Mayor of Wetumpka v. Wetumpka Wharf Co. , 63 Ala. 611 ( 1879 )

BRICKELL, C. J.

The cause was heard on the pleadings and exhibits, no other evidence being introduced than that which is to be found in the recitals contained in the exhibits to the original bill, and the cross-bill filed by Smith. The averment of the original bill is, that the bond of the city of Wetumpka, issued and payable to Howell Rose, was for money advanced and loaned by Rose to the mayor and aldermen, to pay the subscription of the city to the capital stock of the Central Plank-Road Company. It is further ' averred, that the bond was issued under authority conferred by the legislature, and in strict conformity to the power so conferred. The bond is under the corporate seal, and on its face recites that it is issued in virtue of an act of the legislature of Alabama, passed on the 29th day of February, 1848, authorizing the mayor and aldermen of the city of Wetumpha to issue bonds under the corporate seal of said city, and in virtue of an act of the General Assembly of said State of Alabama, passed on the first day of February, 1850, amendatory of the act first aforesaid.

The averments of the cross-bill are, that the eleven bonds held by Smith are part of a series of bonds, amounting in the aggregate to fifteen thousand dollars, which were issued in sums of five hundred dollars each, to pay the subscription of the city to the stock of Tallassee Branch of the Central Plank-Boad Company; that the bonds were issued upon an entire concurrence' of all the members of the board of\mayor and aldermen of said city of Wetumpha, upon a full attendance of all the members of the said board, and when there ivas no vacancy ; which was m.ade manifest by an entry of the order for issuing said bonds being made on the minutes of said board, and signed by each member thereof. One of the bonds is exhibited, and on its face recites as follows : “ City of Wetumpha stock. For subscription to the stock of the Tallassee Branch of the Central Plank-Road Company. A loan of $15,000.00. Passed by the unanimous vote of' Mayor and Aldermen of the City of Wetumpha, on the 19th day of June., 1851. By special authority of the State of Alabama, by an act passed January 10th, 1839, and amended .February 1st, 1850.” dbc.

The answer to the original bill, which, by consent, was taken also as an answer to the cross-bill, sets out the first section of the act of 29th February, 1848 (to which further reference will be made); and in express terms denies that the bond to Bose was issued in conformity to it. The denial proceeds further, and negatives the issue of the bond upon an entire concurrence of the board of mayor and aldermen, and the manifestation of such concurrence by an entry of the order for issuing on the minutes of the board, and the signing of such entry by the mayor and aldermen. This denial, under the agreement accepting the answer as an answer to the cross-bill, extends to the bonds of Smith.

The burden of proving every material fact, upon which his case primarily depends, if it is put in issue, rests upon the plaintiff, in courts of law and equity. If it be essential to the relief claimed by the plaintiff in the original, or cross-bill, that it should be shown- that the bonds preferred as debts against the city were issued with the entire concurrence of the board of mayor and aldermen, when there was no vacancy in the board, and that this concurrence was made manifest by an entry on the minutes of the board signed by the magor and aldermen, the burden of proving the fact, rests on them. How far it is essential, and whether the fact is proved, are of the important questions to be decided.

The original charter, or act incorporating the city of Wetumpka, was approved January 30th, 1839. — Pamphlet Acts, 1838-9, pp. 44-51. It varies from the usual charters of municipal corporations, when, as they were at the time of its enactment, the subjects of special legislation, in no other respect than in conferring corporate powers adapted to the situation of the city, on and intersected by the Coosa river, a navigable water-course. The territorial limits of the city are defined; the name and style of the corporation are declared to be the mayor and aldermen of the city of Wetumpka, with capacity to sue and be sued by that name, and to purchase, receive, hold, grant, alien, or" assure property, real, personal or mixed; to have and use a common seal, and to do and perform all and singular stick acts as are incident to bodies corporate. The qualifications of the mayor and aldermen are prescribed, and the mode of appointing them, an election annually by the qualified voters of the city. The powers of the mayor and aldermen are carefully and specifically defined and enumerated.; and all relate to the internal government of the city, the promotion and preservation of its peace, order, and health. A limited power of taxation is conferred, which was not to exceed annually one per-centum upon unimproved, and one fourth of one per-centum on improved real estate. The mayor and aldermen had power to appoint, and remove at pleasure, a clerk and treasurer, and to require of them such bond and security as they deemed necessary.

