County of Wapello v. B. & M. R. R.

44 Iowa 585

• Court: Supreme Court of Iowa
• Decided: October 24, 1876
• Status: Published

Opinions

Day, -J.

i. contract: soiiptfon tob’ railway stock. I. A very considerable portion of the argument. upon both sides is devoted to the question whether the' contract of subscription is entire, or divisible. The defendant insists that the subscription was for one th0'usan(i shares, payable in installments as provided in the articles of incorporation, and that plaintiff is not entitled to certificates of stock, until all the installments are paid; whilst plaintiff claims that the contract was that a certificate of stock was to be issued for each bond as delivered.

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 the issuing of full paid certificates of stock only upon payment of all the installments ás assessed. In no other way could effect be given to the provision for the forfeiture of the, stock and payments, in case of delinquency.

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* raises a very strong presumption against the existence of a contract so exceptional in its character,.and conferring upon the county privileges so superior' to those granted to other subscribers to the capital stock.

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, and they proved to be mere receipts for the installments paid. It is evident that the distinction between' a receipt and a certificate of stock is not clearly defined in the mind of the witness. Rorer, who was present at the time as the attorney of the company, and helped fill out the bonds, testified that they were asked for and issued in payment of the first six installments upon the county subscription, and that he believes Cock receipted for them as such to the county .judge. This witness produces a copy of a receipt given to ITenr.y county upon a like issue of bonds, and testifies that it was designed to act alike in regard to each county. The record kept by the county judge also shows that the bonds were issued in payment of installments due upon the subscription.

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..

The only remaining item of evidence to which we are referred is a copy of the bonds delivered by the county, containing the following provision: “And the said county of Wapello doth also hereby agree to transfer to the holder hereof, on the first day of February, in the year 1870, or on the first day of February in any year prior thereto (when the holder shall elect to receive the same), on the delivery of this obligation and the unpaid interest coupons to said county, ten shares of the capital stock of the Burlington & Missouri River Railroad Company, of one hundred dollars each, subscribed for and issued to said county in exchange for and in satisfaction of this obligation.”

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.

2. —effect tkmd;i'ldica II. The county having subscribed for one thousand shares of the capital stock of defendant, payable in installments of not exceeding five per cent per .month, subject to the right of the defendant to declare a forfeiture of both the stock and the payments made for a failure to pay an installment when due, and with a. right to paid up certificates of stock only when all installments are paid, and having paid but six installments of five per cent each, it follows that plaintiff is not entitled to certificates of stock unless in some manner it is to be excused for its delinquency.

Plaintiff insists that,, notwithstanding the failure of plaintiff to pay fourteen installments upon the stock subscribed, amounting to seventy thousand dollars, it is still entitled to paid up certificates of stock for the installments 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 it to issue said additional seventy thousand dollars of bonds. The county resisted the demands of the railroad company in the mcmdmvus suit, and employed counsel to defend the same. In this case, determined in 1862, it was for the first time held that counties have no corporate power to become subscribers to the stock of railroads; that the election held by plaintiff was void, and that the company could not compel the county to issue bonds in payment of its subscription. See 13 Iowa, 388.

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 performance upon the part of the other contracting party, although he has not himself performed, upon the ground that he is excused because of the illegality of his agreement.

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 substitution of another, and the enforcement against the defendant of an agreement which it did not make.

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.

3.-: statSonsflmuta'’ III. The right of plaintiff to a money judgment, on account of damages sustained by the delivery of the bonds in question, was discussed in a supplemental argument, pursuant to request of this court. We deem it unnecessary to consider that question upon its merits, because we feel satisfied that any claim for relief based upon such ground is clearly barred by the statute of limitations.

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.

Beck and Adams, JJ., dissenting.