First National Bank v. Nye County

145 P. 932, 38 Nev. 123

• Court: Nevada Supreme Court
• Decided: October 15, 1914
• Docket: No. 2042
• Status: Published

Opinions

By the Court,

Norcross J.,

after stating the facts:

[1] The notes sued upon in this case were issued under and by virtue of the provisions of sections 6 and 7 of an act entitled "An act relating to county government and the reduction of the rate of county taxation,” approved March 13, 1903 (Rev. Laws, secs. 3831, 3832), which read:

"Sec. 6. In case of great necessity or emergency, the board of commissioners by unanimous vote, by resolution reciting the character of such necessity or emergency, may authorize a temporary loan for the purpose of meeting such necessity or emergency, but such resolution shall not take effect until it has been approved by resolution adopted by a majority of the state board of revenue, and the resolution of the state board of revenue shall also be recorded in the minutes of the county commissioners.

" Sec. 7. It shall be the duty of the commissioners at the first tax levy following the creation of such emergency indebtedness to levy an extra tax sufficient to pay the same, which shall be designated ' emergency tax. ’ ”

It is contended that boards of county commissioners are not empowered to issue negotiable promissory notes under the provisions of section 6, and, further, that sections 6 and 7 are unconstitutional and void, because relating to a subject not embraced in the title of the act, in violation of section 17, art. 4, of the constitution.

The sections in question, we think, are not within the constitutional inhibition. The act provides for a gradual reduction of the tax rate in the several counties of the state until a certain prescribed rate is reached, which should thereafter be the maximum rate. Boards of commissioners are required annually, prior to the first Monday in March, to make a budget of the amount estimated to be required to meet the expenses of conducting the public business of the county for the next ensuing year. Such boards are prohibited from allowing or contracting for any expenditure unless the money for the payment thereof is in the treasury and especially set aside for such payment. A violation of this provision subj ects the commissioners to removal from office. Recognizing that unforeseen necessities or emergencies might arise requiring the expenditure of additional money not provided for in the general tax levy, sections 6 and 7 were inserted in the act to make provision for meeting such necessities or emergencies. These provisions are therefore in harmony with the general purposes of the act.

[2-3] We think the language of sections 6 and 7, supra, will not -justify a construction implying a power in the board of county commissioners to execute a negotiable promissory note as security for money borrowed under the provisions of said section 6. It will be noted that there is no express authority for the execution of any negotiable instrument as security for the money borrowed. It has been repeatedly decided by this court that boards of county commissioners are of special and limited jurisdiction, and that authority to do any act must have specific statutory provision therefor, or must be clearly implied from other language contained in the statute. The loan authorized under the provisions of the section in question is specified to be "temporary” in character. A tax is required to be levied at the next annual tax levy to meet the same; hence the duration of the indebtedness is only contemplated to be a year or less. The special emergency tax required to be levied under the provisions of section 7 provides a certain and sure method of extinguishing the debt at the earliest possible date. The shortness of the duration of the loan and the special tax to secure its liquidation negative an intent upon the part of the legislature to authorize the issuance of a negotiable instrument. The security provided for the repayment of the sum borrowed is ample and absolute, and it cannot b.e assumed that a negotiable instrument is manifestly necessary to secure the payment of such a debt. It is a well-established general rule, supported by numerous authorities, that boards of county commissioners are without power to issue negotiable bonds or notes, except by virtue of express provision of statute or where the language of the statute, is such that the right to issue negotiable instruments is clearly implied. For example, it has been held that, where a board of county commissioners has been empowered to issue bonds payable a long time in the future, without express provision that such bonds should be negotiable in form, the right to issue the same in form negotiable was implied. (Ashley v. Board, 60 Fed. 55, 67, 8 C. C. A. 455.)

Judge Thayer, speaking for the Circuit. Court of Appeals, Eighth Circuit, in Ashuelot National Bank v. School District, 56 Fed. 197, 199, 5 C. C. A. 468, 470, said:

"It is unnecessary for us to assert that the decision last referred to (Brenham v. Bank, 144 U. S. 173, 12 Sup. Ct. 559, 36 L. Ed. 390) goes to the full extent last indicated of holding that a municipal corporation can only acquire authority to issue negotiable securities by a statute which confers such power in express language, and that the power will not be implied under any circumstances. We think, however, that we may fairly affirm that the two authorities heretofore cited do establish the • following propositions: First, that an express power conferred upon a municipal corporation to borrow money for corporate purposes does not in itself carry with it an authority to issue negotiable securities; second, that the latter power will never be implied in favor of a municipal corporation, unless such implication is necessary to prevent some express corporate power from becoming utterly nugatory; and, third, that in every case where a doubt arises as to the right of a municipal corporation to execute negotiable securities the doubt should be resolved against the existence of any such right. ”

