Lead Opinion
Section 15 of the articles of incorporation prescribes the general rule applicable to subscribers to the stock of the company. This provides that if the installments, not exceeding five per cent per month, are not promptly paid when called for, the amount due may be collected by suit, or the stock with all payments made thereon may be forfeited, or the stock may be sold at auction, and if it does not sell for enough to satisfy the unpaid assessment, the balance may be collected of the delinquent.
And section 11 of the by-laws provides that certificates of stock shall be issued to each subscriber, if desired, upon the payment of the first installment, and the amount of such installment credited on the certificate.
Upon the part of defendant it was proved that the rule and invariable practice of defendant have been to give a part paid certificate upon payment of the first installment, receipts upon subsequent payments, and a full paid certificate in lieu of the part paid certificate and receipts, when full payment was completed, and that the authority for issuing part paid certificates is found in section 11 of the by-laws.
It is plain that article 15 of the articles of incorporation, and section 11 of the by-laws, taken together, contemplate
It is claimed, however, that under the amended article 17, above set out, the company was authorized to receive subscrip-, tions from municipal corporations upon such terms as might be agreed upon. This section was not adopted until November 26, 1853, whereas the vote authorizing the . subscription, was taken on the 24th day of September preceding. However,, as the record does not show when the subscription to the stock was in fact made, it may be conceded that this section was in force at that time. As this section does not prescribe the terms under which municipal corporations may subscribe, but simply provides that the board of directors may receive subscriptions from such corporations upon such terms as may be agreed upon, the presumption, in the absence of any proof to the contrary, is that subscriptions to the capital stock are made under the usual provisions of the articles of incorporation, and subject to the usual conditions. If any contract varying these provisions, or modifying these conditions, has been entered into in the present case, the burden of proof is upon the plaintiff to establish the existence of such exceptional contract and its terms.
We feel constrained to hold that the evidence does not show that the subscription in question was made under other conditions than those contained in article 15, above men-, tioned.
The evidence upon this subject is not voluminous, and it may be noticed.
First in point of time, and in importance, is the proclamation for the election. This seems to be very specific in calling the attention of the voters to all the material matters connected with the proposed vote. The electors are notified that the stock is to be paid in bonds, when they are to be issued, ■and at what rate per cent per'month. The silence of this proclamation respecting a provision that the county was to have certificates of paid up stock for each bond, when issued*
Next follows what is satisfactorily proved to be a copy of the subscription paper to which the county subscribed. The heading is as follows: “The subscribers agree to take the number of shares set opposite their names, provided Ottumwa is made a point upon the said road.” This is attached to the original articles of incorporation, which do not contain article 17, above referred to.
This subscription paper constitutes a written contract, referring to the articles of incorporation for all its terms, except that Ottumwa shall be a point upon the road, and it is not competent to vary or contradict the terms of this written contract by oral evidence. Kennebec & Portland v. Waters, 34 Maine, 369.
In addition to this, D. Rorer, one of the original incorporators of defendant, testifies that “ the stock subscribed for by the county was to be paid as other stock, by installments as called for according to terms of subscription generally;” and Silas Osborne, the county judge of Wapello county, who made the subscription, testifies that he does not recollect that there was any difference between the subscription of. the county and those of individuals.
