Green County v. Shortell

116 Ky. 108 | Ky. Ct. App. | 1903

Opinion op the court by

JUDGE HOBSiON

Reversing.

The Cumberland & Ohio Railroad Company was incorporated by an act approved February 24, 1869 (1 Sess. Acts, 1869, p. 463, c. 1578). It was vested with power to construct and operate a railroad from the Ohio river, through the counties of Henry, Shelby, Washington, Nelson, Marion, Taylor, Green, Barren and Allen, to a point on the-boundary line between the States of Kentucky and Tennessee, “to be selected by the president and directors, about due north from the town of Murfreesboro, Tennessee, with a view of comnecrting with the southern systems of railways-converging at Nashville, Tennessee.” See Charter, section 12 J1 Sess. Acts, 1869, p. 468, c. 1578). Any city, town or county through which the proposed road should pass was-authorized to subscribe stock in the railroad company in any amount it desired, and to issue bonds therefor, payable to bearer, with coupons' attached, bearing interest not exceeding 6 per cent., payable in the city of New York at not more than thirty years from date; but, before any such subscription should be valid, the question of making it should be submitted to the qualified voters of the municipality, and a majority of the qualified voters voting at the election should be in favor of the subscription. Id., p. 471, c. 1578, section 15. The charter authorized subscriptions to be made upon such conditions- as might be deemed fit. In construing it in Shelby County Court v. Cumberland & Ohio Railroad Co., 71 Ky., 209, this court said: “.The president and directors of the railroad' company are not only expressly vested by the, twelfth section of the act of 1869, supra, ‘with all the powers and rights necessary to the construction’ of the road, but the sixteenth section provides that the company ‘shall have all the powers and privileges conferred’ on the ‘Louisville & Nashville Railroad Company by the laws of Kentucky for constructing and operating their said road not herein specified and granted, and not in conflict with the term of this chanter;’ .and, by section 22-of the charter of the Louisville & Nashville Railroad Company, the county courts of counties through which that road passes are expressly authorized to submit to the voters of their counties propositions for subscribing for stock in that corporation, ‘if by them deemed expedient, in such manner as they may direct and prescribe.’ And by the sixth section of an act to amend the same charter, approved January 17, 1856 (1 Acts 1855-56, p. 184, c. 20), counties, towns, cities and other corporations are authorized, in express terms, to subscribe for stock in that road, ‘with such terms and time of payment, conditions annexed, and kind of payment that may be set forth in the subscription.’ ”

