Court Opinion

ID: 8631514
Source: CourtListenerOpinion
Date Created: 2022-11-24 19:38:26.445045+00
Date Added: 2024-06-11T16:55:46.946581
License: Public Domain

TREAT, District Judge
(dissenting). I dissent as to the last class of bonds named, but fully concur as to the other bonds. True, the dicta of the supreme court justify the conclusion in that respect reached in the opinion just delivered; yet a rigid analysis might possibly show distinguishing features. If the power conferred on a municipal corporation to do certain work, or make specified improvements, is not accompanied with the power to borrow money or issue bonds— especially where a limit on the power to tax for such purposes is made — it seems untenable, as a legal proposition, that such a corporation may proceed beyond the limits of taxation permitted, not only to incur a debt therefor, but to borrow money and issue negotiable securities, cutting off all the equities between the original parties. The various legislative enactments whereby municipal corporations are created grant different powers. Some are framed on a non-debt-creating policy, so that those who insist upon immediate expenditure shall pay for the same at once, and not create obligations for another generation or subsequent voters or property-holders to pay. Other charters are framed so as to allow borrowing, looking to prospective benefits from present improvements, and, therefore, permitting the payment therefor to be postponed. Restrictions on taxation would be useless if unlimited borrowing were permitted. It is for the legislative power to determine when borrowing is permissible, and for what purposes, and to what extent, and in what form evidences of indebtedness may be issued. The rulings of the supreme court of the United States concerning municipal bonds, whereby the equities of the original transaction are not open to inquiry when the bonds are held bona fide and for value by others than the original holder, make it the more important to look closely into the powers under which such bonds are issued.
I can detect no controlling reason for the distinction between bonds issued for improvements made directly by the city and bonds issued in payment of subscriptions to the stock of a company empowered to make road or other improvements, unless the broad doctrine is to prevail that the power to subscribe for such stock is to be held to carry with it the power to issue bonds in payment thereof, while the power to make improvements directly does not imply the power to issue bonds to pay therefor.
If there were in the city charter, or in the charter of the railroad corporation, any authority for the city to borrow or issue bonds in payment of a subscription to shares of stock, then another proposition would be presented. In the absence of any authority beyond that to subscribe for such shares, it seems to me that the equities of the original transaction cannot be cut off by issue of negotiable securities for the payment thereof. The argument ab inconvenienti, always a dangerous one, cannot help out the absence of authority to borrow and issue negotiable securities. The holders of bonds under such a state of legislative enactments must rely for recovery on the doctrines announced in the opinion delivered in the case of Wood v. City of Louisiana [supra].
Hence my view is that the last class of bonds stand in the same position as the other bonds sued on, and the rulings with respect thereto should be the same, viz.; That the equities are fully open for consideration with respect to all of said bonds, so that the money really advanced for legitimate purposes may be recovered as in as-sumpsit, and not formally on the bonds, which were issued without authority.
[For a subsequent hearing, see 1 Fed. 353.]