Jefferson County v. Burlington & Missouri River R'y Co.

' Seevers, J.

i: accommopor: definition stated and oou'ittfbonds vires1/ultra When these causes were submitted, it was stated by counsel that they were substantially alike. They-were submitted together, and will be so cousidered. The petitions are substantially alike, x ^ The grounds upon which a recovery is asked are ^ie same: and, as stated in the petitions, aré as follows: That plaintiffs “ at the request of the defendant made and executed and delivered to it the following described accommodation paper, viz.: Thirty promissory notes or bonds, made, executed and delivered by plaintiffs to the defendant for the sum of one thousand dollars each, payable to the defendant or bearer, * * * twenty years after date, with interest at the rate of eight per cent, payable annually. And said defendant, having received said accommodation paper at its own request and for the purpose of procuring means to use in its own behalf, use and benefit, placed the same upon the market,” and negotiated the same, and appropriated the proceeds to its own use. The bonds were executed and delivered in 1885; and it is stated in each petition that the plaintiff therein was compelled to and did pay the principal and a large amount of interest on said bonds. That “all of said sums (of money) have been paid by the plaintiff for the use and benefit of the defendant,” for which judgment is asked by each plaintiff.

In the Jefferson county case, the defendant pleaded, in addition to a general denial, first, that said bonds were issued without authority, and were ultra vires, and therefore no action could be based thereon, or a recovery of the money claimed be had; second, the statute of limitations; third, that the payments made by. the plaintiff were voluntary; and, fourth, that the bonds were issued in consideration that defendant would locate its road and construct the same within a reasonable time through Jefferson county, and make Fairfield a point thereon.

In the Wapello county case, the defendant pleaded a general denial, a former adjudication, the statute of limitations, and that the bonds were issued without authority, and the payments made were voluntary. There is practically no dispute as to the facts.

In 1853 the proper officer caused to be submitted to the electors of each of the plaintiffs a proposition whether they would each subscribe one hundred thousand dollars to the capital stock of the defendant, on condition that the defendant’s i’oad should be located, in the first case, by Fairfield, in Jefferson county, and in the other, by Ottumwa, in Wapello county. The subscription was to be paid in bonds issued by each of the plaintiffs. A majority of the electors voted in favor of the proposition, and the subscription was made. Thirty thousand dollars of the bonds were issued by each of the plaintiffs, and delivered to the defendants,-by whom they were negotiated to innocent holders, who brought actions thereon in the federal courts, and a recovery was obtained. It is these bonds that the plaintiffs paid, with accruing interest thereon; and they seek in these actions to recover the amount so paid of the defendant.

At the time the electors accepted the proposition, made the subscription, and delivered the bonds, the transaction was regarded as legal and binding by all parties thereto. Dubuque County v. Dubuque & P. R’y Co., 4 G. Greene 1; The State v. Bissell, Id., 328; Clapp v. Cedar County, 5 Iowa, 15; and Stokes v. Scott County, 10 Id., 166.

The plaintiffs declined to issue any more bonds, or otherwise pay the amount subscribed, and the defendant brought an action to compel Wapello county to issue the remaining bonds in payment of its subscription. This action was determined by this court in 1862,- and it was held that counties did not have the power to subscribe for stock in railway companies and issue bonds in payment therefor. The State, ex rel., etc., v. Wapello County, 13 Iowa, 388. The cases above cited were overruled.

Afterwards Wapello county brought an action to compel the defendant to issue thirty thousand dollars of stock, that being the amount of bonds delivered as aforesaid. This action was determined by this court in 1876, and it was held that the contract of subscription was entire and indivisible, and, as the county had failed to issue bonds, or otherwise pay the whole amount subscribed, the defendant could not be compelled to issue stock for any less amount than that subscribed. The County of Wapello v. Burlington & M. R. R’y Co., 44 Iowa, 585.

In 1877 the present actions were commenced, and the first inquiry which naturally arises is, can the plaintiffs recover on the grounds stated in the petitions — that is, can the bonds be regarded as accommodation paper?

I. “An accommodation bill or note is one to which the accommodating party has put liis name without consideration, for the purpose of accommodating some other party who is to use it, and is expected to pay it.” 1 Daniel Neg. Inst., § 189. Did the plaintiffs, when the bonds were delivered, expect the defendant to pay them, or did the defendant expect to do so? There is not a particle of evidence which even tends to show such an expectation. The subscription was made and the bonds delivered in pursuance of a vote of the electors, and the proposition accepted by the electors provided that a special or an additional tax should be levied and collected for the purpose of paying the bonds. There was not the most remote expectation that the defendant was to pay the bonds, but, on the contrary, the intent of both parties was that they should be paid by the plaintiffs. As to this there is no doubt. Now, can the requisite expectation be implied, or can there be a promise implied simply because the plaintiffs had no authority to issue the bonds? The parties were acting in the utmost good faith, and the bonds were issued and accepted under a mistake of law, which, under the circumstances, is not surprising.