Municipal corporations are strictly of political institution; they are but parts of the internal government of the State. All their purposes and objects are public, and the power they exercise, if not delegated to them, would reside in the General Assembly, or in some other department of the government. There is not a power the city could exercise through the agency of the mayor and aldermen, under the original act of incorporation, that is not governmental; and these powers are confined in the sphere of operation to the territorial limits of the city. As created, the corporation falls precisely within the definition of a municipal corporation, given in Cuddon v. Eastwick, 1 Salk. 192, “ an investing the people of the place with the local government thereof.” Private gain, trading, speculation, or the derivation of pecuniary profit, are not purposes or objects within the contemplation of the charter; and no pow.ers are conferred to stimulate, encourage, or advance such purposes, further than the incidental encouragement and advancement, which may follow a prudent exercise of the powers of local government. Because of their public character, and of their relation as agencies to the government of the State, it is not necessary to plead or prove their acts of incorporation. Courts take judicial notice of them, as they do of other public, general statutes. — Case v. Mayor, 30 Ala. 538; Smoot v. Mayor of Wetumpka, 24 Ala. 112. Being public statutes, of which all are supposed to be informed, all who may enter into transactions with the corporations, must, at their peril, take notice of the capacity to contract which is conferred; and if there is a want of capacity, they are in a condition analogous to that of those who deal with infants, or married women, or other persons not sui juris.

An implied or an incidental power to issue, or to become a party to negotiable paper, or to borrow money, could not be claimed by the city, under' the original charter. The power is not expressly conferred; and it could not be deemed appropriate to the execution of the powers which are conferred. A certificate of indebtedness, a warrant on the treasury, would be the most appropriate form (as it was when the charter was enacted, the usual, and probably, the only form adopted!, which could be given to the evidence of the liability of the city, if it was found necessary to contract a debt. Such a certificate, or warrant, not having the elements of negotiability, it is unimportant into whose hands it might pass, or on what consideration, could not acquire the immunity of commercial paper, cutting off defenses which the city could make against its enforcement. If its officers and agents issued them fraudulently, or in negligence, the fraud or negligence would furnish just ground of defense against their enforcement; or, if the consideration on which they are founded failed, or any other just ground of defense existed, it would be as availing against a subsequent holder, as against the party to whom they were issued. — N., M. & C. R. R. Co. v. Dunn, 51 Ala. 128. ín this case, following Police Jury v. Britton (15 Wall. 566), this court held, that a municipal corporation, not expressly clothed with power to borrow money, or to issue negotiable paper, could not give to the evidence of its debts the form and immunity of negotiable paper. It was said, “Other means, better adapted to the execution of the corporate powers, and less hurtful to 'the inhabitants of the city, can be found for the consummation of all corporate purposes.” — See, also, Mayor &c. v. Ray, 19 Wall. 468.

Private corporations, especially if created for trading purposes, may have an incidental or implied power to borrow money, there is but a limited analogy between such corporations, and corporations like that of the city of Wetumpka, created wholly for civil and political purposes. The latter corporations have no capital, and no corporate property, except that which is held for public uses. Debts may be contracted by them; but the only source of payment is the revenue derived from taxation, or from charges imposed on persons under their authority making individual use of the corporate property, such as markets, &c. Whoever contracts with such corporations must know that from these sources only can they derive the means of payment; and the just-presumption is, that he looks to and relies alone upon them for the satisfaction of his demand. — Simpson v. Lauderdale, 56 Ala. 64. The power to borrow money is essentially different from the power to contract debts in execution of the purposes of municipal corporations. In Mayor v. Ray, supra, it was said on this question: “Such a power does not belong to a municipal corporation, as an incident of its creation. To be possessed, it must be conferred by legislation, either express or implied. It does not belong, as a mere matter of course, to local governments, to raise loans. Such governments are not created for any such purpose.”

The most efficient safeguard which the community have against the abuse of corporate power, by the agents and officers of municipal corporations, necessarily intrusted with its exercise, is the short official term, and their direct responsibility to their constituents. The greatest security against waste and extravagance is, that the expenditures and debts of the corporation are to be satisfied from taxation, which the constituents must bear. If money could be borrowed, experience admonishes us that taxation would be postponed, official responsibility evaded, the vigilance of the constituents relaxed, corporate powers abused, and the corporate government would often become a grievous burden, instead of advancing the interests and convenience of the people within its jurisdiction.

