Source: http://supreme.nolo.com/us/70/654/case.html
Timestamp: 2019-04-23 22:04:08+00:00

Document:
opinion of the city council it should be deemed expedient to exercise that power.
Material conditions annexed to the power, as conferred, were that the question of borrowing, when proposed, should be previously submitted to the citizens of the city and that the loan should not be made unless two-thirds of all the votes polled at such election should be given in the affirmative.
Pursuant to that authority, the defendants voted to issue and lend to the Burlington & Missouri River Railroad Company seventy-five thousand dollars in the bonds of the city, payable in twenty years, with an interest of ten percentum per annum and to be secured by the first mortgage bonds of the company on the second section of the road. Directions to the mayor of the city, as expressed in the ordinance, were that he should issue the bonds and execute with the company a contract of loan thereof, taking therefor the obligation of the company, and the stipulated mortgage as collateral security for the bonds.
Ordinance under which the bonds were issued was passed on the twenty-third day of June, 1856, and the same is fully set forth in the record.
The action was assumpsit, and the declaration was founded upon certain interest coupons annexed to the bonds which had become due and payable prior to the commencement of the suit.
1. That the declaration did not aver nor show that the city had any power or authority to issue the bonds therein described.
2. That the bonds on their face showed that they were not issued for any municipal purpose, but as a loan from the city to the beforementioned railroad.
3. That there is no law of the state authorizing the city to issue such bonds or to loan her credit to any railroad.
sustained the demurrer and rendered judgment for the defendants.
1. That the defendants, under their charter, had no lawful authority to issue the bonds described in the declaration, and that inasmuch as the bonds were issued without authority, they were null and void, and consequently the plaintiff cannot in any point of view maintain the suit.
2. That municipal corporations are limited as to their powers by the objects to be accomplished by their creation and to the sphere of action prescribed in their charters, and that the corporation defendants, under a fair application of those rules, could not borrow money or issue their bonds for the object specified in the ordinance, because such an object was not a public purpose within the meaning of their charter.
the bonds were issued was a contract of lending and not of borrowing, and that the power given to the defendants to borrow money did not authorize them to lend either their money or their credit.
1. Reasonable doubt cannot be entertained that the terms of the charter, if valid, are sufficiently comprehensive to confer upon the defendants the power to borrow money for such a public purpose as that described in the ordinance under which the bonds were issued unless it be shown that those terms have in some way been shorn of their usual and ordinary signification.
Citation of authorities in support of the proposition seems to be unnecessary, as it is not denied and therefore it may be assumed in the further consideration of the case that the corporate powers vested in the defendants, as expressed in their charter, were legitimately conferred.
Validity of the charter, therefore, is established beyond the possibility of a doubt unless it be assumed that the particular provision authorizing the defendants to borrow money for a public purpose exceeds the constitutional authority of the legislature.
In considering this question, it will not be necessary again to advert to the fact that the charter was granted by the territorial legislature, because it has already been shown that it has the same validity that it would have had if it had been reenacted by the legislature of the state.
with the view of aiding those engaged in constructing or completing such a public improvement, and that a legislative act conferring such authority is not in contravention of any implied limitation of the power of the legislature. Decisions to that effect have very much increased in number within the last few years, and are constantly increasing both in the state and federal courts, until it may be said that the rule here laid down pervades the jurisprudence of the United States.
Exceptional opinions advancing the opposite doctrine may be found, but they cannot be regarded as sound in view of the fact that the weight of authority is very greatly the other way.
Printed argument of the plaintiff shows that the supreme court of the state for a series of years held the same views, as appears in some seven or eight of their reported decisions, and it is proper to remark that the reasons given for the conclusions in those several cases are much more satisfactory than those assigned in the more recent decisions which adopt the opposite rule.
of that city expressed in the same words as the provision contained in the charter of the defendants. Decision, also, in the case of Meyer v. City of Muscatine [Footnote 8] is to the same effect. Unless, therefore, it be assumed that no prior decision of this Court can furnish the rule in a subsequent controversy, it would seem that the present case is controlled by those decisions.
