Court Opinion

ID: 9308234
Source: CourtListenerOpinion
Date Created: 2022-12-02 17:18:54.405999+00
Date Added: 2024-06-11T17:14:01.014079
License: Public Domain

On Eehearing.
1. After the foregoing opinion was prepared and submitted to counsel, with a draft of finding of facts, additional argument was permitted by the court as upon a rehearing, and also upon an applica*606tion for plaintiff for leave to file an amendment to the original petition herein, for the purpose, as stated in the proposed amendment, of conforming the pleadings to the evidence. The substance of such amendment, which is offered as an additional count, is as follows: That in the year 1884 the defendant, the town of Manning’, contracted with the Freeport Machine Company (which is the payee in the bonds in suit) for the erection of a system of waterworks for its use and operation; that such system was duly constructed bv said company, and accepted by the defendant town; that said town, having authority under the laws of the state of Iowa to negotiate loans in anticipation of its revenues, instead of negotiating a loan to raise the money with which to discharge its indebtedness to said company, executed and delivered to said company, as evidence of its indebtedness, and of the terms upon which the same was to be paid, the five instruments in writing (being the bonds) set out in the original petition herein; that the plaintiff insurance company thereafter, for value and before maturity thereof, became the owner of such evidences of indebtedness on the part of the town to said Freeport Machine Company, the latter company “thus raising the money for the discharge of said indebtedness on the part of the defendant to it”; that the defendant thereafter paid to plaintiff the interest called for by said bonds until the maturity thereof, to wit, October 14, 1894; that plaintiff is still the holder and owner thereof, and the same, with interest, are wholly unpaid, and judgment is demanded. The substance of the facts alleged in the proposed amendment is clearly proven in the evidence which was introduced on the trial'.
It will readily be noted that this proposed additional count changes entirely the line upon which plaintiff claims judgment. It is, therefore, properly named as count 2. The original petition declared on “the instruments of writing” as upon valid negotiable bonds, while this count declares on them as merely “evidences of indebtedness.” If the pending action was a suit in equity, this count "would be regarded as claiming the right to recover on the theory that plaintiff had become subrogated-to the rights of the payee in the bonds or evidences of indebtedness. The bonds are payable to the Free-port Machine Company, or order, arid are indorsed by that company in blank as to indorsee, but “without recourse.” As to the right of action herein under said count 2, the question presented by defendant is pertinent: Whether without more than said indorsement, plaintiff can recover on said count 2, or claim to be subrogated to the payee’s right of action, even if said count 2 is not barred by the statute of limitations. So far as relates to any right which, even in equity, the plaintiff company has to claim to be subrogated to the rhachine company’s rights of action against the defendant, the words of Justice Miller, in Ætna Life Ins. Co. v. Town of Middleport, 124 U. S. 534, 548, 8 Sup. Ct. 625, are pertinent (the names only being changed):
“The payment in this case was a voluntary interference of the [German Insurance] Company in the transaction. It had no claim against the city of [Manning]. It had no interest which required it to pay this debt. If it had stood off, and let the [machine] company and the city work out their own relations to each other, it could have suffered no harm, and no loss. There was no obligation on .account of which, or reason why, the complainant should *607'have connected itself in any way with this transaction, or have paid this money, except the ordinary desire to make a profit in the purchase of bonds. The fact that the bonds were void, whatever rigid it may have given against 1 lie [machine] company, gave-it no right to proceed upon another contract and another obligation of the city to the [machine] company.”
But this action is at law, and no assignment is claimed, in favor of plaintiff, from the machine company, of whatever cause of aciion such company held, as for money, etc., of such company expended under contract for waterworks for the city, for which the city had agreed to pay, and had not paid, since the bonds were void.
