City of Atchison v. Butcher

3 Kan. 104

• Court: Supreme Court of Kansas
• Decided: January 15, 1865
• Status: Published

Opinion

By the Cov/rt,

Crozieb, C. J.

The city of Atchison was created a corporation under the act of the territorial legislature approved Eeb. 12,1858. That act contained among others, the following provisions:

“ Section 30: Power to subscribe for stock in railroad companies — proviso, question to be submitted to the people. That the city of Atchison as hereby incorporated shall have power to subscribe for stock in any railroad company proposing to build a railroad leading to or from said city of Atchison in Kansas territory or opposite to said city on the bank of the Missouri river in the state of Missouri, provided that the stock subscribed for and actually paid in, shall not at any time exceed two hundred thousand dollars; and provided also that said city shall not subscribe for more than one hundred thousand dollars of such (stock) in any one year; provided also that said city shall not subscribe for any such stock at any time until a proposition for thus subscribing shall have been submitted to a vote of the qualified voters in said city, and if a majority of the votes polled approve of the proposition, the stock may be subscribed, otherwise it shall not be.”

“ Section 31. Bonds of the city may be issued for railroad stock; the city may appoint agents, borrow money, etc. That in order to carry out the provisions of the preceding section the bonds of said city may be issued for said railroad stock or for the loan of money to pay for the same, bearing interest at the rate of ten per cent, per annum; and the authorities of said city may by ordinance or otherwise provide for subscribing for said railroad stock, or issuing the bonds of the city to raise said funds in any manner they may deem proper,, and in order to the accomplishing said purposes may appoint agents or do and perform any other act deemed advisable to carry into effect this and the preceding section.”

On the 27th day of February I860, the charter was amended by the enactment of the following :

“ Section 1. To provide for a sinking fund; to levy a special tax for 1860 not exceeding two per cent — proviso: The mayor and council of the city of Atchison for the purpose of paying the interest on and providing a sinking fund for the [payment of the principal of all bonds which have been or may hereafter be issued by said city in payment of the subscriptions of stock in any railroad company, shall have power by ordinance to levy a tax in addition to the taxes for the general purposes of said city on all real and personal property in said city subject to taxation for general purposes; provided however, that such special tax shall not for the year 1860 exceed two per centum of the assessed value of the property, and for every year thereaf ter shall not exceed one per centum of the assessed value ; and provided further, that such special tax for the year 1860 on such property as was not assessed for taxation for the year 1859 exceed the sum of one per centum of its assessed value, and the mayor and council may refund 'to all who may have paid a ta,x under an ordinance of said city for railroad purposes during the year 1859 the amount sq paid by them.”

March 15th 1858, an ordinance was passed by the city council requiring an election to be held on the 18th day of that month for the purpose of submitting to the qualified voters of the city a proposition to take stock in a railroad leading from St. Joseph to a point on the Missouri river, opposite Atchison, to the amount of one hundred thousand dollars, and to issue the bonds of the city therefor. An election was so held, at which a majority of the votes given' was in favor of the. proposition.

On the 29th of the same month an ordinance was passed appointing Samuel C. Pomeroy the agent of the city to subscribe for it for stock in such railroad to any amount not exceeding one hundred thousand dollars, and also provided the manner in which the bonds of the city should be issued, when payable, the rate of interest they should bear, &c. One section of this ordinance is as follows:

“ Section í. The said agent shall have power to sell all ■ bonds at not less than seventy-five per cent, of the amount so mortgaged or pledged at a rate of interest of not more than ten per cent, per annum.”

The agent so appointed subscribed for stock in the Atchison and St. Joseph Railroad Company to the amount of seventy thousand dollars, to be paid for in the bonds of the city at seventy cents on the dollar.

In August 1858 an ordinance was passed authorizing the mayor to execute to the railroad company bonds to the amount of fifty thousand dollars, and in January of the next year the amount was increased to one hundred thousand dollars.

The form of the bonds issued under this authority was prescribed by ordinance, and they were made payable to the “Atchison & St. Joseph Railroad Company,” not to “bearer ” or “ order.” The interest coupons attached to them were payable to “bearer.” During the year 1859 bonds to the amount of one hundred thousand dollars were delivered to the railroad company and stock to the amount of seventy thousand dollars was issued to the city, since which time the city has voted in the company upon the stock, and both before and subsequent to the enactment of the amendment to the charter on the 27th of Feb. 1860, has levied and collected a tax to pay the interest on the bonds, and in some instances has paid the interest to the holders of coupons.

Some of these bonds were assigned by the railroad company to the defendant in error, the unmatured coupon being attached thereto. The action in the court below was instituted upon these coupons and was submitted upon an agreed statement of facts substantially above set forth. The court found the facts as agreed upon and gave judgment for the plaintiff below for the amount of the coupons which were due, and interest from the time they were payable. For the purpose of having this judgment reviewed the case is brought here.

