Fisk v. City of Kenosha , 26 Wis. 23 ( 1870 )

Paine, J.

This is an action upon scrip issued by the City of Kenosha under that section of its charter which was declared, unconstitutional and void by this court in Foster v. Kenosha, 12 Wis. 616. It was stated in that opinion that we should not attempt to determine in that proceeding, which was merely to restrain the levy of a tax, whether the scrip issued under that section was void or not. This was said because that question was not directly in the case, and because it was not proper then to anticipate the question, what might be the rights of a bona fide holder of such scrip for value.

That question is now presented. And we think it necessarily follows from that decision that the scrip is void. It may be regarded as settled, that although the construction of railroads, and other similar works of internal improvement affecting directly the commercial prosperity of municipal corporations, is to such an extent a municipal purpose that these corporations may be permitted to lend their aid, by legislative authority, yet it is not such an ordinary, general municipal purpose as to be within the scope of the authority of every municipality, without express provision. That section of the charter being void, the city had, then, no authority whatever to subscribe for the stock for which this scrip was originally issued, and consequently no authority to issue the scrip for that purpose.

It is not necessary now to determine what might be the effect if a city, having general power to issue scrip of a negotiable character for ordinary municipal purposes, should issue such scrip for some unauthorized purpose, the scrip, however, not disclosing such purpose upon its face, and it should pass into the hands of a bona fide holder for value. That question is not presented. This scrip discloses on its face that it was issued by the city in aid of the Kenosha and Beloit Railroad Company. Every purchaser of such scrip would be bound to see that the proper legislative authority had been granted. And though practically it may often work hardship upon purchasers to charge them with the responsibility of determining, at their peril, upon the validity of statutory provisions, yet it is necessarily involved in the requirement that they must ascertain that the municipality, whose obligations they purchase, had lawful authority to issue them; and the hardship, whatever it is, is no greater than exists in all those cases where individuals are bound, at their peril, to know the law.

There was no statute authorizing, or professing to authorize, the city of Kenosha to issue scrip of this character in aid of railroads, except the provision which was held void in Foster v. Kenosha. Every purchaser, therefore, was chargeable with knowlege of the want of authority.

In the case of Campbell v. The City of Kenosha, 5 Wall. 194, the supreme court of the United States held some of this scrip valid, upon the 'ground that although the common council, in issuing it, professed to act under the provision of the charter which we have declared void, yet its action might properly be sustained under the provisions of chapter 105, Laws of 1853, which authorized the city to issue its bonds to the amount of $150,000, in aid of this railroad. The amount of bonds authorized by this act being limited, it was free from the objection which made the general provision of the charter void. And that court holds that the action of the city should rather be referred to the valid statute, under which it might be sustained, than to the invalid one under which it assumed to act. And it comments upon the fact that the attention of this court was not called to this act of 1853, in the case of Foster v. Kenosha.

The counsel for the appellant stated on the argument, that this decision of that court was based entirely upon a misapprehension He said that the entire amount of bonds authorized by this special act had been issued by the city, and were outstanding, wholly independent of this scrip.

That fact, which was doubtless well understood by both parties in the Foster case, sufficiently explains their neglect to call the attention of this court to this statute, and their argument of the case upon the mutual assumption that the validity of the tax there in question must be sustained upon the other general provision of the charter, or not at all. It also explains, doubtless, why the counsel for the city, inasmuch as no reliance had ever been placed upon this special act to sustain this scrip, neglected to bring to the attention of the federal court the fact that the city had exhausted its power under that act, by issuing the full amount of bonds thereby authorized, independent of this scrip.

The counsel for the plaintiff in this case, who is an old resident and able lawyer in the city, and entirely familiar with all the facts, does not, in the printed brief upon which he has submitted the argument, make any claim.or suggestion that the authority to issue this scrip can be derived from that act.

Upon these facts', and upon the additional consideration that this act -.only professes to authorize the issue of corporate bonds, which are certainly securities of a different form, if not of a different character, we do not feel at liberty, notwithstanding the decision of the supreme court of the United States, to attempt to derive any authority from this act to sustain the scrip.

That court also relied on a ratification by the city and the legislature, subsequent to the issue of the scrip. This was based upon a revision of the charter in 1857, in which it was provided that a railroad commissioner should be elected as a city officer, who should have charge of any interest which the city then had or might thereafter have in the railroad, and should thereafter redeem all scrip that had been issued to the railroad company, as it became due. The city acted under this authority, elected the commissioner, and he represented it as a stockholder. If the original defect had been merely the want of legislative consent, it may be that this would constitute a ratification. But such was not the case. The legislature had originally authorized the issue of the scrip, as far as it could do so without fulfilling another duty which we held the constitution imposed on it as a condition to the validity of such authority. It was bound, in authorizing a municipality to contract debts for these extraordinary municipal purposes, to exercise its legislative discretion, and impose some limit upon such power of the corporation, in order to prevent abuses and undue extravagance and oppression. That discretion it has never exercised. The act revising the charter does not profess to cure any defect in the original authority, nor to establish any limitation upon the power of the city under it. It proceeds entirely upon the assumption that the original provision was valid, and’ in classifying the duties of the city officers in the revision, it merely imposed the railroad duties, and among others that of paying the scrip that had been issued, upon the commissioner.

It is difficult to see how a mere legislative direction that the scrip should be paid, made after it was issued, has any greater efficacy in. removing the constitutional objection than a similar direction made before. The original provision under which the issue took place contemplated that the scrip should be paid, and pledged the faith of the city for its payment, and authorized taxation for the purpose. If it was invalid then, it is not readily seen how a mere repetition of it, after the scrip is issued, changes its effect. True, it may be said, whenever a city has acted under such a general unlimited power, that, although the power was unlimited, the amount of securities which it has issued at any particular time must, in the nature of things, be limited ; and that, therefore, when the legislature subsequently directs the payment of securities that have been issued, such direction has, of necessity, a practical limitation, being applicable only to securities which of necessity must be limited in amount.

But the same argument is as applicable to future debts and securities as to past.- It is as true that the amount of securities which a corporation can issue in the future, must, in the nature of things, be limited, as it is that the amount which it has issued, at any particular time, must be so. But the answer in either case is, that the constitution did not have reference to the abstract distinction between the finite and the infinite, between the limited and the absolutely illimitable, but intended to impose on the legislature, in granting authority of this kind to municipalities, the duty of exercising a reasonable discretion in limiting and restricting the power so as to prevent abuses. And wherever it appears that this discretion has never been exercised, those practical limitations that exist from necessity, growing out of the finite nature of man, do not answer the purpose nor supply the defect. And a mere general direction by the legislature to pay all debts which a municipal corporation has contracted at any particular time, under a general unlimited power, has not, from the existence of that limitation, of necessity, any more tendency to show an exercise of this legislative discretion than the same direction would have in respect to the payment of future debts to be contracted under the same power by reason of the same necessary limitation to their amount.

We think, therefore, unless we should overrule the case of Foster v. Kenosha, which we have no inclination to do, this scrip must be held void.

[The following explanatory remarks were added to the above opinion after the death of Mr. Justice Paine :]