Court Opinion

ID: 8791365
Source: CourtListenerOpinion
Date Created: 2022-11-26 13:52:54.669614+00
Date Added: 2024-06-11T17:03:22.456474
License: Public Domain

BINGHAM, Circuit Judge
(concurring). This is an appeal from an order of the District Court for the District of Maine, overruling the defendant’s demurrer, and from a final decree in favor of the plaintiff, in an equity proceeding brought by Nathan H. Truman against the town of Harmony, in which he asks that certain bonds of the town be declared good and valid after- reducing their amount to the limit the town was authorized to issue, and for the payment of certain overdue coupons after scaling them down to correspond with the reduced value of each bond.
It appears that the town on June 20, 1895, voted an appropriation of $8,500 to aid in the construction of a railroad from Hartland to Harmony village, in said Harmony, and authorized its selectmen to enter into a contract with any party that the road should be built, and to subscribe for stock in the road to that amount as soon as the railroad company should be organized, and that at the same time it voted to issue bonds of the town to the railroad company for said amount, upon certain specified conditions, to meet the subscription.
August 1, 1896, bonds to the amount of $8,500, and in the sum of $500 each, were issued and delivered by the selectmen of' the town to the officers of the Sebasticook & Moosehead Railway Company in exchange for stock of like amount in that railroad. At that time the outstanding indebtedness of the town was such that its authority under the Constitution of the state to increase its indebtedness was limited to $3,654.41. The bonds were sold by the railroad, and the plaintiff subsequently became the holder of them.
*12These facts clearly demonstrate that the appropriation of $8,500, and the issuance of the bonds for that amount to meet the appropriation, was one entire and indivisible transaction, and that no particular number of the bonds can be separated from the others and held to be valid as within the constitutional limit of the town to issue. The facts here presented are not the same as those in Daviess County v. Dickinson, 117 U. S. 657, 6 Sup. Ct. 897, 29 L. Ed. 1026, and do not authorize the conclusion there reached upon this question. That the facts here presented warrant the conclusion that the bonds were issued as an entirety, is, for all practical purposes, conceded by the plaintiff. His bill proceeds upon the theory that the vote and issue of bonds was one entire transaction; that as the transaction called for an issue in excess of the constitutional power of the town to authorize, all of the bonds were illegal and unenforceable at law, and that because of their non-enforceability as legal obligations the plaintiff should be permitted to come into equity and have the amount of the excess ascertained, the bonds scaled down to the constitutional limit, and when scaled down, declared good and valid. Furthermore, it appears from the decree that this was the course pursued at the trial. In the decree it is stated:
“That on the 1st day of August, 1896, said respondent, in addition to the indebtedness then outstanding against it, had the legal power to create an enforceable indebtedness to the amount of $3,654.41, and that the said issue of bonds of August 1, 1896, was valid to the extent of said sum of $3,654.41, and that each of said bonds was partially valid and partially invalid, that is to say, each of said bonds was valid in the sum which bears that proportion to $500 that $3,654.41 bears to $8,500, to wit, .42993 per cent.; that upon each of said bonds numbered from 1 to 17, inclusive, the said respondent, at the time of issuance and delivery thereof, became bound to pay to the owner and holder thereof the sum of $214,965, instead of $500, as denominated in each of the said bonds.”
And, inasmuch as none of the bonds were due at the time of the bringing of the suit, and would not’ become due until the 1st of August, 1916, it was further ordered and decreed—
“that the respondent shall pay the holder or holders of the said several bonds at the maturity thereof the said sum or sums of money for which the same are hereby adjudged valid, and that the said town shall pay interest upon the valid portion of each of said bonds semiannually until their maturity, at the rate of 4 per cent, per annum, according to the terms and provisions of the said bonds and the coupons thereto attached, commencing with the coupon due August 1, 1913, save and except that the interest coupons shall be reduced so as to evidence seminannual interest upon the sum of $214,965, instead of $500; so that each coupon shall represent interest in the sum of $4,299, and the said bonds shall be held and"" considered in all respects as negotiable bonds as fully as though the said recital had not been written or stamped thereon.”
And as to the interest coupons that were due, and which had not been paid, it was decreed that “the plaintiff shall recover judgment •against the respondent in the sum of $1,023.23.”
1. The first question, therefore, presented by the case is whether the plaintiff, as the owner of the entire series of bonds issued by the town in excess of the limit fixed by the Constitution of the state, and which for that reason are not enforceable at law, can invoke the aid of a court of equity to afford him relief by first ascertaining the amount of *13bonds which the town could lawfully have issued, and then, having scaled down the issue to the limit thus ascertained, declare such excess to be void, and the residue good and valid, and enforce payment of the interest on the residue against the town.