At its June term, 1869, the following request was filed in the Green county court: “We, the undersigned commissioners of the Cumberland & Ohio Railroad Company, hereby request that the county court of Green county submit to a vote of the -qualified voters of said county the question whether said county shall subscribe, for and on behalf of said county, and in pursuance of the provisions of the charter of said railroad company, two hundred and fifty thousand dollars to the capital stock of said company, payable in the bonds of said county, having twenty years to run, and bearing six per cent, interest from date, upon the conditions that said company shall locate and construct said railroad through Green county, and within one mile of the town of Greensburg, in the said county, and shall expend the amount so subscribed within the limits of Green county, and also upon the further condition that said bonds shall not be issued, or said county pay.any part of either principal or interest on said amount subscribed as aforesaid, until said county of Green shall be fully and completely exonerated from the payment of the capital stock subscribed by thq county court of said county, for and-on behalf of said county, to the Elizabethtown and Tennessee Railroad Company.” The county court thereupon made the following order: “Whereas, the commissioners of the Cumberland & Ohio Railroad Company, by virtue of the authority delegated to them by the charter of said company, have requested the county court of Green county to order an election in said county of Green, and submit to the qualified voters of said county the question whether said county court shall subscribe, for and on behalf of said county, two hundred and fifty thousand dollars to the capital stock of the Cumberland & Ohio Railroad Company, having twenty years to run, and bearing six per cent, interest from date, and payable in the bonds of said county, upon conditions that said company shall locate and construct said railroad through the county of Green, and within one mile of the town of Greensburg, in said county, and shall expend the amount so subscribed within the limits of Green county, and also upon the further condition that said bonds shall not be issued, or said county pay any part of the principal or interest on said amount subscribed to said •Cumberland & Ohio Railroad Company, until said county of Green is fully and completely exonerated from the payment of the capital stock voted by said county, and authorized to be subscribed by said Green county court to the Elizabethtown & Tennessee Railroad, or any part of the interest thereon. It is therefore ordered by the court that an election by the qualified voters of Green county, at the several voting places in said county, be held and conducted by the several officers, as prescribed by law, holding elections, on thé 3d day of July 1869, to vote on the question as to whether or not the said county court of Green county, shall, for and on behalf of said county, subscribe two hundred and fifty thousand dollars to the capital stock of the said Cumberland & Ohio Railroad, conditioned and to be paid as above stated.” The election was held, resulting in a vote in favor of the subscription, and at its June term, 1870, the county court entered the following order: ‘GVhereas, in pursuance of an order of this court made on the 17th day of June, 1869, an election was held in said county of Green on the 3d day of July, 1869, at the several precincts in said county, and it appearing that a majority of the qualified voters at said election decided that the county of Green should subscribe for two hundred and fifty thousand dollars of the capital stock of the Cumberland & Ohio Railroad Company: Now, it further appearing that said 'election was held in conformity with the law, and in accordance with the provisions of the charter of. the company, now, therefore, I, Thomas R. Barnett, the presiding judge of the Green county court, by virtue of the authority in me vested by law, and to carry out the wishes of said voters, do hereby subscribe for two hundred and fifty thousand dollars of the capital stock of the Cumberland & Ohio Railroad Company, for and on behalf of the said county of Green, which subscription is to be paid in the bonds of said county as prescribed in said order of submission, and this subscription is made with the condition set out in the order df this court ordering said election, and now on record in the office of this county.” At its October term, 1871, this further order was made: “On motion of E. H. Hobson, director of the Cumberland & Ohio Railroad, it is ordered that Z. F. Smith, president of the Cumberland & Ohio Railroad, be, and he is hereby, authorized to have printed for the county of Green the bonds, to the amount of two hundred and fifty thousand dollars, the amount of subscription of Green county to said railroad, in the following denominations, to-wit (the same to be conditioned as specified in the order submitting the vote of the said county): 125 bonds at $1,000, $.125,000; 20*0 bonds at $500, $100,000; 250 bonds at $100, $25,000.” At the January term, 1872, bonds to the amount of $1,300 were ordered to be issued, and at the February term, $5,000 more. _ At the April term, 1872, the following order was entered: “Application was this day made to the presiding judge of the county court of Green county by the president and board of directors of the Cumberland & Ohio Railroad Company to issue the balance of the bonds of said county, to the amount of the subscription of said county of Green, to the said Cumberland & Ohio Railroad Company; and, the court being sufficiently advised, it is ordered by the court that the balance of said bonds be, and they are hereby, ordered to be issued, to be signed by the judge of said county court of Green county, and countersigned by the clerk of said court, as required by the charter of said company.” Under this order the bonds here In controversy were issued. They read as follows: “United States of America. County of Green, State of Kentucky. For the Cumberland and Ohio Railroad. Twenty years' after date, the county of Green, in the State of Kentucky, will pay to the holder of this bond the sum of-with interest thereon at the rate of six per cent, per annum, payable semi-annually upon presentation of the proper coupons hereto 'attached, principal and interest, being payable at the Bank of America, in the city of New York; In testimony whereof, the judge of the said county of Green has hereunto set his hand and affixed the seal of said county, on the 1st day of April, A. D. 1871, and caused the same to be attested by the county clerk, who has also signed the coupons hereto attached.”