Counsel for plaintiff has cited some cases holding that the bonds themselves may be treated as mere evidences of indebtedness given by the ciiy, although they are in form negotiable, and so intended and treated by the parties to them at the time of their execution and delivery; that is, that they may be treated as though not negotiable, and recovery had thereon, as either merely evidencing indebtedness, or as notes wilhout elements of negotiability. Without pausing to review these cases, which I have examined, I am content to base my decision on this point upon the case of Dodge v. City of Memphis, 51 Fed. 165, decided in 1892, by Judge Thayer, then district judge of the Eastern district of Missouri, but now one of the circuit judges of this circuit. That case was at law on municipal bonds issued by the city of Memphis in payment of subscriptions of stock to a railroad. These bonds had been declared void by decision of the supreme court of the United Stales. Said Judge Thayer:
“The theory of plaintiff’s counsel seems to be that the first count of the petition is a suit on the bonds, treating them as nonnegotiable instruments; that the bonds evidence the contract of subscription; and that the plaintiff is entitled to sue on the same, ignoring their negotiable quality, precisely as if they were an ordinary nonnegotiable, contract, which the town was authorized to make and had made.”
This was the count attacked. After referring to the cases cited as supporting the right to recover on such a theory, the learned judge slates:
“The authorities show that, if negotiable paper is uitered by a municipal corporation wilhout authority of law, it is void, and a suit cannot be maintained thereon for any purpose.”
Numerous cases,'decided by the supreme court of the United States, are cited as sustaining this proposition. Referring to the cases cited by plaintiff, Judge Thayer says:
“They show, no doubt, that when a municipal corporation sells bonds which are void, and receives the money, it may he compelled to restore it, in an action for money had and received. So, when a municipal corporalion is authorized to purchase property for any purpose, or to contract for the erection of public buildings or for any other public work, and it enters into such authorized contract, but pays for the property acquired or work done in negotiable securities which it has no express or implied power to issue, it may be compelled to pay for that which it 1ms received, in a suit brought for that purpose, in no case, however, does it appear that a suit has been sustained on a void bond, treating it as nonnegotiable, and as something entirely different from what the parties intended it should be. As the court understands the cases, suit must be brought on the implied promise which the law raises to pay the value of that which the municipality has received, but has in fact not paid for, because the securities issued in pretended payment were void.”
*608Further, the amendment cannot he now presented, because it contradicts the statements of the bonds in an important matter, viz.: The bonds, in express terms, recite that they are issued “under the provisions of section 500, Code of Iowa,” which has hereinbefore been quoted, and which only deals with the negotiation, by a municipal corporation, of loans in anticipation of its revenue. As given in the bond, the recital is the equivalent of a recital that:
“This bond is issued as part of a loan negotiated in anticipation of the revenues of said town of Hanning,” etc.
But the amendment offered expressly states that:
“Instead of negotiating a loan to raise the money with which to discharge the indebtedness, the defendant executed and delivered to said company, as evidence of such indebtedness, and of the terms upon which the same was to be paid, the five instruments in writing [meaning the bonds].”
Leave to file the proposed amendment must, therefore, be denied, to which plaintiff excepts.
2. Counsel for defendant attack the action of the council of defendant in issuing bonds under the contract for erecting defendant’s waterworks system as invalid because the yeas and nays were not “called and recorded”.on the vote taken to so issue, and ask the court to find such omission as a finding of fact herein. Section 493, Code Iowa 1873 (as amended by Laws 18th Gen. Assem. c. 146), requires that:
“On the passage or adoption of * * * every resolution or order to enter into a contract by any council of any municipal corporation, the yeas and nays shall be called and recorded.”
There were introduced in evidence the minutes of proceedings had at two meetings of the counsel of defendant with reference to issuing bonds under this contract. They are, in full, as follows:
“Oct. 14, 1884. Special meeting called by the mayor for the purpose of obtaining the views of the council in regard to letting Freeport Machine Co. have town bonds. Members present: Martin, Iiousli, Sharp, and Funk. The following resolution was read: ‘Resolved, by the town council of the town of Manning, Iowa, that the council hereby empower the mayor to issue bonds to the amount of $5,000, and that $3,000 of said amount be paid over to Free-port Machine Co., and balance be held in hands of treasurer until settlement is made and work accepted, at which time balance due on contract to be paid to the Freeport Machine Co.’ Carried by following vote: Morrow, Sharp, Roush, Patton, Funk, Schoop. On motion adjourned. W. K. Lindsay, Rec.”