In Hedges v. Dixon County (C. C.) 37 Fed. 304, on appeal 150 U. S. 182, 14 Sup. Ct. 71, 37 L. Ed. 1044, this very question was presented and decided. In that case the plaintiffs were holders of nearly the entire issue of $87,000 in bonds of the county of Dixon, in the state of Nebraska, which the county had issued and donated to the Covington,, Columbus & Black Hills Railroad Company, pursuant to a vote of the electors of’ the county. In that case, as in this, when the interest coupons matured, payment was refused by the county officials, on the ground that the bonds were invalid because they exceeded in amount 10 per cent, of the assessed valuation of the taxable property of the •county at the time of their issue. And the plaintiffs brought their bill, offering to surrender and .cancel so much of their bonds as exceeded 10 per cent, of the assessed value of the taxable property of the county; each holder surrendering his proportionate share of such excess.
That case, when it was before the Circuit Court (37 Fed. 304), was decided by Mr. Justice Brewer, then Circuit Judge in the Eighth Circuit, who, in considering this question said:
“Conceding that the'bonds, as they stand, are void, and that no recovery can be had thereon in a court of law, complainants insist that a court of equity has power to scale them down to an amount equal to that that the county might lawfully have issued, and enforce them when thus scaled down. It is said that the vice of this transaction is only in the matter of excess; that a court of equity may expunge the vice, and enforce the contract thus freed from taint. Counsel for complainants concedes that he has been unable to find any precedent for such a proceeding, and his confession of inability is satisfactory evidence that no such precedent exists, so that the question must be determined by reference to the general principles of law; and here it may be remarked that the'difference between courts of law and those of equity is mainly one of forms and remedies, rather than in the matter of absolute' rights and obligations. If a contract be pronounced absolutely void in a court of law, it must expect the same denunciation in a court of equity. Courts of equity, like those of law, must accept contracts as they are made, and have no power to make contracts for parties. If the contracts which parties attempt to make are void because in defiance of some statute or common law, they are void alike in either court, and neither court can change a void into a valid contract. Now, the contráct in this case, in its inception, was on the part of the county a single and indivisible obligation; that is, an attempted donation of $87,000 to the railroad company. The bonds are merely evidences of the contract, the contract standing behind them, and, whatever separate and divisible obligations of .the county exist after the issue of the bonds, the contract in the first instance was single and entire. Now that was an attempted donation of $87,000 to the railroad company. Such donation the county had no power to make, and, after it had finished its action, nothing which the promisee, the other party to the contract, could do could give validity to the obligation of the county. It was either good or bad, dead or alive, when it left the hands of the promisor. Take this illustration: If, in a state where usury avoids the entire contract, a usurious note be given, that note is void, and no willingness of the payee, no act of his, can transform that invalid into a valid contract. Of course it would be very satisfactory if the promisee, by consenting to a reduction of the interest, could give validity ’to a void promise, vitality to a dead contract. So here, if the promisee, the railroad company, could reduce *14the extent of the promise, it doubtless would be satisfactory, but it would be thereby making a contract, or attempting to make a contract, different from that which' the promisor proposed. The fact that 87 bonds were issued, instead of one, in no manner changes the primary obligation attempted to be assumed by the county.”
And further on he says:
“This court can make no contract for the parties. It must take the contact-which they made. That contract was one that the county was not authorized to make. The bonds were void as adjudged in a court of law, void in whole and in part, and they must be so adjudged in a court of equity; and, the county having received nothing of value, no equitable obligation can be enforced against it.”
In the Supreme Court (150 U. S. 182, 14 Sup. Ct. 71, 37 L. Ed. 1044), Mr. Justice Jackson, in delivering the opinion of the court, in the same case, at the bottom of page 188 of 150 U. S., at page 73 of 14 Sup. Ct. (37 L. Ed. 1044), says:
“What the county authorized and carried into execution in the present case, both by the vote and by the donation, was one entire transaction, and if it should be so reformed as to curtail the entire issue of bonds to such an amount as was within the constitutional limits of the county to donate, it would be something different from that which was voted by the county, and carried into effect by the issue of the bonds. This would involve the making of a different donation from what the county voted and intended to make to the railroad company.”