The whole legislative policy of the State has indicated disfavor of commercial paper, even as employed by individuals in private busiuess transactions. The character of paper usually employed has been shorn of all immunities attending commercial paper; and whoever acquires it is forewarned that he succeeds only to the rights of bis transferror, and is subject to every defense which the party sought to be charged, would be entitled to make, if there had not been a transfer. When the legislative power creates a municipal corporation, for the purposes of local government, conferring powers in the exercise of which debts may be incurred, it is easy to say that the corporation may give these debts the form of negotiable paper, if it is intended that it should. In the absence of the grant of the power, an implication of it would infringe the policy to narrow the use of such paper in ordinary transactions, which the general statutes clearly manifest.

The power of taxation in the charter of the city of ’Wetumpka, as it was in the charters generally which were enacted in that period of our history, was limited; and from taxation only the means of paying debts could be derived. The debts could properly originate only in the execution of the purposes of the incorporation. If a power to borrow money was deemed incidental, or should be implied, it would be difficult, if not impossible, to confine the debts to these purposes. There would be no limit of the power, as to third persons who, in good faith,' should make tbe loans, other than the discretion of the corporate officers and agents ; and the money could easily be diverted from the purposes and objects of the corporation. A careful examination of our legislation, prior and subsequent to the original incorporation of the city of Wetumpka, shows that, whenever it was intended municipal corporations, or counties, which are quasi municipal corporations (and these embrace all our public corporations), should have power to issue negotiable paper, or to borrow money, the power has been expressly conferred, or other than governmental power has been conferred, which could not be advantageously exercised without the use of such paper, or without obtaining loans. The result is, that the bonds now. sought to be enforced were unauthorized by the original act of incorporation: the bond to Rose, because its consideration was money borrowed, by the mayor and aldermen ; the bonds held by Smith, for the same reason, and because they are negotiable paper.

Whatever may be the diversity of opinion, as to the implied or the incidental power of a municipal corporation to borrow money, or to issue or become a party .to negotiable paper, there is but little, if any, that without an express grant of power the corporation can not become a shareholder, or a stockholder, in a private corporation, or borrow money, "or incur debts, to aid extraneous objects. — Dillon on Mun. Cor. § 106; Town of South Ottawa v. Perkins, 94 U. S. 262; Town of Cotoma v. Eanes, 92 U. S. 284. Authority to subscribe for the stock of the Central Plank-Road Company, and of the Tallassee Branch of the road, and to borrow money, or to issue negotiable paper to pay the subscription, is claimed under the act of February 29th, 1848, and the act entitled “ an act amending the act incorporating the City of Wetumpka,” approved February 1st, 1850.

The first section of the act of 1848 authorizes the mayor and aldermen to issue bonds, under the corporate seal of the city, signed by the mayor and treasurer, in sums not less than one hundred dollars each, to bear such rate of interest, not exceeding eight per-cent, per annum, and to be redeemed at such time and upon such terms as were expressed in the bonds; the entire amount issued not to exceed at any one time fifty thousand dollars. Thje section proceeds : • “ No bonds shall be issued, but upon 4n entire concurrence of the board of mayor and aldermen, upon a full attendance of all the members of the board', and [when there is no vacancy; which shall be made manifest only by an entry of the order for issuing being made on the minutes of said board, and being signed by each member thereof; nor shall any contract amounting. to one hundred dollars, made under any of the provisions of this act; be valid, which is not made under all the restrictions in this section recited.” The second section declares the purposes to which the money arising from the sales of the bonds must be appropriated — the securing the right of way, and constructing a canal, around the lower end of the shoals of the Coosa river; and confers on the treasurer authority to sell the bonds at par value. The third section reads : “ That taxes arising from assessments on the real estate in the corporate limits of said city, together with the real estate belonging to said corporation, with the rents, issue's, and profits thereof, be, and the same are hereby, pledged and appropriated for the final payment of all bonds issued under the provisions of this act.” — Pamph. Acts 1847-8, pp. 223-5.