There is no evidence tending to show that the defendant would have accepted the bonds if the expectation had been that it would pay them at maturity, together with annual interest. It may be conceded that the plaintiffs were not indebted to the defendant at the time the bonds were delivered, and yet it does not follow that a promise should be implied that the defendant was to pay them. The defendant received the bonds in payment of what both parties supposed was a valid subscription to the capital stock of the defendant. The subscription was in fact invalid because the plaintiffs had no authority to issue bonds for such a purpose. This was a mutual mistake of law, and ordinarily in such cases the parties are remediless. But now the plaintiffs say, because of such mistake, that the expectation was in the beginning that the defendant ivas to pay the bonds; and that a promise to that effect can and should, under the circumstances, be implied. We do not think this is so, and no authority has been cited which so holds. The defense of a failure of consideration may be successfully pleaded in an action on a bond or note, but it does not by any means «follow that such bond was issued for the accommodation of the party to whom it was delivered. The essence of accommodation paper is that the person accommodated is, as between the parties, bound to pay it. This obligation must be based on a contract, either express or implied. So far from there being such a contract, the evidence in the present case shows that no such contract existed. The burden in this respect, it must be remembered, was on the plaintiffs.

II. But were the bonds issued without consideration? It is claimed that the plaintiffs received no consideration, because the bonds and subscription were void. Conceding this, it does not follow that the plaintiffs received no consideration or advantage, although the contract was void. Nor is it material whether the consideration was adequate or not. The bonds on their face show that they were issued under authority of a vote of the electors of each of the plaintiffs, authorizing the proper officer to subscribe to the capital stock of the defendant, and issue stock therefor. The proposition accepted by the electors provided that the road should be located as above stated. The road was located and constructed in accordance with such proposition. If the contract had been valid, and the defendant had performed it in every respect, except to locate and construct the road in accordance with the proposition, it could not have maintained an action on the bonds. Burlington & M. R. R'y Co. v. Boestler, 15 Iowa, 555; Thompson v. Oliver, 18 Id., 417; Courtright v. Deeds, 37 Id., 503; Cooper v. McKee, 49 Id., 286, and 53 Id., 239; — tlie reason being that tlie plaintiffs could have successfully pleaded that the consideration had failed. On the other hand, had the contract been valid, and the defendant fully performed it, then it could have recovered on the bonds, and the defendant could not have successfully pleaded a failure of consideration.

In Mills County v. Burlington & M. R. R'y Co., 47 Iowa, 66, in consideration of the defendants agreeing to construct its road through Mills county and locate a station at Glen-wood, the plaintiff agreed to pay ten thousand dollars. In that case it was said by Adams,'J.: “Possibly the road could have run some other way with less expense, and that, too, without any substantial change of route. As between these parties, we think, the presumption is that the company was not under the necessity of building its road by the way of Glen wood. The county took pains to stipulate for such location. If it was stipulating for the inevitable, it is for the county to show it;” and it was expressly held that the location of the road formed a consideration for the agreement to pay. It must follow in the case at bar that the location and construction of the road were a consideration for the issuance of the bonds. It will not do to say that the road was not located and constructed in accordance with the contract; because the bonds on their face import a consideration, and the burden to show that there was no consideration was on the plaintiffs, and they have failed to show that the road was not located and constructed because of and in accordance with the contract. Besides this, the evidence does show that the road was constructed through each county, and by Pair-field and Ottumwa.

Doubtless extreme cases may be supposed where the unauthorized acts of county officers would not be binding on a county. But such cases do not in our opinion constitute either a fair argument or illustration of the principle involved. It may be said that the plaintiffs are public corporations, and that the defendant was bound to take notice of such powers as had been conferred upon them. It may be that McPherson v. Foster Bros., 43 Iowa, 48, so holds. But suppose in that case the bonds issued had been paid by the school district, and it had brought suit to recover the money so j)aid, — could the action have been maintained because the bonds were issued in violation of a constitutional provision? If so, the district would have the school house that was erected with the proceeds of the bonds without having paid anything therefor. Such an act of injustice cannot be tolerated in a court of justice. No case to our knowledge has gone so far, and counsel do not so claim. For it is said by one of the distinguished counsel: “The case is peculiar, and sui generis, and no decisions can be found that illustrate it. It must be decided upon principle and first impressions.”

The contract was entered into by the electors. There was no deception, and it did not involve moral turpitude. Similar contracts had been declared valid and binding by the court of last resort. The defendant was therefore justified in believing it to be a binding contract. It can hardly be said that it was bound to know that the court would hold a contract invalid when similar contracts had been held valid, unless there was a change of circumstances. If there is any case where a recovery cannot be had where there has been a mutual mistake of law, it would seem that this case is clearly within the rule.

The stock agreed to be issued undoubtedly formed a part of the consideration for the issuance of the bonds. It was not the fault of the defendant that, the plaintiffs did not receive the stock. On the contrary, the defendant commenced an action to compel one of the plaintiffs to deliver the bonds. Had they done so, they would have been entitled to the stock. The' defendant could do no more. It fully performed on its part.

Having found that there was a consideration for the issuanee of the bonds, it follows that they cannot be regarded as accommodation paper, and therefore the plaintiffs cannot recover.

Affirmed.