Having decided that the -donated bonds were issued as one transaction, and that the issue, if regarded purely as a donation, could not be reformed by reducing the amount of the issue, he proceeds to consider what would have- been the situation if the transaction constituted a contract between the railroad company and the county. As to this, he says:
“It is urged that the vote and the issue of the bonds constituted a contract between the railroad company and the county, and that the bonds issued in pursuance thereof should be scaled, as sought by the bill, to bring the contract within the authority of the county; that as the county intended to make a valid donation, such reduction of the amount, of the issue, which the complainants offer to make, should be sanctioned by the court, and the residue declared valid. But the difficulty in the way of this suggestion is that, treating the transaction as a contract, it is not within the power of a court of equity to change its terms and provisions. Besides, it is not shown that the county would have voted a different amount from what was issued, or that it intended to issue a less amount. It is too well settled to need citation of authorities that a court of equity, in the absence of fraud, accident, or mistake, cannot change the terms of a contract."
Then, again, on page 192 of 150 U. S., at page 74 of 14 Sup. Ct. (37 L. Ed. 1044) he says:
“The fact that the complainants have no remedy at law, arising from the invalidity of the bonds, confers no jurisdiction upon a court of equity to afford them relief. The established rule, although not of universal application, is that equity follows the law, or, as stated in Magniac v. Thomson, 56 U. S. (15 How.) 299 [14 L. Ed. 696] ‘that wherever the rights or the situation of parties are clearly defined and established by law, equity has no power to change or unsettle those rights or that situation, but in all such instances the maximum equitas sequitur legem is strictly applicable.’ Where a contract is void at law for want of power to make it, a court of equity has no jurisdiction to enforce such contract, or, in the absence of fraud, accident, or mistake, to so modify it as to make it legal and then enforce it. Courts of *15equity can no more disregard statutory and constitutional requirements and provisions than can courts of la »v; They are bound by positive provisions of a statue equally with courts of law, and where the transaction, or the contract, is declared void because not in compliance with express statutory or constitutional provisions, a court of equity cannot interpose to give validity to such transaction or contract, or any part thereof.”
This was not the only question considered in that case. The complainants also sought to sustain their right of recovery upon the ground that the county had received a benefit from the construction of the railroad which the bonds were issued to promote, that this benefit was the equivalent of the face of the bonds, and for the payment of which a contract should be implied in law.
After discussing the cases where -recovery was allowed upon its appearing that the municipality had received full pecuniary consideration for its invalid bonds, and had applied the proceeds to the purpose for which the bonds were issued, and after pointing out that those cases differed from the one the court was considering in that the county of Dixon received no money for the bonds, the court said:
“The circumstances and conditions which gave the holders of the bonds an equitable right in those cases to recover from the municipality the money which the bonds represented do not exist in the case under consideration, where the county received no part of the proceeds of the bonds, and no direct money benefit, but merely derived an incidental advantage arising from the construction of the railroad, upon which advantage it would be impossible for the court to place a pecuniary estimate, or to say that it would be equal to such portion of the bonds in question as the county could lawfully have issued. * * * If any equitable claim arises in favor of the holders of the bonds it must be against the railroad company, from whom the bonds were purchased, and by whom their payment was guaranteed, as that company was the recipient of the legal consideration realized upon the negotiation of the bonds.”
The decision in Hedges v. Dixon County is controlling upon the proposition that this court, as a court of equity, is without authority to scale down the bonds, as was done by the District Court in the decree above set forth; that it is for the parties to make their own contracts, and for the court to enforce them as made if they are legal; that the power of the court .to reform contracts is limited to cases where it appears that through fraud, accident, or mistake, some provision was inserted in the contract that did not express the intention of the parties.
In all the cases to which our attention has been called, recognizing the claim of the plaintiff to have the bonds scaled down .to the constitutional limit — with the exception of the case of City of Columbus v. Woonsocket Institution of Savings, 114 Fed. 162, 52 C. C. A. 118, hereafter considered — it appeared that the municipality sought to be charged had received from the sale of its bonds a money consideration equal to or greater than the reduced value of the bonds. While the result reached in those cases was right, the method by which it was reached was clearly wrong. It is a well-recognized principle that, under such a state of facts, the law will imply a contract to repay the purchaser of the bonds the money received by the municipality therefor, to the extent that the municipality had constitutional and'statutory authority to borrow the money, but that above that limit no con*16tract will be implied. Chelsea Savings Bank v. City of Ironwood, 130 Fed. (C. C. A., Sixth Circuit) 410, 412, 66 C. C. A. 230; Louisiana v. Wood, 102 U. S. 294, 26 L. Ed. 153; Litchfield v. Ballou, 114 U. S. 190, 5 Sup. Ct. 820, 29 L. Ed. 132; Parkersburg v. Brown, 106 U. S. 487, 1 Sup. Ct. 442, 27 L. Ed. 238; Gause v. Clarksville, 10 Fed. Cases, No. 5,276, at page 102.