Appellee, James D. Shorten, is the holder -of six of these bonds, each for ttoei sum of $1,000, and of one bond for $500., He filed this suit against the county of Green to recoVer on the past-due coupons. The county pleaded in defense of the suit the conditions above set out. On the former appeal a demurrer was sustained to the answer on the ground that it did no:t state the facts relied on sufficiently to raise the question aimed to -be presented. See Shortell v. Green County, 22 R., 1010, 59 S. W., 522, 23 R., 144, 63 S. W., 979. On the return of the case to the circuit court, the answer was amended so as to set out all the facts above '-stated, and it was pleaded that the -conditions upon which the subscription was madia had not been complied with; that the Cumberland & Ohio- Railroad failed to erect or construct a line of railroad through Green county, or within one mile of the town of Greensburg; that there is no railroad now, -and never was any railroad, running through Green .county; that no part of the amount subscribed was ever spent in Green county in the construction of any railroad therein, and that the county was not exonerated from the payment of the capital stock voted by it to the Elizabeth-town & Tennessee, Eadlroad; that the conditions prescribed • in the" 'Subscription were all disregarded and never fulfilled ; and that the bonds' were issued without authority of law, in violation of the rights 'of the taxpayers of Green county. The court sustained a demurrer to the answer, and the defendant appeals.