The act of February 1st, 1850, reads : “ That the amount of bonds issued under the provisions of the first section of said act may be extended to one hundred thousand dollars^ and the money arising from the sale of said bonds may be appropriated, under the supervision and direction of the mayor and aldermen of Wetumpka, for any purpose of internal improvement for the benefit of the citizens of Wetumpka.” — Pamph. Acts 1849-50, p. 348.

These statutes were enacted, and the bonds now preferred as claims against the city were issued, while the constitution of 1819 was the fundamental law. That constitution did not inhibit the General Assembly from authorizing municipal corporations to become stockholders in private corporations, and aiding in the construction of railroads, plank-roads, or other improvements, though they extended beyond the corporate limits, or even beyond the State; and the borrowing of money, or the issue of negotiable securities, which were to be paid by municipal taxation, to accomplish such purposes. — Stein v. Mobile, 24 Ala. 591; Gibbons v. Railroad Company, 36 Ala. 410.

In Mayor and Aldermen of Wetumpka v. Winter, 29 Ala. 651, the action was founded on the breach of the condition of a bond executed by Winter to the mayor and aldermen, by which Winter, in consideration of the bonds of the city, agreed to pay the subscription of the city to the Tallassee Branch of the Central Plank-Boad Company, as the company should require payment. The complaint set out the act of February 29th, 1848, and that of February 1st, 1850 ; and a demurrer to. it assigned several causes, none of which seem to have been considered, except that which questioned the validity of the bonds of the city. The complaint averred, with great particularity, the issue of the bonds of the city, under all the restrictions contained in the first section of the act of 1848. The opinion of the court is limited expressly to the facts as disclosed by the record. It was held, that the act of February 1st, 1850, authorized the city to subscribe for the stock in the Tallassee Branch of the Central PlankBoad Company; that the expression “ internal improvements,” as found in that act, did not mean improvements within the city, but works within the State, — improvements of the highways and channels of commerce;' and it was the incidental benefits arising from them to the citizens of Wetumpka which the act contemplated.

Without inquiring whether we would concur in this view, if the question was first presented, we adhere to it, so far as it affects any question now involved. The mayor and aider-men, of consequence, had power to subscribe to the stock of the Central Plank-Boad Company, and of the Tallassee Branch, and to issue and sell the bonds of the city to pay such subscription. But, in the exercise of the power, they were bound and limited by the provisions of the act of February 29, 1848. The act of February 1, 1850, does not remove or relax any of the conditions, restrictions, or limitations, which were imposed by the act of February 29,1848. Of the latter act, there is no other change or modification, than in conferring on the mayor and aldermen power to appropriate the money arising from .the sale of the bonds of the city, to other purposes than the construction of a canal, and'increasing the amount of bonds which could be issued, from fifty to one hundred thousand dollars. Under the acts, no bond could be issued, or, if issued, no bond was valid, unless the order for issuing was made With the entire concurrence of the board of mayor and aldermen, upon a full attendance, when there was no vacancy; which could be made manifest only by an entry on the minutes of the board, and being signed by each member thereof.