In Coffin v. Board of Commissioners, 57 Fed. 137, 140, 6 C. C. A. 288, 292, Judge Thayer, speaking for the same court, also said:

"Finally it is proper to call attention to the rule of law which requires the authority of a municipal corporation to issue negotiable paper to be clearly made out and established whenever the existence of such a power is called in question. A power of that nature will not be deduced from uncertain inferences, and can only be conferred by language which leaves no reasonable doubt of an intention to confer it. ”

Also, 11 Cyc. 551, says:

" Express authority is not in all cases required for the issuance of negotiable paper, but may be implied from other express powers granted. There is, however, no room for any implication of such power where a statute makes other specific provision for the payment of indebtedness, as by taxation, etc., or by warrant on the treasurer for money payable out of a designated fund or any money in the treasury not otherwise appropriated. ”

See, also, County of Hardin v. McFarlan, 82 Ill. 138; Claiborne Co. v. Brooks, 111 U. S. 400, 411, 4 Sup. Ct. 489, 28 L. Ed. 470; Brenham v. Bank, 144 U. S. 173, 12 Sup. Ct. 559, 36 L. Ed. 390; Gause v. City of Clarksville, 5 Dill. 165, Fed. Cas. No. 5,276; notes, 30 Am. Dec. 193, and 51 Am. St. Rep. 830.

It is urged by counsel for respondent that this court, in the case of Douglass v. Virginia City, 5 Nev. 149, sustained the view that a municipal corporation, unless in some way restricted by its charter, could enter into any contract necessary to enable it to carry out the powers conferred upon it — execute and deliver negotiable promissory notes in discharge of its legitimate powers — and that such decision is an authoritative declaration of this court directly in point in this case. The suit involved in the Virginia City case was upon a promissory note negotiable in form, but the question of the power of the municipal authorities to issue a negotiable instrument does not appear to have been raised in that case or specifically considered by the court. All the objections urged against a recovery in that case would have applied with equal force if the notes sued upon had been non-negotiable. The only authority cited in the decision was that of Ketchum v. City of Buffalo, 14 N. Y. 356. This latter decision sustained the power of a municipal corporation to issue a negotiable instrument in order to carry out certain express powers conferred by the city charter. But this court, in considering the Virginia City case, made no reference to this part of the decision in the Buffalo case.

When the case of Douglass v. Virginia City was before this court, there were comparatively few authorities available upon the question of the power of counties and municipal corporations, in the absence of express authority, to issue negotiable instruments. The question had not then received the consideration which courts and text-writers have subsequently devoted to it. It would also appear from the authorities that a more strict rule prevails in reference to the exercise of such a power by county authorities than in the case of strictly municipal corporations.

In the case of Gause v. City of Clarksville, 5 Dill. 165, Fed. Cas. No, 5,276 (decided in 1879, ten years later than the Douglass v. Virginia City case), Judge Dillon, speaking for the Circuit Court of the United States, said:

" We are aware that the American courts, as to private corporations organized for pecuniary profit, have very generally held a different doctrine, and affirmed their implied or incidental power to make commercial paper. (Dillon on Municipal Corporations, secs. 81, 82, 407, and cases cited.) But the powers of private corporations in this regard are not here material. The American judgments which have affirmed the like power in municipal corporations have done so upon this course of reasoning: The corporation, they argue, has power to contract a debt, and it is assumed to be incident to that power to give a note or bill or bond in payment of it. Thus, in Kelley v. Brooklyn, 4 Hill (N. Y.) 263, Cowen, J., makes the basis of the judgment the erroneous proposition that, independent of any statute provision, all corporations, private and municipal, may issue negotiable paper for a debt contracted in the course of its business; and other courts have, without examination, adopted this mistaken view of the law. (Galena v. Corwith, 48 Ill. 423, 95 Am. Dec. 557; Clarke v. School District, 3 R. I 199; Sheffield v. Andress, 56 Ind. 157; Tucker v. Raleigh, 75 N. C. 267; Ketchum v. Buffalo, 14 N. Y. 356; Douglass v. Virginia City, 5 Nev. 147; Sturtevants v. Alton, 3 McLean, 393, Fed. Cas. No. 13,580.) It sufficiently appears from the foregoing that it is a mistake to affirm that the power to issue negotiable paper necessarily or legally results from the corporate power to create debts. ”

The decision in the case of Galena v. Corwith, 48 Ill. 423, 95 Am. Dec. 557, cited supra by Judge Dillon, was subsequently materially restricted, if not entirely overruled, in Hardin v. McFarlan, 82 Ill. 138, and in Commissioners v. Newell, 80 Ill. 587.

