Hill v. Memphis/Opinion of the Court

by Stephen Johnson Field

United States Supreme Court

134 U.S. 198

Hill  v.  Memphis

The act of the legislature of Missouri of February 9, 1857, to incorporate the Alexandria & Bloomfield Railroad Company, gives no authority to any town of the state to issue bonds for stock subscribed by it. The fourteenth section, which is the one upon which the plaintiff relies, empowers the county court of a county in which any part of the route of a railroad may lie to subscribe to stock of the company, to invest its funds in that stock, to issue the bonds of the county to raise the funds to pay for the stock thus subscribed, to take proper steps to protect the interest and credit of the county, and to appoint an agent to represent the county and receive its dividends. The same section also empowers any incorporated city or town to subscribe stock to such railroad, and to appoint an agent to represent its interest, give its votes and receive its dividends, and take proper steps to guard and protect its interest. But it does not authorize the town to issue any bonds for the stock thus subscribed. It leaves the town to provide for the payment of the stock in the ordinary way in which debts contracted by a town are met; that is, by funds arising from taxation. It is well settled that the power to subscribe for stock does not of itself include the power to issue bonds of a town in payment of it. All grants of power in such cases to subscribe for stock in railways are to be construed strictly, and not to be extended beyond the terms of the law. While a municipal corporation, authorized to subscribe for the stock of a railroad company or to incur any other obligation, may give written evidence of such subscription or obligation, it is not thereby empowered to issue negotiable paper for the amount of indebtedness incurred by the subscription or obligation. Such paper, in the hands of innocent parties for value, cannot be enforced without reference to any defense on the part of the corporation, whether existing at the time or arising subsequently. Municipal corporations are established for purposes of local government, and, in the absence of specific delegation of power, cannot engage in any undertakings not directed immediately to the accomplishment of those purposes. Private corporations created for private purposes may contract debts in connection with their business, and issue evidences of them in such form as may best suit their convenience. The inability of municipal corporations to issue negotiable paper for their indebtedness, however incurred, unless authority for that purpose is expressly given or necessarily implied for the execution of other express powers, has been affirmed in repeated decisions of this court.

In Police Jury v. Britton, 5 Wall. 566, it was held that the trustees or representative officers of a parish, county, or other local jurisdiction in Louisiana, in vested with the usual powers of administration in specific matters, and the power of levying taxes to defray the necessary expenditures of the jurisdiction, had no implied authority to issue negotiable securities for the purpose of raising money or funding a previous debt. While the court did not insist that express authority is in all cases required for municipal bodies to issue negotiable paper, as such power may be implied from other express powers, it held that such implications should not be encouraged or extended beyond the fair inferences to be gathered from the circumstances of each case. 'It is one thing,' said the court, 'for county or parish trustees to have the power to incur obligations for work actually done in behalf of the county or parish, and to give proper vouchers therefor, and a totally different thing to have the power of issuing unimpeachable paper obligations, which may be multiplied to an indefinite extent. If it be once conceded that the trustees or other local representatives of townships, counties, and parishes have the implied power to issue coupon bonds, payable at a future day, which may be valid and binding obligations in the hands of innocent purchasers, there will be no end to the frauds that will be perpetrated.' In Mayor v. Ray, 19 Wall. 468, 475, the power of municipal bodies to issue negotiable paper for debts contracted by it was largely considered, and from the nature and the purposes of such municipalities it was held that they could not make such paper in the absence of express authorization. After speaking of municipal corporations as subordinate branches of the domestic government of a state, instituted for public purposes only, having none of the peculiar qualities or characteristics of trading corporations created for purposes of private gain, except that of acting in a corporate capacity, the court said: 'Their powers are prescribed by their charters, and those charters provide the means for exercising the powers; and the creation of specific means excludes others. Indebtedness may be incurred to a limited extent in carrying out the objects of the incorporation. Evidences of such indebtedness may be given to the public creditors. But they must look to and rely on the legitimate mode of raising the funds for its payment. That mode is taxation.' And again, (page 477:) 'If in the exercise of their important trusts the power to borrow money and to issue bonds or other commercial securities is needed, the legislature can easily confer it, under the proper limitations and restraints, and with proper provisions for future repayment. Without such authority, it cannot be legally exercised.' In Claiborne Co. v. Brooks, 111 U.S. 400, 406, 4 Sup. Ct. Rep. 489, this doctrine is reiterated and reaffirmed with emphasis. Said the court: 'Our opinion is that mere political bodies, constituted as counties are, for the purpose of local policy and administration, and having the power of levying taxes to defray all public charges created, whether they are or are not formally invested with corporate capacity, have no power or authority to make and utter commercial paper of any kind, unless such power is expressly conferred upon them by law, or clearly implied from some other power expressly given, which cannot be fairly exercised without it.' See, also, Kelley v. Milan, 127 U.S. 139, 8 Sup. Ct. Rep. 1101; Young v. Clarendon Tp., 132 U.S. 340, 347, 10 Sup. Ct. Rep. 107. The same doctrine prevails in Missouri. It follows that there was no authority in the town of Memphis to issue the bonds from which the coupons in suit are detached, under the law referred to in the bonds as authorizing them.

Nor can any authority for the issue of the bonds be derived from section 17 of the general railroad law of the state, which went into effect August 1, 1866. Though that section in terms empowers the trustees of an incorporated town to loan its crd it to any railroad company organized under a law of the state, and the issue of its bonds to such company may be considered as a loan of its credit, it must be construed in subordination to the constitution of the state which took effect the previous year, and prohibits the legislature from authorizing any town to loan its credit to any corporation unless two-thirds of the qualified voters of the town, at a regular or special election, shall assent thereto. No assent was ever given by the voters of the town of Memphis to the issue in 1871 of its bonds to the Missouri, Iowa & Nebraska Railway Company, but only to its subscription to stock in that company; and no subsequent loan of credit by the issue of bonds to the company could be authorized by the legislature, except under the restrictions of the constitution.

The same answer may be made to the claim of authority under the act of the state of March 24, 1868, enabling counties, cities, and towns to fund their debts. The constitution of the state controls its construction, and prevents the issue of any bonds by a town of the state without the previous assent of two-thirds of its voters expressed at an election, general or special, called for that purpose. Judgment affirmed.

Notes