2. Second proposition submitted is that the defendants could not borrow money or purchase bonds in aid of the improvement specified in the ordinance, because such a work is not within the usual and ordinary objects to be accomplished by a municipal corporation, and consequently was not a public purpose within the meaning of that phrase as employed in the charter of the city. They admit that the construction of a railroad is a public improvement, and they insist that the phrase "public purpose," as employed in the charter, must be limited in its signification to such public purposes as fall within the usual and ordinary sphere of municipal corporations. Undoubtedly there is much force in the latter suggestion, and it would seem that, as applied to many improvements of great public utility, the proposition may well be conceded. None of the decided cases which maintain the power of the state legislatures to authorize such material aid in the construction of railroads decides or even intimates that the power may be exercised without limit or be extended to a public enterprise entirely foreign to the general objects which the corporation was created to subserve. Those adjudications are not obnoxious to any such charge, but the theory maintained is that a railroad is nothing more than an improved highway, and that it is as competent for the legislature to authorize a municipal corporation to furnish material aid in the construction of a railroad connected with the same as to construct a highway.
whether the bonds as issued by the defendants were sold in the market by their officers or were first delivered to the company and were by their agents sold for the same purpose. Money was what the company wanted to be expended in the construction of the railroad, and the bonds were issued by the defendants to enable the company to accomplish that purpose. Technically speaking, it may be said that the transaction, as between the company and the defendants, was in form a contract of lending, but as between the defendants and the persons who purchased the bonds in the market it was undeniably a contract of borrowing money, and the same remark applies to the transaction in its practical and legal effect upon all subsequent holders of the securities who have since become such for value and in the usual course of business.
themselves had sold them in the market, and that the obligors were not injured by the transaction.
Judgment of the circuit court is reversed with costs, and the cause remanded for further proceedings in conformity to the opinion of the court.
Gorman v. Lenox, 15 Pet. 115; Suydam v. Williamson, 20 How. 436.
Bennet v. Butterworth, 11 How. 669; Slocum v. Pomeroy, 6 Cranch 221; Garland v. Davis, 4 How. 131; Cohens v. Virginia, 6 Wheat. 410.
5 Stat. at Large 235.
Vincennes University v. Indiana, 14 How. 273.
68 U. S. 1 Wall. 202.
68 U. S. 1 Wall. 385.
Redfield on Railways 533; Rome v. Rome, 18 N.Y. 38; Prettyman v. Tazewell Co., 19 Ill. 406; Bushnell v. Beloit, 10 Wis. 195; Reinboth v. Pittsburg, 41 Pa.St. 278.
Seybert v. Pittsburg, 1 Wall. 272.
Bissel v. Jeffersonville, 24 How. 300.
Knox County v. Aspinwall, 21 How. 544.
68 U. S. 1 Wall. 392.
MR. JUSTICE FIELD, in whose opinion concurred the CHIEF JUSTICE, and GRIER and MILLER, JJ., dissenting.
I am compelled to dissent from the judgment of the Court in this case. I am unable to find any authority for the City of Burlington, either in her charter or in any other legislation of Iowa, to issue the bonds, to recover the interest upon which the present action is brought. Municipal corporations differ from private corporations only in the purpose of their creation. They are equally dependent for their existence and the powers they can exercise upon the legislative will. They are limited to the powers specifically granted, and such other powers as are necessary to carry into effect those granted. They can exercise none other, and the plea of ultra vires may always be interposed as a defense to the enforcement of any contract or obligation not made or incurred within the limits prescribed. And the rule rests upon the most obvious reasons. The corporation consists of all the inhabitants within the corporate limits; they are the corporators. Thus, in the charter of Burlington, the first clause, after defining the limits of the city, declares that "the inhabitants thereof shall constitute a body corporate and politic." The officers of the corporation, the mayor and city council, constituting its legislative body, are merely the public agents of the corporation, and are bound by all the restrictions which bind other agents acting for their principals. The charter is to them the letter of authority, to which everyone may look when called upon to consider the validity of their acts. The corporation can only be bound when these agents keep strictly within their prescribed limits.