The power of the General Assembly to confer on the city of Wetumpka this extraordinary power, foreign to the purposes of its original incorporation, the decisions of this and other courts, State and Federal, had sanctioned. Having that power, the General Assembly had as ample power to declare the conditions and limitations upon and under which the city could exercise the power delegated. It had, also, plenary power to declare that, if these conditions and limitations were not observed, the acts and contracts of the city should not be valid; and it had the power to declare what should be the evidence, the sole and exclusive evidence, of their observance. The limitations and restrictions imposed, were intended to protect the city from an abuse, or an injudicious exercise of the power conferred. A. majority of the board of mayor and aldermen were intrusted with the exercise of the ordinary powers of the corporation, and the evidence of their acts might, in some cases, remain in parol, or be entered on the minutes of the board. If entered there, no particular designation of the individuals concurring, or declining to concur, would be essential. A majority was not intrusted with the power of issuing bonds under these acts. A concurrence of the whole number constituting the board was necessary. The presence of all the members of the board of mayor and aldermen is not necessary in the exercise of the ordinary corporate powers; and though vacancies may occur, the board has all such powers, unless reduced below a quorum for the transaction of business. But the exercise of these powers would not involve the consequences which would follow from an exercise of the extraordinary power these statutes confer. Therefore, the General Assembly cautiously limited the exercise of the power, and, not satisfied with the limitation, proceeded further, and declared, if the observance of the limitation was not manifested in a particular mode, all contracts made, or purporting to be made, in the exercise of the power, should not be valid. Now, courts are bound to take notice of these statutes, of all their terms, and to measure every contract which they are required to enforce, and which is supposed to derive validity from them, by inquiring whether they conform to these terms. Those who enter into such contracts, and claim benefits from them, can not escape the obligation and consequences of the maxim, that every man is presumed to .know the law. No representation, no admission, no declaration, made by. the officers of the corporation, can absolve from this obligation. As .between natural persons, with whom no peculiar relations exist, admissions, declarations, or misrepresentations of the law, do not relieve from, or create liability. With the same knowledge of the law, which can be imputed to these officers and agents, those who deal with them are chargeable; and certainly there is no indication in the statutes of a purpose (but there is an expression of a contrary purpose) to invite strangers to rely on the representations of the mayor and aider-men, or of the mayor and treasurer. These limitations are vain and useless — they are a mockery of right and justice, a snare and delusion to the people who reposed upon them, if they are to be evaded upon the pretense, that the bonds now sought to be enforced against the city, though not • issued in conformity to them, are in the hands of bona fide holders, who have relied upon the acts of the mayor and treasurer in issuing them, and declaring on the face of the bonds that they were issued in conformity to the statutes. There can be no holder of the bonds, who is not charged with knowledge of the statutes ; none not deriving title from, and tracing it to the statutes, which are the origin and foundation of his right. The reference in the bond to Bose, to these statutes, directed attention and inquiry to them as the authority for the making of the bond. The reference in the bonds to Smith is very inaccurate, as to the date of the statutes. There was no statute of January 19th, 1839, referring to the city of Wetumpka. But, assuming that was a clerical error, and the act intended was, as his cross-bill in effect avers, the act of February 29, 1848, the reference would charge him with notice of the statutory limitations and conditions. A purchaser of real estate is charged with notice of all that appears on the face of the title-deeds of his vendor, and protection against equities of which these give notice is never afforded him.

If the limitations, or conditions, or restrictions, as they are termed in the statute, are not observed in the making of the contracts it authorizes, it is declared such contracts are not valid. This is but another form of expressing that they are void. When contracts are by statute pronounced void, they cannot become good in the hands of subsequent holders, though bad faith may not be imputable to such holders, and they may have acquired them for value. — 1 Parsons on Notes and Bills, 218; Saltmarsh v. Tuthill, 13 Ala. 404; Anthony v. Jasper County, 4 Dillon, C. C. 143.

But neither the appellee nor Smith can be regarded as entitled to the immunity and protection afforded the bona fide holder of commercial paper. The appellee is the assignee of the judgment in favor of Bose, and from that assignment derives its rights. The assignee of a judgment succeeds only to the rights and equities of the assignor — he stands in his place, and is affected by every claim the defendant in the judgment could prefer against him. The contract was made with Rose, and'the bond issued and made payable to him. As between the immediate parties to a negotiable instrument (if it could be conceded that was the character of the bond to Rose), not only the consideration is open to inquiry, but it is subject to every defense which could be made against any other instrument. It is only when there is a transfer, a negotiation of the instrument, to another party, between whom and the maker, or prior parties, no privity exists, that an inquiry into the consideration is foreclosed, or defenses are cut off. — 1 Dan. Neg. Ins. § 769.

Nor can Smith claim protection as a bona fide holder, though the bonds held by him are negotiable instruments. "Whatever may be the course of decision elsewhere, the doctrine unequivocally established in this court many years ago, and reaffirmed by repeated decisions, is, that if fraud, or illegality in putting in circulation negotiable paper, or a defense addressed to its consideration, is shown, the onus is cast on the holder, claiming protection against such defenses, to prove that in good faith, before maturity, in the usual course of business, upon a valuable consideration, he acquired the paper. — Ross v. Drinkard, 35 Ala. 434. No such proof has been made by Smith; and he can stand upon no other ground, than that the original holder of the bonds would have occupied.

