Case Name: Meyer v. The City of Muscatine
Court: Supreme Court of the United States
Jurisdiction: United States
Decision Date: 1863-12
Citations: 1 Wall. 384
Docket Number: 
Parties: Meyer v. The City of Muscatine.
Judges: 
Reporter: United States Reports
Volume: 68
Pages: 384–398

Head Matter:
Meyer v. The City of Muscatine.
X. tVhere a charter gives a city power to borrow money for any object in its discretion, and a statute of the State where the city is enacted that “bonds of any city” issued to railroad companies “may have interest at any rate not exceeding” a rate named, and “may he sold by the company at such discount as may he deemed expedient” — Reid, that the city had power to issue bonds to aid the construction of railways; even although the power to borrow, as given in the charter, was found among powers of a nature strictly municipal; such, in fact, — except as, under the decision now made, might respect the power to “borrow money,” — being the only powers given in the charter at all. The statute, in connection with the power, gives the requisite authority. Miller, J., dissenting.
2. A city having power to borrow money, may make the principal and interest payable where it pleases.
3. Where a statute fixes the rate of interest per annum, a contract mar lawfully be made for the payment of that rate, before the principal comes due, at periods shorter than a year.
4. The statute of Iowa, of January 25, 1855 (chap. 128), authorizes cities in that State to give their bonds in payment of subscriptions to railroad, stock, and authorizes them to be sold at a price even greatly below their par value. Miller, J., dissenting from the doctrine as applied.
5 Where the votes of three hundred and twenty-six citizens were given in favor of a municipal loan, and of five only against it, and the city' issued the bonds, no one interposing to prevent the issue, all' parties acting in good faith, the city cannot afterwards object to the regularity of the preliminary proceedings, and set up that the vote was not taken in the form in which, under the charter, it ought to have been taken. If the legal authority under which the agents of the city, in issuing' the bonds, acted, was sufficiently comprehensive, a holder of them bond fide and for value has a right to presume that all precedent necessary requirements had been complied with.
6. Gelpcke v. The City of Dubuque (ante, p. 175), afBrmed; the whole case asserting the validity of municipal bonds, made payable to bearer and. issued for the construction of railroads, when such bonds'are- in tha hands of innocent holders for value.
Error to the District Court of the United States,, for- the District of Iowa, the case being thus :
The city of Muscatine was incorporated, A.D. 1851, by the legislature of Iowa, and by its charter made “ a body corporate, and invested with all powers and attributes- of a municipal corporation.” “ The legislative authority of the city,” says this charter by its 19th section, “ is vested in a city council;” which council, the charter goes on to declare-, “ is invested with the following powers,” the powers being set forth essentially as follows:
“ 1. To secure the inhabitants against fire, and violations of the law and the public peace; to suppress riots, drunkenness, gambling, and disorderly conduct; and generally to provide for the safety, good order, and prosperity of the city, and the health, morals, and conveniences of the inhabitants.
“ 2. To impose penalties for the violation of its ordinances:
“ 8, To establish and organize fire companies, and to provide them with fire apparatus.
“4. To regulate the keeping and sale of gunpowder within the city, and to provide that no building of wood shall be erected within designated parts.
“ 5. To have the control of the landing on the Mississippi River, and build wharves, and regulate the landing, wharfage, dock-age, &c.
“ 6. To provide for the license, regulation, or prohibition of exhibitions, &c.; billiard tables, ball and ten-pin alleys, and places where any games of skill or chance are played.
“ 7. To make ordinances in relation to the cleanliness and health of the city.
“8. To regulate cartage and drayage within the city, and make prohibition of animals running at large within the city.
“ 9. To provide for the establishment and support of schools in the city, and for the government of the same.
“ 10. To audit all claims against the city; to provide for the keeping of the public money of the city, and the manner of drawing the same from the treasurer.
“ 11. To establish the grade of the streets, alleys, and wharves.
“ 12. To prescribe the manner of calling the meetings of the citizens, except for the election of officers.
“13. To appoint street commissioners and officers.
“ 14. To cause the streets and alleys of the city to be paved.