“Called meeting, Dec. 25th, 1884. Council met in called session, at call of the mayor, for the purpose of taking action in regard to approval of waterworks. In absence of mayor, Councilman Sharp apptd. mayor pro tern. Members present: Funk, Patton, Sharp, Morrow, Roush. Verbal report of waterworks committee heard, reporting favorably on acceptance of same. On motion of Morrow, contract of Freeport Machine Co. for building and construction of waterworks as per contract was accepted, and bill presented for above works allowed (Amt., $4,539.43), on the following vote: Yeas — Sharp, Morrow, Funk, Roush, Patton. The following resolution presented and read, and passed on favorably by unanimous vote of the council: ‘Whereas, the Freeport Machine Co. of Freeport, Ills., has successfully completed the waterworks, which they agreed to build for the town of Manning, and in accordance with a contract made by said Freeport Machine Co. and the town of Manning, and dated Aug. 14, 1884: Therefore, be it resolved, by the town council of the town of *609Manning, that the said waterworks he, and the same are hereby, accepted by the town of Manning as acceptable in every way; and, further, resolved, that the thanks of the town of Manning are due, and are hereby tendered, to the Freeport Machine Co. for the very prompt and efficient work it has done in constructing and completing the said waterworks, thus insuring to the town and its citizens at all times a good supply of water for fire protection and domestic use, placing tiie water facilities of this town far ahead of most (owns of the size in the slate.’ On motion adjourned. W. K. Lindsay, Rec.”
It will be noticed that these minutes, as to the passage of the resolution authorizing the issue of bonds in suit, do not expressly state that the yeas and nays were “called and recorded.” But the minutes do state that such resolution was “carried by the following vote; Morrow, Sharp, Roush, Patton, Punk, Shoop.” So that the minutes affirmatively show that the six councihnen, then composing the town council, voted in favor of passage of the resolution. The nays do not appear. It is not expressly stated whether or not they were called. But, since every councilman who was then a member of the town council voted in favor of passing the resolution, it would necessarily follow that no nay vote was cast. If the word “yeas” had been inserted before the names of those by whose vote the minutes declare the motion was carried, the objection raised by counsel for the town would he obviated. But to what degree would the proceedings, then, be more definite than now, on this point? To say that “the following councihnen voted in favor of the passage of the resolution,” or that “the resolution was carried by the votes of the following named members of the counsel,” or “the resolution was carried by the following vote,” with the names of all the members of the council then stated, fulfills the spirit of the statutory requirement that the “yeas and nays be called and recorded” as fully as though it had been expressly stated that, “upon call of the yeas and nays, the result was: Yeas, [naming them]; nays, none.” Assuming that the yeas and* nays are to be “called and recorded,” the purpose of the statutory requirement is as fully met, and by the record each councilman is given his full share" of responsibility for voting in favor of the resolution.
3. Counsel for defendant urgently insist that the court failed to consider the item of $800 which the agreed statement of facts states was an outstanding indebtedness of defendant at time the bonds in suit were issued, and that, when said $800 outstanding indebtedness is added to the bonds in suit., the bonds at issue herein constitute an indebtedness in excess of that permissible under the constitution of the state. The constitution provides (section 8, art. 11) that:
“No * * * municipal corporation shall "bo allowed to become indebted In any maimer, or ior any purpose, to an ambunt in the aggregate exceeding five per centum on the value of the taxable property within such * ® * corpora lion, to he aseerlained by the last state and county tax lists previous to the incurring of such indebtedness.”
The bonds in suit bear- date October 23, 188-1. The aggregate value of the taxable property within the municipal corporation of Manning, according to the state and county tax lists for 1884, was *610$113,623. Five per cent, of the last-named aggregate is $5,681.15. This, then, is the limit, under the constitutional provision above quoted, to which the defendant could “become indebted in any manner or for any purpose.” The agreed statement of facts herein states (paragraph 10). that:
“At the time the bonds in suit were issued, the defendant town was already indebted, without reference to the bond issue of September 9, 1882, in the sum of $800.”
' “The bond issue of September 9, 1882,” is the bond issue herein-before considered and found invalid. Paragraph 2 of the additional statement of facts states that:
“It is agreed that the floating indebtedness of the defendant, in the sum of $800, referred to in former stipulation, was in existence at all the times at which it is claimed that defendant entered into any contract or contracts.”
The contention of defendant is that this $800, added to the $5,000 of bonds in suit, exceed the 5 per centum above shown, and therefore this $5,000 issue, which, added to the $800 floating indebtedness, constitute this excess, is void, as being issued in violation of the constitution. By computation it is ascertained that such aggregate ($5,800) exceeds said 5 per centum on said value of taxable property by $118.85; and, although this excess is a small sum, yet, if it actually existed, it invalidated the loan.