0It is conceded that the appellee is a bona fide purchaser of the bonds, without notice of the defense now set up by the county, and the question to be determined is whether, notwithstanding this, the defense relied on is good against him. In determining this question, an important distinction is made by the authorities between those bonds which contain recitals certifying that the preliminary requisites for the issue of municipal bonds have all been complied with, and bonds containing m> such recitals. Thus in Citizens’ Savings Association v. Perry County, 156 U. S., 701, 15 Sup. Ct., 550, 39 L. Ed., 585, the United States Supreme Court said: “But it is urged that, the bonds having been executed and issued by those whose duty it was to execute and issue them whenever that could be rightfully done, tba county is estopped to plead their invalidity as between it and the bona fide purchaser for value. This argument would have force if the material circumstances bringing the bonds within the authority given by law were recited in them. In such a case, according to the settled doctrine of this court, the county would be estopped to deny the truth of the recital as against bona fide holders for value. But this court in Buchanan v. Litchfield, 102 U. S., 278 (26 L. Ed., 138), upon full consideration, held that the mere fact that the bonds were issued without any Tecital of the circumstances bringing them within the power granted was not of itself conclusive proof, in favor of a bona fide bolder, that the circumstances' existed which authorized them to be issued.” See, to same effect, Town of Coloma v. Eaves, 92 U. S., 484, 23 L. Ed., 579; School District v. Stone, 106 U. S., 183, 1 Sup. Ct., 84, 27 L. Ed., 90; Carroll County v. Smith, 111 U. S., 556, 4 Sup. Ct., 539, 28 L. Ed., 517; Hopper v. Town of Covington, 118 U. S., 148, 6 Sup. Ct., 1025, 30 L. Ed., 190. This doctrine was recently reaffirmed in the case of Provident Life & Trust Co. v. Mercer County, 170 U. S., 593, 18 Sup. Ct., 788, 42 L. Ed., 1156. The bonds in question containing no- recitals as to. the authority of the officers issuing -them, or as to the performance' of the preliminaries requisite to' their issuance, there is no estoppel on the county ix> plead the truth of these matters. Municipal corporations are simply agents of' the State for local purposes, and possess merely such powers as are expressly given, or may be properly implied because essential to effectuate what is expressly granted. 1 Dillon on Municipal Corporations, section 189; Ottawa v. Carey, 108 U. S., 110, 2 Sup. Ct., 361, 27 L. Ed., 669. The officers of a municipality have only such powers as are conferred upon them by law, and all persons dealing with them are required to take notice of the extent of their authority, because all persons are required to take notice of the laws of the land. Mayor of Baltimore v. Reynolds (Md.) 83 Am. Dec., 535; Marsh v. Fulton County, 10 Wall., 683, 19 L. Ed., 1040. When the bonds of Green county were, offered upon the market, every person buying them was put upon notice that the counties of this State had no authority to issue bonds of this character by the general laws of the State, and that the bonds in question were not binding on ■the county unless issued by special legislative authority. It was therefore incumbent upon all before buying these bonds to learn by what authority they were issued. It was shown by the bond® that they were issued “for the Cumberland and Ohio Railroad.” They were made payable to the holder. When the purchaser looked to the charter of the Cumberland & Ohio Railroad, he was informed by it that the county court could only issue the bonds of the county after the ■question of • making the subscription had bqen submitted to the qualified voters, and a majority of them had voted in favor of the subscription. He wa® also informed that the .county might make a subscription on such conditions as it saw fit. There being nothing on the face of the bonds to advise Mm on these matters, it was incumbent on him, before buying paper which was invalid in the absence of express authority in the officials, to look to the record, and see under what circumstances these bonds bad coma into existence. When be looked to the record of the Green county ■court, which, under the act, he was bound to know would set forth the facts, be was apprised that the subscription ■was made upon the conditions that the company would locate and construct its railroad through Green county, and within one mile of the town of Greensburg, and would expend the amount so subscribed within the limits oí Green county, and also upon the further condition that the bond® ■should not he issued, or the co’unty pay any part of either ■principal or interest, until it wia§ fully exonerated from the .subscription to the Elizabethtown & Tennessee Railroad •Company. He wa® also notified that, in the, order of the court under which the vote was taken, it was expressly submitted whether the county would subscribe $250,000 to the capital stock of the Cumberland & Ohm Railroad, “conditioned and to he paid as above stated,” and that in the order making the subscription it was ‘Stipulated, “This subscription. is made with the condition set out in the order of this court ordering said election and now on record in thie office of this county.” He was further notified that, in the order directing the bonds to- be printed, it was provided, “the same t-p- be conditioned as specified in the order submitting the vote, of the said county.” These orders of the county court were the authority under which the bonds were issued, and the only authority which the officers issuing .them had. They plainly disclosed the fact not only that the subscription was conditional, but that it was “to be paid as above stated,” and that the bonds were “to be conditioned as specified in the order submitting the vote.” The county officials had no- authority to issue a bond not conditioned as -specified in the order .submitting the vote,, for the subscription was expressly conditioned, and only to be paid on condition. If the county officials had followed the -order of the county court,-and issued bonds condition-ed as specified in the order submitting the vote, the bonds, on -their face, would have informed every purchaser of the conditions on which they were voted. But when the county officials neglected to- do- tMs, and issued instead a naked promise to -pay, without any recital of the authority under which it was issued, the purchaser was put upon inquiry as to their authority, and their want of authority is as available against him as the facts pleaded would have been, had they followed their authority, and conditioned the bonds as specified in the order .submitting the vote/ In executing the bond® in their present form, the county officials < may have supposed that the rights of -the county were sufficiently protected by .the orders entered in the county court. The rule on the .subject is thus .stated in Hainer -on Municipal Securities, section 413: “Where bonds purporting to have been issued by a municipality contain no- recitals of an election, or of 'proceedings and orders of the municipality, but are mere naked promises to pay, every purchaser and holder of the securities is’ chargeable with notice of whatever appears upon the face of the records. If in such case it appears upon the face of the records that the commissioners had no authority to issue the bonds, the municipality could avail itself of that want of authority as a defense to an action even by ,a boma fide holder. When the laws or constitutional provisions relating to the issuance of county bonds point to the county records as evidence of facts required to authorize their issuance, such records, and not the recitals in the bonds, must be. looked to by all persons proposing to deal in them.” In Lewis v. Bourbon County Com’rs., 12 Kan., 216, the court, by Judge Brewer* said: “Every one dealing with the commissioners or purchasing sraeh securities must take .notice of the law under which they act. . . . That these bonds are negotiable paper does not alter the case. The law merchant does not make the act of an agent proof of his authority.” In Veeder v. Town of Lima, 19 Wis., 287, the court, by Chief Justice Dixon, said, after referring to similar statutory provisions as in the act referred to: “These provisions mark very clearly to my mind the intention of the Legislature that all persons negotiating for the bonds, whether directly with the supervisor or with third parties, must look to the records, and govern themselves accordingly. They are public records, open at all times to inspection; or, if in any cases it is inconvenient or-impracticable, transcripts can be had at a trifling expense.” In Cooley on Constitutional Limitations, in a note to side page 217, after collecting many .authorities as to the effect of recitals in such bonds, and quoting at length from Gould v. Town of Sterling, 23 N. Y., 464, which is to th© effect that the municipality is not bound by recitals in bonds, if unauthorized, the distinguished author says: “It is, of course, impossible to reconcile these authorities, but the doctrine in the case of Gould v. Town of Sterling appears to us to be sound, and that, wherever a want of power exists, a purchaser of the security is chargeable with notice Of it, if the defect is disclosed by the corporate records, or, 'as in that case, by other records, where the power is required to be shown.”