"The act of incorporation is to them an enabling act; it gives them all the power they possess; it enables them to contract, and when it prescribes to them a mode of contracting, they must observe that mode or the instrument no more creates a contract than if the body had never been incorporated. [Footnote 2/2]"
But still more: the power granted must be exercised for the purpose designated; it is limited to the objects to be accomplished, to the sphere of action prescribed by the charter. If it be given for the construction of a city building, it cannot be exercised for the construction of a city railroad; if it be allowed for the establishment of a public library, it cannot be exerted for the opening of a public market; if it be conferred to enable the corporation to borrow money, it cannot be used to enable the corporation to lend money or to lend its credit.
These observations are legal truisms. They are elementary principles. They are recognized by all the authorities both of England and America. They are controverted in none, and they envelop the present case on all sides.
money was borrowed, but the bonds of the city were lent. Borrowing money and lending credit are not convertible terms. The two things which they indicate are essentially distinct and different. The utmost which can be said is that the railroad company might have borrowed money on these bonds, and thus the transaction would amount to a borrowing of so much money by the city through the railroad company as its agent. The answer to this suggestion is that there is no authority to be found for constituting the railroad company the fiscal agent of the city. The company having possession of the bonds might dispose of them at any rate of discount which it deemed proper. Could the legislature have intended that the city should be liable in any event to taxation on the supposition that a public enterprise had been aided by its money to a specified amount, when in fact no such sum was ever given for the enterprise?
nor the town was its effect the same. If the statute had been pursued, the company would have had a sum equal to the par value of the bonds to expend upon their road. As it was, they were compelled to sell the bonds at a discount in order to realize the money. . . . It is true the town did not itself sell the bonds, nor make any sacrifice upon them. It transferred them to the railroad company at par in payment for stock for which it was authorized to subscribe. This, however, does not strengthen the plaintiff's case. It was as much a departure from the terms of the statute as if the town had itself sold the bonds as a discount, and was equally inconsistent with the object and intent of the act, which was that the railroad company should receive a sum equal to the amount of the debt incurred by the town to expend upon the road, in the completion of which the town was supposed to have an interest. There is therefore in this case not only a literal but a substantial difference between the course pursued and that pointed out by the statute. It follows that the bonds were illegally issued, and were consequently void in the hands of the railroad company, and as the referee has expressly found that the plaintiff became the purchaser with full knowledge that the bonds had not been issued for money borrowed, but in payment for the stock of the company, he is in no better situation than the railroad company itself."
I can add nothing to this language or to the cogency of the reasoning of the learned judge. Every word is applicable to the case under consideration.
pursue the matter further. When the authority to borrow money is made to cover a case of lending credit, it is vain to contend that the "public purpose" prescribed by the charter was limited to any of the purposes for which such charter was created.
This is not a case where the doctrine of estoppel has any application. It is not a case where the purchaser of the bonds was misled by any recitals of conformity to law. Here, the statute and the ordinance of the City of Burlington, under which authority to issue the bonds was assumed to exist, are both printed in full in the endorsements upon the bonds, and the ordinance is also referred to on their face. But if this were not so, the case would not be changed, as the statute did not authorize the issue of the bonds. No formality of execution and no extent of recitals could give validity to instruments thus issued. The public agents of the city could not cure the inherent defect in their action arising from want of power by any amount of representation that they had the requisite authority.
I am clear that the bonds are void, and that the judgment should be affirmed.
6 U. S. 2 Cranch 169.
McCracken v. City of San Francisco, 16 Cal. 619; The Farmers' Loan & Trust Company v. Carroll, 5 Barbour 649; The New York Fire Insurance Company v. Ely, 5 Conn. 568.
In addition to what has been said by my brother FIELD, in all of which I concur, I desire to state that on the 8th of January, 1866, the Supreme Court of Iowa, by a decision which was unanimous, held the bonds which are the foundation of this suit to be void on the ground that the charter conferred no authority on the city to lend its credit, and that the transaction in this case was a loan of credit, and not a borrowing of money.

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