Milner v. Pensacola

17 F. Cas. 407, 2 Woods 632

• Court: United States Circuit Court for the Northern District of Florida
• Decided: March 15, 1875
• Status: Published

Opinion

WOODS, Circuit Judge.

The- defendant pleads the general issue and six special pleas, which, however, set up but two substantial defenses to the action.

The first of these special defenses is in effect as follows: That the authority to incur the indebtedness for which the bonds were issued was dependent upon the consent of a majority of the corporation composing said city, and that at the election held to decide whether-the city would incur said indebtedness, only ninety-five votes were cast, which was not a majority of said corporation; and the question submitted to the voters was whether the city should subscribe to the stock of a railroad leading from Pensacola to Montgomery, in the state of Alabama, and not to a railroad leading from Pensacola to the Alabama state line. The plea which sets up this defense fails to present one of the questions which the pleader intended to present, by neglecting to aver that the subscription stock was actually made in a company which was only authorized to build, and only did build a railroad from Pensacola to the Alabama state line. We will, however, consider the plea as if such averment were made. The evident meaning of the second section of the act approved January 3, 1853, above quoted, is that the city of Pensacola may. upon a condition therein named, subscribe to the capital stock of any plankroad leading from the city of Pensacola, and may borrow the money to pay the amount of its subscription, and may levy a tax on the real estate of the city to pay the sum so borrowed, principal" and interest The authority given by this enactment is ample to cover the acts done by the mayor and aldermen of the city. They subscribed the stock in a railroad leading from Pensacola, arid, to raise (th{C rioney to pay. for it, issued the bonds,' á portion of which are in controversy in this action., V -

Tile power tomorrow ihoriey conferred upon a municipal corporation 'Implies the power to issue bonds and interest coupons on which to negotiate the loan. Rogers, v. Burlington, 3, Wall. [70 U. S.] 654. But the defendant insists that .a majority of the voters of the city did not vote for the subscription of money to the railroad, and that the railroad in behalf of which the vote was taken was a road leading from Pensacola to Montgomery, and not a road from Pensacola to the Alabama state line. Do these facts constitute a defense .to these bonds and coupons in the hands of a bona fide holder? The authorities are adverse.,.

“When a corporation has power,- under any circumstances, to issue negotiable securities, the bona fide holder has a right to presume that they were issued under the circumstances which give the requisite authority, and they are no more liable to be impeached for any infirmity in the hands of such a holder than any other commercial paper.” See Gelpcke v. Dubuque, 1 Wall. [68 U. S.] 203, and numerous cases there cited. See, also, Moran v. Miami Co., 2 Black [67 U. S.] 722; Mercer Co. v. Hacket, 1 Wall. [68 U. S.] 83; Van Hostrup v. Madison City, Id. 291; Meyer v. Muscatine, Id. 384; Mygatt v. Green Bay [Case No. 9,998]; Seeling v. City of Racine [Id. 12,631]; Supervisors v. Schenck, 5 Wall. [72 TJ. S.] 772. ■

In the case of Commissioners of Knox Co. v. Aspinwall, 21 How. [62 U. S.] 545, it was held that “when the bonds on their face import a compliance with the law under which they were issued, the purchaser is not bound to look further. The decision of the board of commissioners may not be conclusive in a direct proceeding to inquire into the facts before the rights and interests of other parties had attached; but after the authority has been executed, the stock subscribed, and the bonds issued and in the hands of innocent holders, it would be too late, even in a direct proceeding, to call it in question.”

The case of Marsh v. Fulton Co., 10 Wall. [77 U. S.] 676, is relied on to support the defense under consideration. All that was decided in that case was, that where the commissioners of a county are authorized to subscribe to the capital stock of a particular corporate body, that does not authorize a subscription to the stock of another corporation, and that the bonds issued to pay for such stock are issued without authority, and are therefore void. That is not this case. Here the city was authorized to subscribe to any plankroad or railroad leading from the city of Pensacola. The pleas show that the subscription was made to such a railroad. The subscription was therefore covered by the authority of the law. If there was any informality in the election by which the con.sent of the citizens of Pensacola was to be obtained to the subscripition, that brings the case precisely within' the • authorities 'above cited. I am of opinion, therefore, that the defense under consideration.'is no answer to the action.