It is insisted, however, for appellee, that, by the terms of the subscription, it was made upon the condition that the bonds should not be issued, or the, county pay any part of either the principal or interest of the amount subscribed, until the county was exonerated from the payment of its subscription to the Elizabethtown & Tennessee Railroad. It is urged that this part of the condition was made- precedent to the issuing of the bonds, but that the rest of the condition, to the effect that the company should locate and construct its road through Green county, or within one mile of Greansburg, and expend the amount subscribed in' Green county,' was not made a condition precedent to the issue of the bonds, aind therefore only an obligation was imposed upon the railroad company, for the performance of which the county only looked to if. It is also insisted that it is shown by the record that the subscription to the Elizabethtown & Tennessee Railroad was void. We .can not concur in either of these conclusions. The meaning of the contract, taken as a whole, is that the subscription is upon the condition that the company shall .locate and construct its railroad through Green county, and within one mile of Greensburg, and expend the amount subscribed in the limits of Green county; and the further condition is added that the bonds are not to be issued, or anything paid on account of the subscription, until the county is exonerated from its former subscription to the Elizabethtown & Tennessee Railroad. In other words, the bonds are not to be issued until this release is made, and after the release is made the bonds' may be issued, but they are to be subject to the condition that the company should locate and construct its road as above set out. The railroad authorities, in applying to the county court for a vote on this subject, intended by their petition for the people of the county to understand that, before any liability was created, the old subscription to the Elizabethtown & Tennessee Railroad was to be out of the way entirely, and that after this was done the promise of the county to pay was to be conditioned on the location and construction of the road through Green county, and within one mile of the town of Greenstourg. In construing the contract, the court must bear in mind that it was a proposition submitted by the railroad company to be voted on by the people of Green county, and that construction must be adopted which was clearly contemplated by the parties .at the time. The railroad company intended the people to understand, and the people understood, from the paper when they voted on‘the subscription ,that they were to get a railroad through the county, and that, if they did not. get it, their subscriptions, being “conditioned and to be paid as above stated,” would not'be binding upon the county. That this was the understanding of the parties is conclusively .shown by the order of the county court, made on the motion of the railroad company, directing the bonds to be printed, “the same to be conditioned as specified in the order .submitting the vote of the said county.” As to the matter of .the subscription to the Elizabethtown & Tennessee Railroad, the record shows the following, order of the -county court, made on May 20, 1868: “This day T. R. Barnett, presiding judge, and D. T. Towles, clerk, of the Green county court, produced their certificate in words and figures as follows, viz.: ‘We, T. R. Barnett, presiding judge, and D. T. Towles, clerk, of the Green county court, duly authorized to compare the pollbooks of Green county, certify that at an election held in said county at the various voting places in said county on the 16th day of May, 1868, on the question whether the county court of Green county shall, for and on behalf of said county, subscribe, for 3,000 shares of the capital stock of the Elizabethtown & Tennessee. Railroad Company, to be paid for in the bonds of said county, payable in twenty years, and bearing sis .per cent, interest, payable semiannually in the city of New York, with interest coupons attached thereto, and that 586 votes were cast for said subscription, and 204 against said subscription. May 20th, 1868. T. R. Barnett. B. T. Towles.’ It is therefore ordered by the court that the said vote be and is now entered of record as follows, to-wit: 586 votes were cast for said subscription, and 204 votes were cast against said subscription, showing that there is a majority for said subscription of 382 votes. It is now, therefore, ordered ■ that the clerk of this court, for and on behalf of the county of Green, make said subscription on the terms specified in the order submitting the question to a vote as aforesaid.”