A pertinent inquiry arises as to the meaning of the word “indebted,” as used in the constitution. Defendant insists that, whatever its meaning, the excessive indebtedness is proven, because the phraseology — “indebted”—-of the agreed statement of facts (paragraph 10, supra) is the same as that contained in such constitutional provision. It may be noted, however, that the paragraph above quoted from the additional agreed statement of facts denominates this indebtedness as a “floating indebtedness.” We may therefore conclude that such indebtedness was, at the highest, evidenced by outstanding warrants. The agreed statement of‘facts and the evidence introduced are equally silent as to the condition of defendant’s treasury at the date of the issuance of the bonds in suit. If there were no money in its treasury, the $800 of outstanding warrants was undoubtedly an indebtedness. But, if there were $800 in the town treasury, would this “floating indebtedness” constitute an indebtedness within the meaning of the constitution as above quoted? Whenever the warrants were presented, they could be promptly paid. As rapidly as they were thus paid, this “floating indebtedness” would be thereby reduced. If all were presented, no indebtedness would remain. But, if they remained outstanding because, and only because, they were not presented for payment, can this constitutional prohibition apply? In justice to the town, ought it, then, to apply?
We turn to the decisions of the supreme court of this state, to ascertain whether that court has construed this portion of the constitution, and And the matter considered and decided in Dively v. City of Cedar Falls, 27 Iowa, 227, 232. This was an action at law, based on “scrip,” or warrants, wherein the city pleaded that the *611indebtedness created by the issue of this scrip exceeded the constitutional limitation. The court, speaking by Wright, J., say:
‘•Testimony ivas introduced to show the aggregate of the tax lists within the corporation, * * ::= and that 5 per centum of either would fall below the whole amount o£ scrip issued. But, this conceded, the question actually arising is scarcely touched. There is no particle of testimony warranting the conclusion that, when the scrip in suit was issued, the town was ‘indebted in any manner’ in another cent. Indeed, we do not know but there was money in the treasury to pay this [scrip], and more than this. If a municipal corporation has the money in its treasury to meet its indebtedness, the issue of warrants to the amount of $20,000, or any other sum, however great, over 5 per cent, of its taxable property, would not be a violation of the constitution. In such a case, it would not ‘become indebted,’ within the meaning of the clause under consideration.”
As before stated, the indebtedness, if the $800 is counted in with the $5,000 bonds, is but $118.85 in excess of the 5 per centum. If, then, there was that amount of cash ($118.85) in defendant’s treasury when the bonds were issued, this aggregate indebtedness does not fall within the constitutional limitation. In the absence of any evidence on such point, what is the presumption? The officers of the town were in duty bound, by the obligations imposed on them as such, to observe the constitutional limitation. The creation of a municipal indebtedness beyond that limitation would be iu violation of the duty imposed upon them, and contrary to their oath to support the constitution of the state. The rule is well settled, and needs no citation of authorities in its support, that the presumption is in favor of the performance of official diity.
Again, upon the defendant, which is seeking to escape payment of what it issued in the form of, and as, a valid obligation, rests the burden of proof, when it asserts such obligation is not valid and enforceable. It asserts an indebtedness on its part in excess of the constitutional limitation. If the proof fail to show such an excess, the burden is not sustained; and, when less than $120 casli in the municipal treasury at date of issue of these outstanding bonds would defeat this defense of alleged excess, the court may well demand satisfactory proof before such excess is declared, and especially when the record shows with what faithfulness and complete satisfaction to the town the payee of the bonds in suit complied with his contract, for whose payment said bonds were issued. When the town lias received a system of waterworks which so fully satisfies the town that it tenders its thanks to the contractor for his “very prompt and efficient work in constructing and completing said works,” and formally enters on its council records that thereby there is “insured to the town and its citizens at all times a good supply of water for lire protection and domestic use,” and that thereby ihe contractor lias “placed the water facilities of this town far ahead of most towns of its size in the state,” the court may well decline to declare as invalid the bonds issued, and accepted as being valid, in payment for such waterworks, until the court shall find every essential requisite to this defense has been fully and satisfactorily met. “The laborer is worthy of bis hire.” The courts should favor his Ml payment. The labor having been satisfactorily performed, *612the court will not refuse its assistap.ce in compelling payment, except where the law, applied to the facts, irresistibly and inevitably stays the arm of the court.