We would not, we think, be warranted in sustaining the judgment in this case upon the authority of Douglass v. Virginia City, for the reasons stated.

[4] It is contended by counsel for appellant that subdivision 13 of section 8 of an act entitled " An act to create a board of county commissioners in the several counties of this state, and to define their duties and powers,” approved March 8, 1865 (Stats. 1864-65, c. 80), is applicable to section 6, supra, of the act of 1903. The subdivision in question reads as follows:

"To do and perform all such other acts and things as may be lawful and strictly necessary to the full discharge of the powers and jurisdiction conferred on the board.” (Rev. Laws, sec. 1508.)

We think this subdivision is only applicable to the section of which it constitutes a part, but, even if it could be said to be applicable to section 6, supra, of the act of 1893, it cannot be said, we think, that the issuance of negotiable .promissory notes is strictly necessary to the full discharge of the powers prescribed in said section 6.

[5] It is next contended by counsel for appellant that the notes sued upon were issued without authority of law, for the reason that the recitals contained in the resolution adopted by the board of county commissioners of Nye County, and purporting to state the facts constituting a great necessity or emergency, were insufficient to authorize the negotiation of the loan for the payment of which the notes were issued. It is admitted that the county received the money represented by the principal of the several notes sued upon, used the same in the business of the county, and levied and collected a tax for the payment of the same. While at the time the county was negotiating the loan in question any taxpayer of Nye County might by appropriate proceedings have tested the question whether the alleged emergency or necessity, as set forth in the resolution of the board of county commissioners, was strictly an emergency or necessity contemplated by the law, the county itself will not be heard to question the sufficiency of its own resolution for the purpose of defeating the payment of the loan which it has secured and the money from which the county has received the benefit of. The resolution adopted by the county commissioners also met with the approval of the state board of revenue, the two bodies empowered by the statute to determine the question, and the county is estopped from questioning the regularity of its own proceedings when it has received all the benefit of the money paid to it by virtue of such loan. (Orleans v. Platt, 99 U. S. 677, 25 L. Ed. 404; Gas Co. v. San Francisco, 9 Cal. 453; Illinois Co. v. Arkansas City, 76 Fed. 271, 22 C. C. A. 171, 34 L. R. A. 518; Herring v. Modesto Irr. District, 95 Fed. 705; Cronin v. Patrick Co., 89 Fed. 79; Argenti v. San Francisco, 16 Cal. 258; Chicago v. R. R. Co., 244 Ill. 220, 91 N. E. 422, 135 Am. St. Rep. 316; Coffin v. Kearney Co., 57 Fed. 137, 6 C. C. A. 288; Bissell v. Jeffersonville, 24 How. 287, 16 L. Ed. 664; Lynde v. County, 16 Wall. 6, 21 L. Ed. 272; Comrs. v. Bolles, 94 U. S. 104, 24 L. Ed. 46; Comrs. v. Clark, 94 U.S. 278, 24 L. Ed. 59; Board v. Randolph, 89 Va. 614, 16 S. E. 722; County v. Marcy, 97 U. S. 96, 24 L. Ed. 977; San Antonio v. Mehaffy, 96 U. S. 312, 24 L. Ed. 816; Evansville v. Dennet, 161 U. S. 434, 16 Sup. Ct. 613, 40 L. Ed. 760; 1 Dillon, Municipal Corporations, 4th ed. sec. 549.)

[6] The contention of appellant, that the complaint fails to state a cause of action because of the absencé of an allegation that the notes sued upon were presented to the board of county commissioners for allowance prior to the institution of the action, is without merit. The orders of the board of county commissioners authorizing the issuance of the notes and their subsequent issuance by the board constitute the same approved liquidated demands against the county which do not require subsequent presentation before suit, in the event that they are not paid in accordance with their terms. The fact that the notes cannot be regarded as negotiable instruments will not affect their character as approved liquidated demands. (Lincoln Co. v. Luning, 133 U. S. 529, 10 Sup. Ct, 363, 33 L. Ed. 766; Vincent v. Lincoln Co., 62 Fed. 705; Lorsbach v. Lincoln Co., 94 Fed. 963; Ayres v. Thurston Co., 63 Neb. 96, 88 N. W. 178; Greene Co. v. Daniel, 102 U. S. 191, 26 L. Ed. 99; Parker v. Saratoga Co., 106 N. Y. 392, 13 N. E. 308; Washoe Co. v. Humboldt Co., 14 Nev. 123; State v. Lander Co., 22 Nev. 71, 35 Pac. 300; 7 Am. & Eng. Ency. Law, 2d ed. 966; 11 Cyc. 587.)

