proviso that it is not exercised in a way incompatible with the constitution and laws of the State. Or, as we find it in the 29th section of the 2nd art. of the amended constitution, that “the general assembly shall have the power to authorize the several counties and incorporated towns in this State, to impose taxes for county and corporation purposes, respectively, in such manner as shall he prescribed by law.” It is true, the amended constitution was passed subsequent to the act of incorporation. But, then, it is recognized as a correct principle, both in the case of Hope vs. Headrick, 8 Humph., 1, and the case of Niehol vs. Mayor and Aldermen of Nashville, 9 Humph., 2f>6, that the legislature had the same power before. And, at all events, it could have no other influence upon the before-granted power of taxation, than to restrain its exercise to corporation purposes; that is, for the benefit of the town.
    It has already been said, that taking this stock in the factory was a corporation purpose. If so, the corporation would have the right to use their money in its payment; or, if it was more for their interest, to give their bonds. In that event, they have the power of “laying taxes,” both for the payment of the interest upon the bonds, and the bonds themselves. And it follows, as a necessary result, they would have the power to issue the bonds, if they could provide for their payment.
    The legislature has the power, both under the constitution, and independent of the constitution, of delegating to a corporate town the power of laying taxes for corporation purposes. If it has given to it an unlimited power “ to lay and collect taxes,” would the power be strengthened, or enlarged, by adding that it. may “lay and collect taxes for corporation purposes?” We submit tliat it would not. This would be implied, and would only go to limit the general and uncontrolled power which has been given. It was not necessary to be added, to make the grant of power complete. If that part of the clause had been added, no one would question the power. Is it not as efficacious without it, as that expression would only . limit the general power? We apprehend that it is.
    In addition to this, the charter gives the power to “purchase and hold real, mixed and personal property, or dispose of the same for the benefit of the town; ” which would include an authority to purchase and hold stock in this factory for the benefit of the town, and consequently to pay for the same, either directly in money, or by the issuance of their bonds.
   MoKmNEr, J.,

delivered the opinion of the court.

In January, 1847, a charter of incorporation was granted to “The Sumner Spinning and Manufacturing Company,” for the period of ninety-nine years, for the purpose of manufacturing cotton and woollen goods or either;” with a capital stock of not less than thirty thousand dollars, but, which might be increased at the option of the stockholders, to one hundred thousand.

On the 11th of July, 1851, the complainants entered into a written contract with the president and directors of said company, by which the former undertook to furnish, deliver, and put up for said company, at their factory building near Gallatin, a large quantity of machinery and fixtures of various kinds, for the manufacture of woollen and cotton goods, and also for corn and flouring mills, a particular description of the quantity and quality of all wliicli is contained in tire written instrument, but need not for tlie purpose of tliis decision be here noticed. And, in consideration ' of this understanding, tbe president and directors, on behalf of the company, agreed to pay Cook & Steadman the sum of thirtynine thousand flye hundred dollars, one-half to be paid in cash, upon delivery to the company of the bills of lading of said machinery, and the policies of insurance upon the same properly endorsed to said company. The other half in six months from that date, with interest thereon. The following is the stipulation in respect to the mode of payment of the latter half. “The said Cook & Steadman agree to take one thousand dollars in the stock of said company, as payment to that extent; and they further agree to receive of said company, the ionds of the Corporation of Gallatin, for five thousand dollars, at ninety cents in the dolla/r, if the company shall wish to make such payment, the balance to be paid in cash.” The foregoing is the substance of so much of the agreement as is necessary to be stated.

The proof shows, that at a regular meeting of the Mayor and Aldermen of the town of Gallatin, held on the 1st of November, 1851, an ordinance was passed, the first section of which provides, “that the Mayor of said town shall, and he is hereby authorized and directed to subscribe for four thousand five hundred dollars of the capital stock in the Sumner Spinning and Manufacturing Company, upon the books of said company, in the name and for the use of said corporation.”

The second section provides, “that to pay for said stock, the Mayor of the corporation is hereby directed to issue to said company, or to such person or persons as they may direct, the "bonds of said corporation, under the seal thereof, for the sum of five thousand dollars, payable in ten years from date, bearing interest at six per cent per annum, payable annually.” The third section provides, that the holder’s of said bond shall have a Ken upon the stock subscribed for said corporation. The fourth section provides for submitting said ordinance to a vote of the qualified voters of said town, &c.

It appears, that on submitting said ordinance to a vote of the corporators, it was approved by a large majority of the voters.

A subsequent ordinance, adopted on the 3d of January, 1852, which recites the former ordinance, and its approval by a majority of the qualified voters, directed the Mayor to make the subscription for said stock upon the books of the company; and to issue the bonds, when necessasy, for the payment of the same. The Mayor accordingly made said subscription on the 5th of January, 1852, in the name of the “mayor and aider-men of the corporation of the town of Gallatin,” for four thousand five hundred dollars.