Upon the whole case, and after reconsideration of the original argument, as well as examination of the cases cited on rehearing, I sincerely regret that I am not able to change the judgment herein-before directed. Judgment must be entered for defendant.
I find the following facts proven herein:
(1) At the date of the commencement of this action, plaintiff, the German Insurance Company of Freeport, Ill., was a corporation, organized under the laws of the state of Illinois, and a citizen of that state, and defendant, the city of Manning, was a municipal corporation, within the meaning of section 3 of article 11 of the constitution of the state of Iowa, to wit, an incorporated town, incorporated in March, 1882, under the laws of Iowa, and a citizen of Iowa.
(2) After proceedings duly had therefor under the laws of the state of Iowa, the defendant contracted with the Freeport Machine Company of Freeport, HI., for the erection of a system of waterworks for defendant for fire protection; said works were erected, and, on settlement therefor, the defendant, on October 23, 1884, issued the five bonds in suit; and plaintiff, for value and before maturity, purchased said bonds in due course of business, and'is now the holder and owner thereof. A copy of one of said bonds is as follows:
“Number 1. . United States of America. $1,000.00.
“State of Iowa. City of Manning, la.
“The city of Manning, in the county of Oarroll and state of Iowa, for value received, promises to pay Freeport Machine Co. of Freeport, Ills., or order, at the Farmers’ and Traders’ Bank, Manning, Iowa, on the 14th day of October, 1894, the sum of one thousand dollars, with interest at the rate of 8 per cent, per annum, payable at Manning, Iowa, semiannually, on the 14th day of April and Oct. 14th in each year, on presentation and surrender of the interest coupons hereto attached.
“This bond is issued by the city of Manning, Iowa, under the provisions of section 500, chapter 10, of title 4, of the Code of 1873 of Iowa, and in conformity with a resolution of the council of said city of Manning, Iowa, adopted at a regular session of said council on the 14th day of Oct, 18S4.
“In testimony whereof, the said city of Manning, Iowa, has caused this bond to be signed by the treasurer and countersigned by the mayor of said city of Manning, Iowa, this 23rd day of Oct., 1884. D. W. Sutherland,
“Treasurer of the City of Manning, Iowa.
“J. W. Martin,
“Mayor of the City of Manning, Iowa.”
Indorsed on back: “Without recourse. Freeport Machine Co., W. S. Lamb, Treasr.”
Tbe other four bonds are identical with that above copied, except as to number, said bonds being numbered, respectively, Nos. 1, 2, 3, 4, and 5. The interest on each of said bonds has been by said defendant paid up to and including the installment by terms of bond falling due on October 14, 1894, that date being the maturity of said bonds, and such payments of interest were made by defendant without defendant making any question or objection with respect to the validity of said bonds.
*613(3) On September 9, 1882, the defendant, city of Manning, issued a series of 10 bonds, each being for pjOO, a copy of one of said bonds being as follows:
“No. l. 1500.
“Bond of the Incorporated Town of Manning, Carroll County, State of Iowa.
“(One of a Series of Ten Bonds, Amounting to §5,000.)
“Know all men by these presents, that the incorporated town of Manning, of the county of Carroll and state o£ Iowa, for value received, is indebted to the bearer in the sum of five hundred dollars, which incorporated town of Manning hereby promises to pay on or before the ninth day of September, A. D. 1892. at Manning, with exchange on New York, at the rate of seven per cent, per annum, on the ninth day of September of each year, upon presentation of rhe interest-bearing coupons hereto attached as they become due. The said incorporated town of Manning consists of the following described territory, to wit: All of section seventeen, the east half of the east half of section eighteen, ihe northeast one-iourtli of the northeast one-fourth of section nineteen, and the north one-half of the north one-half of section twenty, township eighty-two north, of range thirty-six west of the Fifth principal meridian, Carroll county, low a.