The only evidence by which it is sought to establish the agreement contended for is the following:
First. Silas Osborne, the county j udge, testifies that when lie delivered the thirty bonds to Oliver Cock, in the presence of Rorer, “There was something said in regard to certificates of stock. They observed that they would forward the certificates as it was getting late, and they were in a hurry to get through, and they had. not time, and they wanted to get back to Fairfield. * * * My understanding was that they were to issue certificates of stock as fast as the bonds were delivered.” This witness further testified that when he paid installments upon his own stock he received certificates of stock, but the papers to which he referred were introduced,
If, however, it should be conceded that Cock agreed to forward certificates when the bonds were delivered, this would have but little weight in proving the agreement contended for. Under section 11 of the by-laws the county, upon paying the first installment of stock, was entitled to a certificate with an indorsement thereon- of the installment paid. Osborne does not testify that it was promised that paid up certificates of stock should be forwarded. The next item of evidence, upon which plaintiff relies, is the petition in the mandamus case, drafted in 1S59 by Rorer, and sworn to by Reid, vice president of the company, and containing the following statement: “ The said county to receive for each bond, as issued, a certificate for the same amount of stock in the company.” This, as an admission upon the part of an officer of the company, must be admitted to be an item of evidence entitled to its proper weight in the consideration of the question involved. But it is a mere admission and cannot be regarded as at all conclusive. It cannot have the effect of overcoming the provisions of the written contract of subscription. Besides, that action was brought to compel the d elivery of the remaining bonds. The condition under which the county was entitled to certificates of stock was only collaterally involved, and that circumstance is not without weight in determining the proper consideration to be given to this admission..
When it is remembered that at the time these bonds were delivered it might very reasonably have been expected that all the remaining bonds would soon be issued, and the county would thereby become entitled to and receive certificates of shares of stock, it is apparent that this recital in the bonds is entitled to no controlling consideration.
It is claimed by plaintiff in the argument in reply that the form-of the bonds was prepared by the attorney of defendant; but of this there is no proof. We are .satisfied that the subscription of the county does not differ in terms from that of other subscribers; that it was payable in installments of not exceeding five per cent per month, and was subject to forfeiture for the non-payment of the installments when properly called for; and that under the terms of the subscription the county is not entitled to paid up certificates of stock until all the installments are paid.
This brings us to a consideration of the circumstances attending the delinquency of the plaintiff. The subscription was made upon condition that Ottumwa be made a point upon defendant’s road. The proclamation for the election specified that the bonds are “ to be issued upon the call of the company, after the work in said county shall have been put- under contract.”
The agreed statement of facts shows that the road was put under contract through Wapello county, by way of Ottumwa, in the year 1854, and that-it was prosecuted to completion with reasonable speed.
On the 4th of May, 1854, three installments of five per cent were called for, and due notice of the' calls was given; and on the 8th of August, 1854, three other installments of five per cent were duly called for, of which notice was given.
On the 12th day of January, 1855, the bonds in question were issued in payment of these six installments.
Calls were made by defendant upon plaintiff in. the years 1855 and 1856 for each of the remaining fourteen five per cent installments of unpaid stock, and due notice thereof was given in accordance with the terms of the subscription and of the articles of incorporation and the by-laws of said railroad company. After making due and legal calls on all the stockholders for all the installments of stock, the company, in October, 1858, demanded of said county and the judge thereof, at his office, the issuance of bonds in payment of the remaining installments, and the judge unconditionally refused to issue the same. At this time it was the holding of the Supreme Court of this State that counties were authorized to subscribe to the capital stock of railroads, and that bonds issued for that purpose were legal. See Dubuque County v. Dubuque & Pacific Ry. Co., 4 G. Greene, 1; Clapp v. Cedar County, 5 Iowa, 15. On the 24th of March, 1859, the defendant commenced a mandamns proceeding against plaintiff to compel
Afterward, the Supreme Court of the United States held that bonds issued to railroads by counties, in payment of their subscriptions to stock, are valid when indorsed to innocent holders, and may be enforced. Gelpcke et al. v. The City of Dubuque, 1 Wal., 175.
The thirty bonds in question were transferred by defendant to innocent holders, and they have recovered judgment against Wapello county, upon the attached coupons, in an amount, including costs, of about $12,000. The county has levied taxes for the payment of these judgments, and eventually will be obliged to pay the principal and interest of these bonds.
Appellant insists that, as the county could not issue the seventy bonds without disobeying the judgment of the court and doing an illegal act, it is discharged from its agreement to issue these bonds, citing 2 Parsons on Contracts, 5th ed., p. 673, as follows: “That the illegality of a contract is in general a perfect defense, must be too obvious to need illustration. It may, indeed, be regarded as an impossibility by act of law; and it is put upon the same footing as an impossibility by act of God; because it would be absurd for the law to punish a man for not doing, or, in other words, to require him to do, that which it forbids his doing. Therefore, if one agrees to do a thing which it is lawful for him to do, and it becomes unlawful by an act of the legislature, the act avoids the promise.”