The defense mainly relied on is the see-.ond. This may he thus stated: After the bonds and coupons named ' in the declaration were issued by the city of Pensacola, the charter under which it was organized was. repealed, and the municipal body known as the city of Pensacola ceased to exist, and the present city of Pensacola was organized under another law, and is a distinct and different municipal corporation from that which issued the bonds. Therefore, the present city of Pensacola is not liable on these bonds and coupons. In other words, it is claimed that the city of Pensacola, as a municipal corporation, ceased to exist, by its failure to adopt the provisions of the act of February 4, 1869, within nine months after the approval of that act; that as a consequence, all the debts and obligations incurred by the city prior to February 4, 1869, were canceled ■and destroyed; and that the present city of Tensacola having been organized under the act of 1869, though by the same inhabitants, and covering the same territory, and with substantially the same powers, is relieved of any obligation to pay the debts of the city incurred prior to February 4,1869. The legislation which produces such effects ought to be clear and explicit. To ascribe a purpose to accomplish such results, to the legislature of Florida, would be to charge it with an attempt to perpetrate a most unconscionable and barefaced fraud. I do not believe that the legislature of Florida had any such purpose, or that its legislation, fairly construed, can have any such result. A construction of the law which sustains such a purpose ought to be avoided, if it~can be fairly and reasonably done, consistently with the terms of the act

A careful reading of the acts of 1868 and 1869 shows that the purpose of those acts was not to destroy the municipal corporations already existing in the state, but to carry out the requirements of the constitution by establishing a uniform system of municipal government in the state, and to rehabilitate the existing municipal bodies with new and uniform privileges and powers. ’ The language of section 30 of both the acts carries this idea: “All the powers and privileges conferred in and by this act may be exercised by any city or town within the limits of this state heretofore incorporated.” Had the section stopped here, there could be no pretense that its effect was to create new corporate entities. But it proceeds to declare that “it shall be lawful for any previously incorporated city or town to reorganize their municipal government under the provisions thereof, by a voluntary' surrender of their charters and privileges, and by an organization under this act” This clause provides for the “reorganization,” not the destruction, of municipal corporations. It does not provide for a new corporate entity. If it did, it would follow that every time a city of town ■received a new charter, it became a new corporate body, which is not the case. Mayor, etc., of Colchester v. Seaber, 3 Burrows, 1866. ■ The language of the section thus far seems to recognize the continued and unbroken life of the cities and towns reorganized under the act The last clause of the section which, upon a failure of an incorporated town or city to accept the provisions of the act within nine months, repeals the acts vesting such city or town with corporate powers, does not necessarily .destroy the corporate existence of such city or town.

Dillon, in his learned work on Municipal Corporations, says (volume 1, § 116): “Where the functions of an old corporation are suspended, or where the corporation by loss of all its members, or of an integral part, is dissolved as to certain purposes, it may be revived by a new charter, and the rights of the old corporation granted over to the same or a new set of corporators, who in such case take all the rights and are subject to all the liabilities of the old corporation of ■which it is but a continuation.” The text is sustained by the citation of the following, among other authorities: Rex v. Pasmore, 3 Term R. 199, 247; Reg. v. Ballivos, 1 P. Wms. 207; Mayor, etc., of Colchester v. Brooke, 7 Q. B. 383. My construction of the latter part of section 80 is, that it provided merely for a suspension of the powers of the municipal corporations failing to reorganize under the act, and not for a dissolution of the corporation itself.

As soon, therefore, as the city of Pensacola organized under the first six sections of the act, it was simply the assumption by the city of the new powers and privileges which the act conferred, and was not the creation of a new corporation. That it was not the purpose of the legislature to give the effect to the act of 1869, claimed by defendant, is apparent from the enactment of the legislature of Florida, approved February 3, 1870, entitled “An act relating to cities,” and copied at large in the statement of the ease. I am of opinion, therefore, that the failure of the city to reorganize under the act of 1869, within nine months after its passage, did not put an end to the corporate existence of the city of Pensacola, and that its subsequent reorganization under the first six sections of the act did not create a new, hut was merely the rehabilitation of an old corporate body.