“ 15. £€?“ To borrow money for any object in its discretion, if at a regularly notified meeting, under a notice stating' distinctly the nature and object of the loan, and the amount thereof, as nearly as practicable, the citizens determine in favor of the loan by a majority of two-thirds of the votes given at the election.
“ 16. To fill vacancies occurring in any of the city offices by appointment of record, to hold, in the case of election officers, until the next regular election and the qualification of the successor.”
In addition to the power thus given by the charter to borrow money, the legislature of Iowa had, on the 25th of January, 1855, passed certain acts; [the same acts referred to ante, p. 220, Gelpcke v. The City of Dubuque, No. 81.] One is entitled “An act regulating the interest on city and county bonds.” The first section enacted, “ that railroad companies might issue their bonds at such a rate of interest and sell them at such discount as might be necessary, and that they should remain legal and binding.” The second section, “that whenever any company shall have received or may hereafter receive the bonds of any city or county, upon subscription of stock by such city or county, such bonds may have interest at any rate not exceeding ten per cent., and may be sold by the company at such discount as may be deemed expedient.”
With this charter and these enactments in force, it was proposed by certain persons that the city of Muscatine, Iowa, should borrow money and subscribe to the stock of the Mississippi and Missouri Railroad; an ordinance was accordingly passed, July 23d, 1855, to take the vote of the citizens, in order to see whether two-thirds of them, as required by the article 15, ante, p. 386, were in favor of borrowing the money. The ordinance enacted essentially as follows:
The election shall be upon the following, propositions:
1st. To rescind a vote given, &e., authorizing the council to borrow $45,000, to be subscribed on stock of the Iowa Western Railroad, and also to rescind a vote given authorizing the council to borrow $50,000, to be subscribed on stock of the Muscatine, Iowa City, &e., Railroad.
2d. To borrow for a term of years, not exceeding twenty, on the bonds of the city, at a rate of interest not higher than ten per cent, per annum, $130,000, to be subscribed on stock in the name of the city to the capital stock of the Mississippi and Missouri Railroad Company.
3d. The vote shall be given by ballot, written or printed, with the words “ For the rescission and loan,” and “ Against the rescission and loan,” and if the requisite number of votes are for the rescission and loan, the council shall cause the bonds to be issued.
Three hundred and twenty-six votes were given for the rescission and loan, and five against it.
The city accordingly issued its bonds, the form of them, somewhat special, being thus:
. Bond of the City of Muscatine,
UNITED STATES OE AMERICA.
$1000. No. 51.
Be it known that the city of Muscatine owes to Adam Ogilvie, or hearer, the sum of one thousand dollars for money borrowed, the receipt whereof is hereby acknowledged, and which sum the said city of Muscatine hereby promises to pay, at the office of E. W. Clark, Dodge & Co., in the city of New York, on the first day of January, eighteen hundred and seventy-six (January 1st, 1876), with interest on said sum of one thousand dollars at the annual rate of ten per cent., payable semi-annually, on the 1st day of January and 1st day of July in each year; and the faith of the city of Muscatine is hereby pledged for the semi-annual payments of interest and the ultimate redemption of the principal.
Upon the surrender of this bond to A. G. Flagg, treasurer in trust, at any time previous to said 1st January, 1876, the holder hereof will be entitled to ten shares of the capital stock of the Mississippi and Missouri Railroad Company, in satisfaction thereof.
Whereof J. H. Wallace, Mayor of the city of Muscatine, does hereby certify that by a vote of the legal electors of the said city of Muscatine, at an election held 13th August, 1855, in accordance with an ordinance of the Common Council sanctioning the same, that the said city was authorized to borrow the sum of one hundred and thirty thousand dollars, and to issue its bonds therefor, bearing interest at ten per cent, per annum, and that the above is one of the bonds given for said loan.
In testimony whereof, I have hereunto set my hand and affixed r .T,-i the seal of said city this thirty-first day of December, L J A.D. 1858.
J. H. Wallace,
Mayor.
Attested by
D. S. Johnson,
Beeorder.
The coupons were in this form:
The city of Muscatine will pay the bearer, on the 1st day of January, 1860, twenty-five dollars, at the office of E. W. Clark, Dodge & Co., in the city of New York, interest due on their bond No. 51.
J. H. Wallace,
Mayor.