“This bond is issued under and by virtue of an act of the general assembly of the state of Iowa, entitled ‘An act to authorize incorporated towns and cities to procure and donate to railway companies, sites of depots,’ etc., additional to Code, title four, chapter ten (relating to cities and towns), of the Nineteenth general assembly. Allowed in accordance with a vote of the qualified electors of said incorporated town of Manning, held at Manning, Iowa, September fifth, 1882.
“Dated at Maiming, Carroll county, Iowa, this ninth'day of September, 1882.
“M. Hoffmann, John L. McQuaid, ] “M. F. Spear, It. F. Tidd, ¡-Trustees. “P. A. Emery, J. M. Turner, J
“J. B. Ingledue, Mayor.
“[Seal.] Geo. O. Hunt, Recorder.”
That attached to each of said bonds were 10 annual coupons, simi- . lar to the following:
“$35. • No. 10.
“Manning, Iowa, September 9, 1882.
“The incorporated town of Manning, Carroll county, Towa, will pay the bearer September 0, 1892, thirty-five dollars, being one year’s interest on incorporated bonds.
“M. F. Spear, R. F. Tidd, ] “M. Hoffmann, P. A. Emery, }■ Trustees. “John li. McQuaid, J. M. Turner, J
“J. B. Ingledue. Mayor.
“G. O. Hunt, Recorder.”
Stamped on the face: “A. T. Bennett. Paid December 15, 1891.”
Stamped on the back: “Pay to O. E. Dutton. Platt Peck.”" “Pay to the order of Plait Peck. John Peck, per L. W. Peck, Ilis Son.”
That each of said 10 bonds was identical with that above copied, save as to serial number, such bonds bearing, respectively, serial numbers 1 to 10 inclusive; that when the 5 bonds described in the preceding paragraph (2) were issued, these 10 bonds (issue 1882) were outstanding, but before the institution of. the present pending action said bonds in this paragraph described had been paid off and canceled out of the ordinary revenues of defendant.
(1) At the time said (September, 1882) bonds, described in last preceding paragraph (3) of these findings of fact, were issued, the amount *614thereof was in the aggregate in excess of 5 per centum on the value of the taxable property of said corporation defendant as ascertained by the last state and county tax lists previous to the incurring of such indebtedness. After the incorporation of said defendant, and previous to the issue of said last-described bonds, no county and state tax lists of property situated within the corporate limits of said defendant were made, on assessments limited to property within such corporate limits; but the aggregate value of the said property, so situated within said corporate limits, according to the last state and county tax lists preceding issuance of said bonds, was $5,252, — viz. real property, $4,940, and personal property, $312.
(5) At the time the said bonds in suit (issue of 1884) were issued, the defendant town was indebted — i. e. had a floating indebtedness outstanding — in the sum of $800, without reference to the said issues of bonds in 1882 and 1884; but the evidence does not show, and I am not able to find, what, if any, amount of money was in the treasury of the defendant town at the time when said $800 indebtedness was incurred, or when any evidence thereof was issued, or when the said 1884 bonds were issued.
(6) The aggregate value of the taxable property within the defendant corporation, as ascertained by the state and county tax lists for the year 1883, was $100,776.
(7) The aggregate value of the taxable property within the defendant corporation, as ascertained by the state and county tax lists for the year 1884, was $113,623.
(8) The outstanding indebtedness of the defendant corporation at the date (October, 1884) when the bonds in suit herein were issued, and including said bonds, was not, in the aggregate, an amount exceeding 5 per centum of the taxable property within said defendant corporation, as ascertained by the last state and county tax lists previous to said issue.
(9) Said bonds in suit herein were by defendant corporation issued and negotiated as a loan by said defendant in anticipation of the revenues thereof, in attempted compliance with section 500 of the Code of 1873 of Iowa, which section, so far as material to the issues herein, reads as follows:
“Sec. 500. Loans may be negotiated by any municipal corporation in anticipation of the revenues thereof.”
As conclusions of law, I find:
1. That the said bonds, issued in September, 1882, as above found in paragraph 3 of findings of fact, were invalid, and did not constitute an outstanding indebtedness against said defendant corporation at the date (October, 1884) of issuance of bonds herein.
2. That the defendant did not possess legal authority to issue the negotiable bonds in suit, under said section 500, Code Iowa 1873, that said bonds are invalid, and that plaintiff cannot herein recover thereon.
3. Judgment must be rendered for defendant, with taxable costs herein.