[7-9] The board of commissioners of Nye County being without power to issue negotiable paper as security for the loan obtained from the Nye and Ormsby County Bank, the notes sued upon must be regarded as nonnegotiable instruments; and viewing the notes as nonnegotiable instruments, the question is presented whether the answer of defendant sets up a good defense to this character of security.

Section 46 of the civil practice act (Rev. Laws, sec. 4988) provides:

"In the case of an assignment of a thing in action, the action by the assignee shall be without prejudice to any set-off or other defense, existing at the time of, or before notice of, the assignment; but this section shall not apply to a negotiable promissory note, or bill of exchange, transferred in good faith, and upon good consideration, before due.”

Under the provisions of this section, which is the only statute in this state bearing on the question, the defendant has the right to interpose against the plaintiff any defense which it might have against the Nye and Ormsby County Bank, were suit instituted by the latter corporation, which defense accrued prior to notice of the assignment. (Elder v. Shaw, 12 Nev. 82; Haydon v. Nicoletti, 18 Nev. 299, 3 Pac. 473; Huntington v. Chittenden, 155 N. Y. 401, 50 N. E. 49; Scott v. Armstong, 146 U. S. 499, 13 Sup. Ct. 148, 36 L. Ed. 1059.)

In the case of Stadler v. Bank, 22 Mont. 190, 56 Pac. 11, 74 Am. St. Rep. 588, it was held that, notwithstanding a statute like ours, supra, the holder of non-negotiable securities was only subject to such defenses as existed at the time of the transfer. This decision, however, is based on the language of another statute which only referred to defenses existing at the time of the transfer, and the latter statute was deemed controlling. Notwithstanding statutory provisions substantially the same as were considered by the Montana court, the Supreme Court of California has so construed the two statutes together as to subject the assignee of a non-negotiable instrument to all defenses which the. defendant might have against the assignor prior to notice of the assignment. (McCabe v. Grey, 20 Cal. 510; Bank v. Gay, 101 Cal. 286, 35 Pac. 876; Haskins v. Jordan, 123 Cal. 161, 55 Pac. 786.) See, also, to the same effect, Martin v. Pillsbury, 23 Minn. 175.

As before stated, the only statute in this state upon the question is the one quoted supra, and this leaves no room even for construction.

It is alleged in the answer that the defendant had no notice of the assignment until long after the Nye and Ormsby County Bank went into the hands of a receiver and shortly before the suit was instituted. It is alleged in the answer that the defendant had on deposit in the Nye and Ormsby County Bank on the day the notes, by their terms, became due and on the day the bank closed its doors, a sum of money much greater than the total amount of the notes with accrued interest; that the defendant offered to pay the notes at the time they became due, or within a few days thereafter. It is well settled that no demand is necessary for a deposit in an insolvent bank in order to set it off against a note in the hands of the receiver. (Colton v. Drover, 90 Md. 85, 45 Atl. 23, 46 L. R. A. 388, 78 Am. St. Rep. 431; Thompson v. Trust Co., 130 Mich. 508, 90 N. W. 296, 97 Am. St. Rep. 494.)

On the day the Nye and Ormsby County Bank closed its doors and went into the hands of a receiver, the defendant was entitled to set off the amount of its deposit in the defunct bank pro tanto, not only against the receiver, but against any assignee of the bank holding the notes of the defendant county; such county having no notice of such assignment prior to the suspension of the bank.

[10] We think the court did not err in refusing to make the receiver of the Nye and Ormsby County Bank and the counties of Ormsby and Esmeralda parties to the action. Questions presented in this answer, as a basis for bringing in additional parties, can all be presented in the receivership matter, and, we think, have no proper place in this action.

Many other questions have been discussed in the briefs which we deem unnecessary to determine.

The judgment and the order sustaining, the demurrer to the answer are reversed, with directions to the court below to also modify its order to strike, if necessary, so as not to exclude allegations in support of defendant’s alleged defense of set-off.