A number of the bonds thus issued- having got into the hands of the plaintiffs, and the interest being unpaid, they brought suit to recover it. The city set up various defences, as follows:
1. That there was no authority in the charter of the city of Muscatine under which money may he borrowed to aid in the construction of railroads.
2. Because the interest was made payable in New York city, instead of at the treasury of the city of Muscatine.
3. Because, in the stipulation to pay the interest semi-annually at the rate of ten per cent., the authority conferred by the vote which limited the rate of interest to “ not higher than ten per cent, per annum,” was transcended and a usurious rate agreed to be paid.
4. Because the stock of the Mississippi and Missouri Bail-road Company, for which said bonds and coupons were issued, was, without authority from the city, placed in the hands of a trustee and entirely beyond its control.
5. Because, under the authority to borrow a sum of money, no money was ever borrowed by the city, but instead, these bonds were delivered to the officers of the Mississippi and Missouri Bailroad Company, and by their agents and brokers sold to the plaintiffs at a price greatly below their par value.
[An amended answer to the claim averred, “ that the said bonds were by the officers of said railroad company, and their agents and brokers, sold to the plaintiffs at a price greatly below their par value; that at the time said bonds and coupons were received by said plaintiffs, they had full knowledge of the fact that said bonds had been issued for the purpose of aiding in the construction of said Mississippi and Missouri Bailroad.”]
6. Because the ordinance on which the vote for a loan was taken was void, because it submitted three distinct propositions in one, and in such a manner as to cut off an effective opposition from all voters who were against the whole of the propositions.
7. Because, finally, the legislature had no constitutional power to authorize the issue of such bonds, and that hence they are void.
To these defences there was a demurrer, which demurrer the court overruled, giving judgment in favor of the city. On appeal, the questions here were the same as they were below; that is to say, whether the defences set up by the city were sufficient defences to the claim for payment of the coupons in the hands of bond fide holders for value.
The case was submitted on briefs of Mr. Cook for the bondholders, and of Mr. Richman and Butler for the city of Muscatine; the arguments on both sides being much the same as those in one or the other of the three cases of Gdpcke v. The City of Dubuque, ante, p. 175, or in Mercer County v. Hacket, ante, p. 83. As every reader of this volume, and every inquirer into the obligation of railroad bonds will have read those cases, and will be possessed of the arguments applicable to this case, these arguments need not be repeated here. Some of the arguments in this case having, in fact, been transferred to those.
Statutes of Iowa, p. 223; Revision of 1860.

Opinion:
Mr. Justice SWAYNE
delivered the opinion of the court:
The demurrer brings under examination the objections taken by the defendant to the validity of the coupons upon which this suit is founded.
These objections will be considered as we proceed.
I. " That there is no authority in the charter of the city of Muscatine under which money may be borrowed to aid in the construction of railroads."
The charter gives the city authority " to borrow money for any object in its discretion, if at a regularly notified meeting under a notice stating distinctly the nature and object of the loan, and the amount thereof, as nearly as practicable, the citizens determine in favor of the loan, by a majority of two-thirds of the votes given at the election."
When the bonds and coupons were issued, the acts of the legislature of Iowa of the 25th of January, 1855, were in force. These acts in connection with the provision of the charter furnish, in our judgment, a conclusive answer to this objection.
The effect of the acts was considered in the case of Gelpcke et al. v. The City of Dubuque, decided at this term, to which we refer.
H. Because the interest was made payable in New York city, instead of at the treasury of the city of Muscatine
It was according to the general usage to make such bonds and coupons payable in the city of New York. It added to the value of the bonds and was beneficial to all parties. No legal principle forbids it. The power of a municipal corporation to make any contract, does not depend upon the place of performance, but upon its scope and object. A city authorized to establish gas-works and water-works, and to gravel its streets, may buy water, coal, and gravel, beyond its ' limits, and agree to pay where they are found or elsewhere. The principal power, when expressed, draws to it by necessary implication, the means of its execution. This is a settled rule in. the construction of all grants of authority, whether to governments or individuals. If the subject admitted of doubt, we should hold that the city, having acted upon its own construction, and drawn in others to take the securities and advance their money upon it, is now concluded from denying that construction to be the true one.