It is insisted that the order is void because the county court, instead of making the - subscription, delegated this duty to its clerk; and Mercer County Count v. Kentucky River Navigation Company, 71 Ky., 300, is relied on. But in that case the order of the county court appointing the commissioner to make the subscription contained these words: “But said commissioner is directed not to subscribe said stock, or any part thereof, until said company shall, by proper orders entered on the books, agree that no part of .their subscription shall be mortgaged under the provisions of the tenth section of the act of the Kentucky Legislature incorporating said .company, nor shall the county of Mercer be in any manner bound for the subscription herein decreed to be made until said company has accepted it upon the conditions herein set forth.” It was held that the power of the county court to make, the subscription, being conferred by law, must be exercised by it, and that it could not confer upon a commissioner the power to determine important questions submitted for its determination: The ground of the decision was that there was no subscription unless certain things were done, and the commissioner was to determine whether these things were done, and thus, by the exercise of his discretion, determine whether the subscription should be made, whereas the law had vested this discretion alone in the county court. But the. case before us is wholly different. No discretion is conferred upon the dounty clerk. He is simply directed absolutely to do a clerical act. County courts can not conveniently sign subscription papers or documents of this kind, and for convenience such bodies usually act by a commissioner or agent in the discharge of the mere clerical *duty of signing the papers. Such a course of doing the business has been often sustained. 23 Am. & Eng. Ency. of Law (2d Ed.) 365; Miller v. New York, 109 U. S., 385, 3 Sup. Ct., 228, 27 L. Ed., 971; Birdsall v. Clark (N. Y.) 29 Am. Rep., 105; Bur-rill v. Nahant Bank (Mass.) 35 Am. Dec., 395; Dillon on Mun. Corp., section 60. As the. case is here only on demurrer, the - question is not presented on whether the subscription was in fact made.

Again it is urged that four and one-half miles of railroad have been built in Green county by .a successor of the Cumberland & Ohio Railroad Company, and this is relied on as a compliance with the condition of the contract, under the case of Providence Trust Co. v. Mercer County, 170 U. S., 602, 18 Sup. Ct., 788, 42 L. Ed., 1156; but that case rests on 'the peculiar facts there shown, it being held, in effect, that the contract was substantially complied, with. This is not the case here. There has been' no substantial compliance with the contract. The road was to be built from the Ohio river to the Tennessee line, and the subscription was made on the condition that it was to be paid when the road was constructed through Green county. It has never been constructed through Green county, nor does its construction in any manner approximate a fulfillment of the conditions'. To hold that there has been a compliance with the terms of the contract would be to give no effect to 'the natural meaning of the language used. Peoples' Ferry Co. v. Balch, 74 Mass., 303; Memphis, &c., Ry. Co. v. Thompson, 24 Kan., 170.

The fact that the county paid the interest on the bonds for a few years does not estop it to show their invalidity. Norton v. Shelby County, 118 U. S., 425, 6 Sup. Ct., 1121, 30 L. Ed., 178; District Tp. of Doon v. Cummins, 142 U. S., 366, 12 Sup. Ct., 220, 35 L. Ed., 1044; Mercer County v. Providence Life & Trust Co., 72 Fed., 623, 19 C. C. A.,. 58; Graves v. Saline Co., 161 U. S., 373, 16 Sup. Ct., 526,. 40 L. Ed., 732.

We, therefore, conclude that, upon the facts shown, the county of Green is not liable upon the bonds sued on, and that the court should have overruled the demurrer to the answer. As the case was submitted both on a demurrer and a motion for judgment, notwithstanding the answer, we will not now direct a judgment to be entered for the defendant. As the bonds in contest contain no recitals, no opinion is intimated on the conflict of authority referred to by Judge Cooley as to whether municipal officers issuing bonds without authority can estop 'the municipality by reciting in the bonds that they have such authority.

Judgment reversed and cause remanded for further proceedings not inconsistent herewith.

Whole court sitting, except Judge Settle, who declined to sit in the case.

Petition for -rehearing by appellee overruled.