On the 1st of October, 1853, five corporation bonds, each for one thousand dollars, payable to said company or bearer, ten years after , date, with interest from date at the rate of six per cent per annum, to be paid annually, were issued in proper form, under the seal of the corporation, and likewise signed with the proper name of the mayor.

Of the questions discussed in the argument here, the only one necessary to -be considered, is, whether or not the complainants are entitled, under the circumstances, to be exonerated from their agreement to receive said bonds in part discharge of the debt due to them from the company.

The complainants insist, that they ought not to be compelled to accept said’bonds on the ground, mainly, that they are void for want of authority in the corporation to issue them. The defendant contends that the corporation, under its charter, had full power and authority to issue said bonds; and whether this be so or not, is the question for our consideration.

The town of Gallatin was incorporated by an act of the legislature, passed on the 17th of November, 1817. The act declares “that the corporation aforesaid, shall have full power and authority to enact and pass all laws and ordinances necessary to suppress vice and immorality; to preserve the health of the town; to prevent and remove nuisances; to establish night watches and patroles; to ascertain the boundary and-location of streets, lots and alleys; to provide for licensing, regulating, or restraining theatrical, and other public amusements within said town; to pave, and keep in repair, the streets; to establish necessary inspections; to erect and regulate markets; to appoint a recorder and high constable; to license and regulate a fire company; to levy and collect taxes ; to regulate and restrain tippling houses; to impose and appropriate fines and forfeitures; to provide for the sweeping of chimnies; to erect and regulate pumps on the public square, streets, or alleys; ór to convey water from the vicinity into the town; and to pass all other laws necessary and proper for the good government of said town, and regulating the police thereof; provided, they are not incompatible with the constitution and laws of this State.”

Under the foregoing power “ to lay and collect taxes,” the authority to issue the bonds in question is claimed. It is scarcely necessary to repeat the familiar principle, that a corporation is the creature of the law, possessing no power or . authority except such as is expressly granted by the charter, or as is necessarily implied. And the simple statement of' this principle would seem to be sufficient for the decision of the question before us. No argument can be necessary to show that the authority to purchase stock in a manufacturing establishment, or to issue bonds for-the payment thereof, cannot be derived from the power of taxation conferred by the charter. No doubt can be entertained as to the nature or extent of the power “to lay and collect taxes,” contained in the charter.

The existence of such a power in the corporation was indispensable, as a means to the accomplishment of the end and object of its creation: the government and necessary police regulations of the town. The powers of a corporation, being the exercise of a delegated authority, are to bo strictly construed; and this rule applies with greater force to the power of taxation, from its very nature and liability to abuse.

In ascertaining the extent of the power “ to lay and collect taxes,” delegated to the corporation, we must look to the general powers specifically granted', and such as result from necessary implication, to the various objects contemplated by the charter, and the duties enjoined, therein, and as far as the proper exercise of these powers, and the accomplishment and perfonnance of these various objects and duties may require, but no further may the power to raise money, by taxation, be exercised under the charter. If it be desired to possess the power to any greater extent, or for any other purpose, a further delegation of the power must be sought from the legislature.

This case does not require that we should go into the question, what is “a corporation purpose” in the proper sense of our constitution and laws? a question certainly of no easy solution, and one that, generally speaking, may be answered more readily negatively than affirmatively. We are not, therefore, called upon to determine whether or not, in the case before us, or in any supposa-ble case, the purchase of stock in a cotton and woollen manufactory,” is a “ corporation purpose.” It may be remai’ked, however, that if it were held to be so, it would be difficult, perhaps, to imagine any speculation that might not be so regarded.

But, without intending to decide a question not properly arising upon the record, we simply determine that the authority attempted to be exercised in the present case, of subscribing for stock, and issuing the bonds of the corporation in payment thereof, was wholly unauthorized by the charter. And, hence, it results that the bonds are utterly void. Being so, we think it clear, that the complainants cannot be compelled to accept the'm.

The complainants cannot be repelled upon the ground of ignorance of the law. This pi’inciple is not applicable to the case for several reasons. Because, from the simple statement of the facts, one of the conclusions is inevitable, either that the contracting parties, mutually labored under gross ignorance of the law, or that the complainants were circumscribed by misrepresentation, or concealment, or misplaced confidence; and upon either assumption, the complainants would not be precluded from the relief sought. It is proper to say, however, that there is no just ground for the imputation of fraud on the- part of the company.

But the principle has no application, for a weightier reason. The maxim that ignorance of the law is no excuse for the breach or non-performance of any agreement, (because every one is bound at his peril, to know the law,) only applies, as we understand it, to the general or public laws of the land, which affect and prescribe a universal rule of action for the whole community; and, therefore, has no application whatever, to special or private acts of the legislature, which are designed only to operate upon particular persons, or to regulate private concerns.

It follows, therefore, that the decree of the Chancellor, so far as respects the corporation bonds, must be reversed. In all other respects, it will be affirmed.