The case of City of Columbus v. Woonsocket Institute of Savings, 114 Fed. 162, 52 C. C. A. 118, upon which the plaintiff chiefly relies in support of its contention as to scaling down the bonds, was an action at law. The bonds there in question had been issued as an entirety. Their amount exceeded the constitutional limit which the city was authorized to issue. The plaintiff sought to recover the interest that was due on the entire issue and the principal on that half of the bonds which were then due. In the Circuit Court judgment was entered for the plaintiff for the interest on all the bonds, and for the principal on those that were due, and the city appealed. In the Court of Appeals the judgment of the Circuit Court was reversed, for the reason that the bonds, having been issued as an entirety and in excess of the constitutional limit, were illegal. Judgment, however, was entered fo.r the appellees. This was done by scaling down all the bonds to the amount which the city was authorized to issue, and by reducing the interest on each coupon to correspond with the reduction in the amount of each bond. If an opinion was written in the Circuit Court, it does not seem to have been reported, and the case as reported on appeal does not disclose whether the city received a money consideration for the bonds or not. If it did not, the conclusion reached was erroneous, as well as the method by which it was reached, and was in direct conflict with the decision of the Supreme Court in Hedges v. Dixon County. The Hedges Case is not alluded to in the opinion, and apparently was> not called to the court’s attention. Furthermore, the opinion apparently ignores all the fundamental principles of law and equity, and is-of little value as a precedent.
2. Is the plaintiff entitled to recover on the theory of a contract implied in law ? As to this, it may be said that the plaintiff • introduced no evidence that the stock received by the town for the bonds was of any value. The evidence of the defendant was that it was of no value, and in its answer it offers to return the stock to the plaintiff. The District Court ruled that it was immaterial what the value of the stock was, declined to consider the evidence on that question, and the defendant excepted. Whether the stock was of any value was material upon the question whether a contract could be implied in law. In the absence of such proof the law will not imply a.contract in favor of the plaintiff, or of the railroad company from which the plaintiff received the stock. Travelers’ Ins. Co. v. Mayor of Johnson City, 99 Fed. (Cir. Ct. App., Sixth Circuit) 663, 40 C. C. A. 58, 49 L. R. A. 123; Chelsea Sav. Bank v. City of Ironwood, supra.
The principle underlying contracts implied in law is restitution, that is, that the defendant has in his hands something of value which, in justice and equity, belongs to the plaintiff, and should be restored to him; but, as a court of law cannot order the return of the specific *17thing, because of its lack of power to do so, it orders its value to be restored. Keener on Quasi Contracts, p. 286. This, however; being a proceeding in equity, we are not hampered as to the method by which restitution may be made. If the stock is returned to the plaintiff, it is apparent that he will receive everything of value that came into the defendant’s hands by reason of the transaction. Chapman v. County of Douglas, 107 U. S. 348, 355, 356, 2 Sup. Ct. 62, 27 L. Ed. 378. The sum received by the railroad in the sale of the bonds did not come to-the defendant; the railroad in making the sale was not acting in the defendant’s behalf, but for itself. See Travelers’ Ins. Co. v. Mayor of Johnson City, 99 Fed. (Cir. Ct. App., Sixth Circuit) 663, 666, 670, 40 C. C. A. 58, 49 L. R. A. 123.
3. 3. If the bonds in question had not exceeded the constitutional limit which the town was authorized to issue, and were not for that reason invalid, or if the transaction was not entire,-and their delivery was such that priority could have- been given to those issued within the constitutional limit, there is still another reason why the plaintiff could, not recover upon the bonds, if they were due, either in an action at law or in equity.
On the face of the bonds it is stated that they were issued in pursuance of a vote of the town passed at a meeting held July 13, 1896. The action of the town taken at that meeting was void and of no-effect, as it was a special meeting, and the question of the town’s “loaning its credit to the taking of stock” in the railroad had been previously voted upon at a “regular meeting,” held June 20, 1895.
In the Revised Statutes of Maine, 1883 (chapter 51, § 138) it is provided that:
“Whenever a city or town has voted at any regular meeting thereof upon any question 0¿ loaning its credit to, the taking of stock in, or in anyway in aiding any person or corporation, said city or town shall not vote-again upon the same subject, except at its annual meeting.”