But conceding that the effect of the acts of August 6, 1868, and February 4, 1S69, and of the failure of the city of Pensacola to reorganize under the iatter act, was what the defendant claims, and that it was the purpose of the legislature to accomplish that result, the question remains, was it competent .for the legislature to destroy a 'municipal corporation, or to put it in its power to destroy itself, so as to cancel and wipe out its debts and liabilities?

It was held by Judge Story, in Mumma v. Potomac Co., 8 Pet. [33 U. S.] 281, that a private corporation might be dissolved by the legislature, or by judicial sentence, and that, such dissolution did not impair the obligation of a contract any more than the death of an individual impairs the obligation of his contract. He placed this view on two grounds: (1) Because the obligation survives and the creditors may enforce their claims against any property belonging to the corporation; and (2) because every creditor is presumed to contract with reference to the possibility of the dissolution of the corporate body. The case is different with a municipal corporation. • The main, and in .most cases the only source from which creditors of a municipal corporation can expect to receive payment of their claims is found in the power of taxation. ' The dissolution of the corporation of course puts an end to its power of. taxation, and renders the collection of debts owing by it an impossibility.

Now, in the case of these bonds, the act which authorized the indebtedness for which they were issued also provided for the levy of a tax to pay the indebtedness. That provision for taxation was as much a part of the contract between the city of Pensacola and the bondholder as if it had been inserted in the body of the bond. A repeal of the tax provision would have impaired the obligation of the contract, and would have been a violation of the constitution of the United States.

In the case of Von Hoffman v. Quincy, 4 Wall. [71 U. S.] 535, the result of the decision of the court was, that when a statute authorized a municipal corporation to issue bonds and to exercise "the power of local taxation to pay them, and persons have bought and paid value for bonds issued accordingly, the power of taxation thus given is a contract within the meaning of the constitution, and cannot be withdrawn until the contract is satisfied. The state and the corporation in such cases are equally bound. See, also, Butz v. Muscatine, 8 Wall. [75 U. S.] 583; Welch v. St. Genevieve [Case No. 17,372]; U. S. v. Treasurer of Muscatine Co. [Id. 16,538]. If the legislature cannot take from a municipal corporation the power of taxation conferred contemporaneously with the power to borrow money, and for the purpose of repaying the money borrowed, it would seem to .follow a fortiori that it could not utterly destroy the municipal corporation which had issued the bonds on the faith of a law authorizing taxation to pay them; thus, not only repealing the power of taxation, but leaving no corporate entity in existence against which suit might be brought. How the obligation of a contract, made by' a municipal corporation for the payment of money, could be more effectually impaired, it Is difficult to conceive;.

■ Upon this question, Dillon, in his work on Municipal, Corporations [volume 1, § 114), says: “As respects creditors of a municipal ■corporation, their rights are protected from legislative invasion by the constitution of the United States, and no repeal of a charter of a municipal corporation can so dissolve it as to impair the obligation of the contract, or, it may probably be safely added, preclude the creditor from recovering his debt” In support of this view the learned author cites the following authorities: Cooley, Const. Lim. 290, 292; Curran v. Arkansas, 15 How. [56 U. S.] 312; Thompson v. Lee Co., 3 Wall. [70 U. S.] 327; Havemeyer v. Iowa Co., Id. 294; 2 Kent, Comm. 307, note; Board of Com’rs of Tippecanoe Co. v. Cox, 6 Ind. 403; Coulter v. Robertson, 24 Miss. 278; State v. Common Council of City of Madison, 15 Wis. 30; Blake v. Portsmouth & C. R. R., 39 N. H. 435:

My conclusion is, therefore, that no legislation of the state of Florida could so destroy the city of Pensacola as to relieve it from the obligation to pay the bonds issued by it; that the present city of Pensacola is the same corporate body as that by which the bonds were issued, reorganized and clothed with a new charter, and with new powers and privileges, it is true, but still the same municipal corporation, and liable to pay the bonds and coupons in controversy in this suit. - Any other conclusion' would produce the most monstrous results. It would put it in the power of every city and town in Florida to cancel all its indebtedness incurred prior to February 4, 1S69, amounting to many hundred thousand dollars,- and to set their creditors at defiance. It would enable every city which receives a new charter to repudiate all indebtedness contracted under its old one, and leave the holders of its bonds utterly without remedy. In my judgment, neither of the defenses set up by the special pleas is good in law.

The demurrer to the pleas must, therefore, be sustained.