That this doctrine is correct, no one will deny. But it is one thing to hold that a party cannot be compelled to perform an illegal contract, or be rendered liable in damages for nonperformance; and quite auother to hold that he may compel
That the contract is illegal, was a perfect defense to the county when a demand was made for the remaining seventy thousand dollars of bonds; and so this court held in the mandamus case. But now that the county demands certificates for thirty thousand dollars of stock, the same as though the remaining seventy bonds had been issued, a different principle becomes involved.
The granting of the relief asked involves the substitution of an entirely different agreement for the contract made. The county subscribed to one thousand shares of the capital stock of defendant, amounting to one hundred thousand dollars. It agreed to pay this upon demand, in installments not exceeding five pqr cent monthly. It has paid six of these five per cent assessments, and lias refused to pay more. It agreed that, upon failure to pay an installment when duly demanded, the company might forfeit the stock and the payments made; or might collect the delinquent installments by suit; or might sell the stock for the payment of the installment due, and if that was insufficient for the purpose might sue for and collect the balance. By its subscription it became liable for the debts of the corporation to the extent of seventy- thousand dollars, the amount of unpaid installments upon its stock. Rev.-, Sec. 1172.
The county now asks that it be relieved from this liability to creditors; that the company be deprived of its right to forfeit or sell its stock, or to sue for and collect the unpaid installments; that the six payments of five per cent installments upon one thousand shares, be treated as full payment upon three hundred shares, and that plaintiff have certificates of paid-up stock for this amount.
If the county had acted in entire good faith, and had sought to perform its contract, and had been prevented by the interposition of the law, declaring its contract illegal, it is difficult to see upon what principle the county, being unable to perform an agreement which it did make, can insist upon the sub
But the county, instead of showing a desire to perform its agreement, seems to have determined to repudiate it as soon as it became apparent that the road would be built through Ottumwa, and the benefits of the contract, in any event, secured. In 1855. and 1856 it failed to pay the installments due; and in 1858 it made an unqualified refusal to pay them. At this time, under the law, as1 construed, there was no legal impediment in the way of issuing the remaining bonds. In 1859 the mandamus suit was commenced. The county actively defended this, and was instrumental in procuring the first adjudication of the Supreme Court declaring the illegality of the contract which it had made.
Whilst the county is clearly, under this decision, discharged 'from the further performance of its contract, there would seem to be no well grounded principle of equity upon which it can insist that, notwithstanding its own failure to perform, a new contract shall be substituted for the one made by defendant, and the defendant shall be compelled to perforin that.
Appellant urges that it would be a strange idea if the county could be a stockholder, so far as to be compelled to pay 'its stock, should its board of supervisors refuse to do so, by mandamus, and yet not be a stockholder so far as receiving certificates of stock is concerned. But, it seems to us, it would be equally strange if the county could be a stockholder, with all the benefits and privileges which that relation confers, and at the same time be discharged from all the duties which a stockholder assumes to the company and to its creditors.
The contract was either wholly legal or wholly illegal. There is no middle position for it to occupy. If it was legal, the plaintiff cannot have the relief asked, because it has failed to pay the installments due, without which payment it is not entitled to certificates of stock. If the contract was illegal, it cannot be made the basis of relief. One horn or the other of the dilemma the plaintiff must take.
The mandamus suit, holding that the subscription of plaintiff to the capital stock of defendant was unauthorized and void, was determined in June, 1S62. Certainly as early as that date, if ever, a right of action accrued to plaintiff to have the outstanding bonds delivered up for cancellation, and, if by the act of defendant they had passed beyond its control, to recover the damages which plaintiff would, incur on account of the bonds having passed into the hands of innocent holders, and the liability of the county thereon having thereby become absolute.