There is a plain difference between, this case and that large class of cases decided by the Supreme Court of the United States, in which municipal bonds were enforced, though there was fraud or irregularity in their issue, the right of a bona fide holder having attached. . First, the rights of a bona fide holder are not, as we have seen, involved. Second, it is not fraud, or irregularity merely, in the issue of the bonds. The power to- issue them never existed — the facts out "of which the power could arise never occurred. No officer of the corporation, no particular person, or special tribunal, was clothed with the power or the duty to ascertain whether the facts had occurred, and, by an expression or declaration, to inform others of their occurrence. There was but one mode of manifesting them, and that mode the statute declares is exclusive. There can be, in principle, no difference between the want of power, and a grant of power upon a condition which is never performed. Until the condition is performed, the power cannot pass. And in this case, until the entire concurrence of all the board of mayor and aldermen, entered on the minutes of the board, signed by all, the city was without power to issue these bonds. That was the condition precedent, prescribed clearly and emphatically by the General Assembly; and performance of that condition could be made manifest only by the entry on the minutes, signed by the mayor and aldermen. The mayor and treasurer may have declared that the board unanimously approved the subscriptions to the plank-road companies, and authorized the issue of the bonds, and that the bonds were issued in conformity to the statutes. It was not their province to make the declaration, and it is of no more value as evidence, than the declaration of any other citizens of Wetumpka. It may be founded in truth, but is not the evidence of the fact the statute requires, and declares exclusive.

Another feature, distinguishing the case, is the statutory declaration of the invalidity of the bonds, the restrictions of the statute not having been observed, which brings the case within the doctrine of Anthony v. Jasper County, supra. There not having been an entry on the minutes of the board of mayor and aldermen, signed by each member, of an order or authority for the issue of these bonds, they cannot be pronounced valid obligations binding the city.

But; it is insisted the judgment at law, against the mayor and aldermen, in favor of Bose, founded on the bond issued to him, estops this defense, so far as the appellee is concerned. The answer abounds with allegations of fraud and collusion in the obtaining of that judgment, w'hich, it is proper to say, are wholly unsupported by evidence. It appears to have been obtained in the regular course of judicial proceedings, and certainly before a court of competent jurisdiction. We have no doubt that, in any' proceeding at law for its enforcement, it is conclusive, and that in all courts it entitles Bose, and his transferree, to stand as a judgment creditor of the city, with all the rights which would flow from that relation. The equity of the original bill, however, depends upon the right of the appellee to enforce the pledge and appropriation of the taxes arising from the assessments on real estate made by the city, and of the real estate of the city, made by the third section of the act of 1818. To obtain relief merely as a judgment creditor, there is no ground of equity jurisdiction averred in the original bill — no obstruction to, or inadequacy of legal remedies. The enforcement of the trust created by tke statute, to which we have referred, is the exclusive ground upon which the resort of the appellee to a court of equity can be maintained. — Rice v. Watertown, 19 Wall.

It is only to the bonds issued under authority of, and in conformity to the statutes, that the trust extends. Debts may be contracted by the city, and judgments rendered against it founded on such debts; security for these, the statute did not intend or create. A judgment or decree of a court of competent jurisdiction is conclusive, not only of the subject-matter determined, but of all other matters which could have been litigated and decided. "Whether the trust and security afforded by the statute attached to the bond to Rose, was not a matter which could be determined in a court of law. A court of equity only, when the enforcement of the trust was claimed, could determine that question. The validity of the bond, as a debt of the corporation, could have been litigated in the action at law; and it may be conceded that the judgment conclusively determines that question. It does not determine that it is a debt to which the trust of the statute extends ; and by no laches of the officers of the corporation can the trust be made to embrace any demand not within its terms. — Branham v. Mayor, &c. of San Jose, 24 Cal. 604; Batchelder v. Taylor, 11 N. H. 129.

We have not overlooked other questions which have been argued by counsel. They cannot change the results of our deliberations, and it is unnecessary to protract this opinion by a discussion of them.

The decree of the chancellor must be reversed, and the cause remanded, that the Court of Chancery may order a dissolution of the injunction heretofore granted, a settlement of the accounts of the receivers, and the payment of all funds in their hands to the mayor and aldermen, and the restoration of the wharf property to their possession; a restitution to them of all moneys paid to Smith, or to the wharf company, under orders or decrees made in this cause, and a dismissal of the original bill, at the cost of the appellee; and the cross-bill at the cost of Smith,

Stone, J., not sitting.