TTT- u Because in the stipulation to pay the interest smi-annvbally at the rate of ten per cent, the authority conferred by the vote ivhich limited the rate of interest to ' not higher than ten per cent. per annum,' was transcended, and a usurious rate agreed to be paid."
This objection has no foundation. 'When a statute fixes the rate of interest per annum, it has always been held that parties may lawfully contract for the payment of that rate, before the principal debt becomes due, at periods shorter than a year.
IV. " Because the stock of the Mississippi and Missouri Bail-road Company, for <which said bonds and coupons were issued, was, without authority from the city, placed in the hands of a trustee, and entirely beyond its control."
This objection, though urged in the argument, does not arise upon the record. All that appears touching the subject is, that the bond of $1000, as set out in the exhibit af taclied to the complaint, besides binding the city to pay, provides that the holder, upon surrendering it at any time before maturity " to A. C. Flagg, trustee," should be entitled to ten shares of the stock of the raih'oad company. To such an arrangement there is no legal objection. The city had a right to apply the stock for which the bonds were given, or its proceeds, at any time, in discharge of the bonds.
V. " Because, under the authority to borrow a sum of money, no money was ever borrowed, by the city; but instead, these bonds were delivered to the officers of the Mississippi and Missouri Bail-road Company, and by their agents and brokers sold to the plaintiffs at a price greatly below their par value."
The amended answer avers, " That the said bonds were by the officers of said railroad company, and their agents and brokers, sold to the plaintiffs at a price greatly below their par value; that at the time said bonds and coupons were received by said plaintiffs, they had full knowledge of the fact that said bonds had been issued for the purpose of aiding in the construction of said Mississippi and Missouri Railroad."
The city was authorized to issue the bonds in order to borrow money to pay for the stock. If the company chose to receive the bonds in payment for the stock, retaining a lien on tlie stock until the bonds were paid, there was no legal obstacle in the way of their doing so. The object of issuing the bonds was thus accomplished, and no injury was do-: e to those who were to pay them. It is neither averred in the answer, nor claimed in the argument, that the rai Iroad company took them at less than their face. It does not appear that any one objected then, and no one can object now. After the bonds passed into the hands of the railroad company, the company was at liberty to sell them on such terms as it might deem proper.
The' act of January 25, 1855, by a clear implication, authorizes cities to give their bonds in payment of their subscriptions of railroad stock, and expressly authorizes the bonds to " be sold by tbe company at such discount as may be deemed expedient." "What is implied has the same effect as what is expressed.
YI. " The ordinance on which the vote for a loanwas taken was void, because, it submitted three distinct propositions in one, and in such a manner as to cut off an effective opposition from all voters who were against the tohole of the propositions."
The record shows that all the votes cast, except five, were in favor of the loan. The city and citizens adopted and acted upon the ordinance as valid and sufficient. The citizens voted, and the city authorities issued the bonds. No one interposed to prevent their issue. It is not questioned that all the parties acted in good faith, and the city can not now be heard to object- to the regularity of its own proceedings. A party taking the bonds was bound to look to the legal authority under which the public agents acted. If that were sufficiently comprehensive, he had aright to presume that those empowered to act and acting under it had complied with its requirements.
YTT, " It is insisted that the legislature had no constitutional power to authorize the issue of such bonds, and that hence they are void."
This is sufficiently answered by the opinion of this court in Gelpcke v. City of Dubuque, decided at this term.
The judgment below must be reversed, and the cause remanded for further proceedings, in conformity to this opinion.
• Judgment accordingly.
Chaps 128 and 149.
Ante, 220, No. 81, not(
Van Hostrup v. The City of Madison, ante, p. 291.
Mowry v. Bishop, 5 Paige, 98.
Chap. 128.
United States v. Babbit, 1 Black, 55.
Commissioners of Knox Co. v. Aspinwall, 21 Howard, 539. [And see Mercer Co. v. Hacket, ante, 83. Rep.]
Ante, 175. See also Rowan et al. v. Runnels, 5 Howard, 134; Pease v. Peck, 18 Id., 599; State Bank of Ohio v. Knoop, 16 Id., 392; Jefferson Branch Bank v. Skelly, 1 Black, 436.