This right of action would be barred in five years. As before stated, demand for the certificate was made in 1869, and this action was commenced in 1870.
The judgment of the court below, dismissing plaintiff’s petition, is
Affirmed.
Dissenting Opinion
dissenting,. — I am unable to assent to the foregoing opinion, and will proceed, as briefly as I can, to express my views upon the controlling points of law involved in the case. Adams, J., does not concur in the decision, and, I am authorized to say, approves. the views I entertain and the arguments upon which I rely to support the positions I have taken in the case.
I. Plaintiff insists that, under the contract between the parties, it was to receive for each of its bonds issued a certificate for the same amount of stock in the railroad company; that the contract, by its very terms, was divisible, and it is, therefore, entitled to stock of the defendant to the amount of bonds issued to it. It is claimed the evidence establishes that the contract under which the bonds were issued and delivered so
II. It was adjudged in an action between these same parties that plaintiff had no power to subscribe for the stock of defendant, and, in payment therefor, issue its bonds, and that its contract and act, in that respect, was ultra vires and void. The State ex rel., etc., v. The County of Wapello, 13 Iowa, 388. Without considering the doctrines of that decision, it is sufficient to remark that the power of the county to make the contract and the right of defendant to enforce it, are res adjudieat'a, which, as between the parties to this action, cannot again be presented to the courts for adjudication. The decision operated upon the contract of subscription, so far as the same had not been performed, and declared that it could not be enforced so as to require plaintiff to issue the bonds to pay the balance claimed to be due on the subscription. The judgment was that plaintiff could not be compelled to issue the bonds to the amount of $70,000, which was the relief asked by defendant. The grounds and reasons of this judgment are the invalidity of the subscription and the want of power in the county to become a stockholder in a railroad corporation. While the doctrines of the decision, applied to the bonds already issued, would declare them void, yet that was not a matter adjudged in the cause. The parties are bound no farther than as to the matters actually covered and' included in the judgment. So far, our conclusions arc based upon prim ciples that are elementary and cannot be' questioned.
The plaintiff is estopped to deny the validity of the subscription and of the bonds issued thereon, so far as the judgments rendered against it have declared them .valid. Because the right of recovery was based upon the fact that the plaintiffs in those judgments were gcfod faith purchasers, etc., does not give the county the right, under any circumstances, to deny the validity of the bonds upon which the judgments were based. The plaintiff is forever estopped to deny the validity of the causes of action upon which the judgments were rendered. This cannot be doubted. The estoppels'
While defendant, in this case, may not stand in the relation of a privy to the plaintiffs in the judgments recovered against the county, so that it would be ^stopped thereby, yet it comes within the operation of an exception to the rule that judgments bind only parties and privies. Judgments are conclusive against third persons as to the relationship of debtor and creditor and the extent of that relationship, and must, also, be so regarded as to the foundation thereof — the origin of the relationship so far as it was in issue. Bigelow on Estoppel, pp. 81, 104, and authorities cited.
Now the validity of the bonds was in issue in the actions wherein judgments were rendered. It may be said that the validity of the subscription was not involved in these actions. This may be conceded. But the railroad company, after having entered into the contract with plaintiff embraced in the subscription, and received the bonds thereon which it transferred, and upon which judgments were rendered, whereby, as we have seen, defendant is estopped to deny the relation of debtor on the part of plaintiff, and the foundation of the indebtedness, settled by the adjudication, cannot now insist that the contract so far as these bonds are concerned is void. To permit defendant to make such a defense would be simply to authorize it to take $30,000, or more, from plaintiff without the payment of one cent as a consideration. No principles of law can be so wrested as to bring about such a result.