At the time of issuing these bonds the city of Atchison was a municipal corporation, and as such could exercise such powers as were conferred upon it by the act of the legislature which created it, and none other. It took no powers by implication. It had power to take stock in the proposed railroad company and pay for it in its bonds if a majority of the qualified voters should consent thereto, and when the bonds should be executed and offered either in payment of the stock or as security for money borrowed with which to pay for it, the legal presumption so far as the creditor or the company would be concerned, would be that all the necessary steps to the legal issuance of the bonds had been taken. So in this instance; the railroad company when these bonds were offered in payment of their stock were not bound to inquire whether there had been an election at which the proposition to take the stock had been submitted to the qualified voters and supported by a majority of them. This the company had a right to presume. But in fact an election had been held and a majority of the votes was in favor of the proposition. The only objection to the election that counsel insisted on was, that it was held the third day after the ordinance calling it was passed. It is true there was but a short time, but it may have been amply sufficient in this case. Every qualified voter in the city may have voted for aught that appears in the record to the contrary; and if such was the fact the objection as to time would have but little force. Certainly in the absence of all proof the court ought not to presume that the time was too short; and especially so when such presumption could not in any way affect the rights of the bond holder.

Further than above indicated, however, the presumption could not go. The power of the corporation to dispose of the bonds when executed was regulated by a law which all parties were presumed to know. The act of the legislature authorizing the subscription and the issuing of the bonds was a public law, of which all must take notice. It authorized the city “to issue bonds for the stock or for money to pay for the same, bearing interest at the rate of ten per cent, per annum.” It was not authorized to sell bonds and thus raise money to pay for the stock. If that course were adopted and the bonds sold below par, the rate of interest would be increased above what the law authorized. It certainly was not contemplated that the value of the stock would be above par, nor could it have been expected that the bonds would have been worth less than the stock. If the bonds could lawfully be bartered at a discount, then if the money was borrowed upon them the stock might have been bought at a premium, which certainly was not contemplated. The proper construction of the provision is that this stock might be paid for at par in bonds at par or paid for in money borrowed at ten per cent, per annum. .If the city authorities exceeded their power in this respect their act was void. They had no power to barter the bonds at seventy per centum for stock at par, and there could be no presumption in favor of such exercise of power.

Added to this the city gave its agent no power to dispose of them for less than seventy-five per centum of their par value. He went entirely beyond his authority, and the railroad company were as much bound .to know the extent of this power when treating with him as if he had been the agent of a private individual. The transaction as it then stood was void, and the railroad company could not have recovered upon the bonds either for principal or interest.

But it is claimed that the plaintiff below Was a ~bona fide holder of the coupons sued on, without notice of the original transaction, and hence the fact of the illegality of the barter is no defense as against him. Such would undoubtedly be the case if the. bonds were negotiable or had he received the coupons disconnected from the bonds. It will be observed that the bonds were not made payable to bearer, order or assigns of the railroad company, but to the company alone, while the coupons were payable to bearer. The agreed statement shows that the bonds to which the coupons in suit were attached, were transferred to the plaintiff below in payment of a debt by the railroad company. He had ample notice upon what the interest was payable and could not in the nature of things be an innocent holder. He occupied the same position with reference to the coupons that a man would be in who has bought a promissory note payable to bearer after he was notified of a defense by the maker. In no sense was he an innocent holder. So that under the circumstances he occupied precisely the same 'position with reference to the bonds and coupons that the company did, and if they could not maintain a suit thereon, he could not.

But it is claimed that although the city authorities may have exceeded their power in the issuing of the bonds, yet their act has been since ratified by the city by the collection of taxes and the payment of interest. It must be apparent that if the city had no power to make the original transaction it could not without additional legislation ratify it. If the act of incorporation had not been changed no number of payments of interest could have amounted to a ratification. There was no power in the city to ratify. It is a creature of law and can do nothing except where the power is specifically conferred. It had no power to dispose of the funds as it originally did, and never could have cured the illegality without additional power. The additional power, however, was in this instance conferred. The amendment to the charter hereinbefore quoted, conferred the power of ratification. The city is directly authorized to levy taxes to pay the interest and principal of these bonds. Such taxes have for several years since that time been levied and paid, and the proceeds applied in payment of the interest. This is such a ratification as cures the original illegality.

Having constantly availed themselves of the privileges the possession of the stock conferred, and having been endowed with ample authority to that end, the people with commendable alacrity took upon themselves the burden of paying for it, long after the benefits of the expenditure had been realized. It is very evident from the facts that no disposition to repudiate these bonds can be attributed to the people of that city generally. The necessity for the suit in the court below must have grown out of the non-action, either accidental or intentional, of a very few individuals.

The conclusions of the court are, that the city of Atchison had no power prior to February 1860 to issue bonds for railroad purposes and barter them for stock at seventy per centum — that the same defense might have been interposed to a recovery on the coupons in the hands of the plaintiff, that might have been sustained..against the railroad company; that the act of 1860 conferred upon the city power to ratify its former illegal act, and that it did ratify it.

The judgment will be affirmed.

All the justices concurring.