The plaintiff recognizes that the bonds are in no sense legal obligations of the town, if the only authority for their issuance is that contained in the vote of July 13, 1896. But he says that adequate au-. thority for issuing the bonds is to he found in the vote of June 20, 1895. •
An examination of' the vote of June 20, 1895, discloses that the authority there conferred upon the selectmen to issue.and deliver bonds-to the railroad company was upon the express condition that the party with whom the selectmen entered into the contract to subscribe for stock in the railroad should give a — -
“guaranty-to the satisfaction of a committee to be chosen by said town, that the balance of the money over and above ($8,500) eight thousand five hundred dollars, necessary for the construction and completion of said road and appurtenances to said Harmony village, shall be subscribed and furnished, said road equipped and operated.”
At the meeting of June 20 1895 the town chose a committee, of seven who were to decide whether the guaranty that was to be furnished complied with the conditions of the vote, and was to their satisfaction.
*18The defendant contends that the conditions of this vote were never complied with. The plaintiff’s answer is that the recital in the bonds that they were issued in conformity to the vote of the town of July 13, 1896, estops the town from showing that the bonds were not issued in compliance with the conditions of the vote of June 20, 1895. If the conditions specified in the two votes were the same, no doubt there might be something in this contention, but they are not the same. Under the vote of June 20, 1895, one of the conditions was that the guaranty was to be passed upon by the committee consisting of seven members, whereas under the vote of July 13, 1896, it was to be passed upon by the selectmen alone. Then, again, under the vote of June 20, 1895, the condition looked to an issue of stock to be taken in a railroad which was to be completed, free from debt, and a subscription of stock was to be had sufficient to construct, equip, and operate it. This was a material and vital condition precedent to the issuance of the bonds. Nothing of the kind was contained in the vote of July 13, 1896, as a condition, or otherwise, to the bonds being issued.
The conditions in the two votes not being the same, it remains for us to consider whether there was anything in the recital in the bonds upon which the plaiptiff could fairly rely as a representation on the part of the town that the conditions of the vote of June 20, 1895, had been complied with, so as to estop the town from showing that it had not been; for unless the recital contained such a representation, there can be no estoppel. There surely is nothing in the recital from which the plaintiff could fairly infer that the bonds were issued in pursuance of the vote of June 20th, or in conformity with the conditions of that vote. But the plaintiff seeks to extend and enlarge the meaning of the recital in the bonds by a statement in the vote of July 13, 1896, wherein it was attempted to ratify the vote of June 20, 1895. It is to be borne in mind that the vote of July 13, 1896, through which the plaintiff seeks to extend the scope of the recital, was illegal and void, and it is inconceivable how the recital in the bonds can be extended and enlarged through such a medium. The vote of July 13, 1896, to have been of any force and effect, must have been a legal vote, and, if a legal vote, its conditions being different from those contained in the vote of June 20, 1895, it would, to that extent at least, operate as a repea-l, and not as a ratification of the conditions of the vote of June 20, 1895.
Furthermore, if the plaintiff, or the officials of the railroad, had examined the vote of July 13th, they would have ascertained that its conditions were different from those contained in the vote of June 20th, and inconsistent therewith; and, this being so, that the ratification would operate to confirm the vote of June 20th'to the extent that it authorized the appropriation of $8,500, and not to the extent that it imposed conditions under which the bonds were to be issued. And, if they had discovered that the vote of July 13th was illegal and void, they would have known that the attempted ratification was no ratification at all. Without examining the vote of-July 13th, they would not have known of' the attempted ratification by which they seek , to extend and enlarge the scope of the recital in the bonds; and, if they had examined it, they would either have learned that the vote was void, and *19would not operate to ratify the former vote, or that it was valid, and had the effect to repeal the conditions of the vote of June 20th instead of ratifying them. In any view, the vote of July 13th does not enlarge the recital in the bonds so as to operate as a representation on the part of the town that the conditions of the vote of June 20th were complied with.
Then, again, under the vote of June 20th, the body authorized on behalf of the town to determine whether the conditions of that vote had been complied with was a committee of seven, and it was this committee, and this alone, that could be said to be authorized to make a certificate upon the bonds that they were issued, in conformity with the vote of June 20th, so as to work an estoppel. In Dixon County v. Field, 111 U. S. 83, at page 94, 4 Sup. Ct. 315, at page 320 (28 L. Ed. 360), it was held that:
“If tlie officers authorized to issue bonds, upon a condition, are not the appointed tribunal to decide the fact, which constitutes the condition, their recital will not be accepted as a substitute for proof.”
For these reasons I concur in the result reached in this case. .