The case then presents this state of facts: The defendant is estopped to deny the validity of the bonds upon which the judgments were rendered. These bonds were issued upon a contract entitling plaintiff to stock in. the railroad company. The validity of that contract defendant cannot deny because it is a party thereto, and has received the • bonds thereon. Under the contract the county is entitled to one dollar in stock for each dollar of its bonds issued to the defendant. If defend
IY. Under the decision of the State court the contract based upon plaintiff’s subscription', as to the bonds not issued, must be regarded as void and neither party can support any claim thereon. It does not have the force and effect of a contract; it is without any validity, in respect to the $70,000 in bonds unpaid upon the stock. As to that subject matter it is not a contract. It is quite clear, therefore, that defendant cannot claim plaintiff is bound to issue and deliver these bonds; in law there is no such a contract, and defendant has no rights derived therefrom. Neither can defendant or plaintiff deny that the bonds issued are valid. Defendant by receiving and transferring them'is estopped to deny their validity, and both parties are bound by the adjudications of the Federal Courts, enforcing them.
It has been held that where a municipal corporation receives money on a contract, which is void on account of want of authority so to bind itself, the sum so paid may be recovered back by the other party. Dill v. Warham, 7 Met., 438. See, also, Argente v. San Francisco, 16 Cal., 255. Undoubtedly the corporation would have the right, under the same principles, to recover money paid by it on its own contract, void for a like reason. We conclude that plaintiff is not deprived of the right to relief on the ground of the voluntary delivery of the bonds upon the void contract.
The defendant, having received and appropriated the bonds, which were valuable and useful in its enterprise, and are now valid and binding upon plaintiff, ought, ex eguo et bono, to account to plaintiff therefor. This position is supported by the plainest principles of equity.
YI. It is insisted that plaintiff is entitled to no relief on account of bad faith in refusing to perform the contract before the courts had decided adversely to its power to issue the bonds, and in resisting, by legal proceedings, the efforts of defendant to procure a performance of the contract by plaintiff. We do not think plaintiff can be convicted of bad faith in refusing to do that which the law prohibits, and in relying upon and enforcing its legal rights. It is the duty of corporations, as it is of citizens, to obey the law. And certainly a political corporation of the character of plaintiff is not guilty of bad faith in refnsing to exercise powers withheld by the law. An appeal to the courts to determine its powers ought not to be the occasion of rendering its contracts valid which, in such proceedings, are declared invalid.
Upon this point the opinion of the majority, in our judgment, presents a view that is impossible to be taken from a judicial standpoint. The decision declaring the county had
The opinion of the majority further says that the county “was instrumental in procuring the first adjudication of the Supreme Court (this court) declaring the illegality of the contract which it had made.” The county, in bad faith, procured a decision of this court whereby it was enabled to consummate its intention to repudiate its debt! This is the thought of the quotation, and it is no less severe upon this court than upon the county.
YIII. It is next urged that “ there is an entire want of mutuality in plaintiff’s claim, as neither plaintiff nor the court can reinstate the parties to the contract as they stood when the contract was made.” In answer to this objection it
But defendant’s counsel insist that, when the bonds were delivered to defendant, the plaintiff demanded certificates. It is conclusively shown, however, that the demand was not for paid up certificates, which would be evidence that plaintiff is the holder of paid up stock, but those showing partial payments. The claim then made was not that plaintiff was the holder of $30,000 of stock, but had paid $30,000 on its subscription of $100,000. Plaintiff claims that there was a special contract, apart from the subscription, to the effect that its bonds delivered to defendant entitled it to paid up stock pro ianto. Under this contract it claims the defendant agreed, upon request of plaintiff’s agent when the bonds were delivered, to issue certificates of stock. As we have before stated, we do not think the evidence establishes such a contract. That demand or request cannot be considered as fixing the time when plaintiff’s right to this action accrued. Indeed, plaintiff’s rights, as we recognize them, did not accrue until after the actions concerning the bonds and the subscription, the decisions in which, according to the views of this opinion, are the foundation of plaintiff’s right of action as presented in this cause. After this right of action accrued, defendant did not deny plaintiff’s right to the stock, nor refuse to issue the certificate, until a demand was made in 1869, as it appears from the evidence. We conclude that the action is not barred by the statute.
We reach the conclusion that the judgment of the District Court ought to be reversed, and dissent from the decision announced in the opinion of the majority of this court.