Rogers v. Burlington
THE act of incorporation of the city of Burlington, in Iowa, vested the government and legislative power of the city in a city council, composed of the mayor and a board of aldermen. In addition to conferring various police powers, it authorized the city council to establish and organize fire companies, and provide them with proper engines, and such other instruments as might be necessary to extinguish fires; to establish and construct landing-places, wharves, docks, and basins within the city; to cause all grounds within the city, where water should at any time become stagnant, to be raised, filled up, or drained; and to cause to be opened, paved, repaired, or improved, any street, lane, alley, market-space, public landing, or common. The act then provides, in its 27th section, as follows:
'That whenever, in the opinion of the city council, it is expedient to borrow money for any public purpose, the question shall be submitted to the citizens of Burlington, the nature and object of the loan shall be stated, and a day fixed for the electors of the said city to express their wishes; the like notice shall be given as in cases of an election. The loan shall not be made unless two-thirds of all the votes polled at such election shall be given in the affirmative.'
Assuming to act under this section, the city council, on the 23d of June, 1856, passed 'Ordinance No. 44.
'An ordinance to authorize a loan of city bonds to the Burlington and Missouri River Railroad Company, &c.
'Whereas, at a meeting of the city council, held on the 19th of May, 1856, a resolution was adopted, authorizing the mayor to call an election, and to submit the question, whether or not the city issue and lend to the Burlington and Missouri River Railroad Company $75,000, in the bonds of said city; said bonds payable in twenty years from date of issue, with an interest of 10 per cent. per annum, and to be secured by the first mortgage bonds of said company, &c. And whereas the said election was duly and legally held on the 2d of June, 1856, and the said question was legally decided in favor of the same, whereby said loan is duly authorized to be made. Therefore,
'Be it ordained, by the City Council of the City of Burlington,
'1st. The bonds of the city, to the extent of $75,000, and in such amounts as the mayor may direct, bearing interest, and payable as aforesaid, and duly signed, sealed, and authenticated, and with coupons for interest, be issued by said city.
'2d. That the mayor execute, with the said company, a contract of loan thereof, taking therefor the obligation of said company, and as collateral security therefor the mortgages aforesaid, and deliver said bonds to said company, and receive said mortgages.'
Under the authority of this ordinance, bonds of the city to the amount of $75,000 were issued. The bonds were coupon bonds in the ordinary form; except in so far, perhaps, as they declared on their face that they were issued, by the city of Burlington, under Ordinance 44, to authorize a loan of city bonds, to the amount of $75,000, to the Burlington and Missouri Railroad Company, and as they contained a copy of the ordinance printed at large upon their back.
Certain of these instruments having got, after this, into the hands of one Rogers, a bana fide holder for value, and the interest being unpaid, he brought suit in the Circuit Court for Iowa to recover it.
The defendant demurred, among other grounds, on the following:
1st. That the petition did not aver nor show that the city had any authority to issue the bonds therein described.
2d. That the bonds on their face showed that they were not issued for any municipal purpose, but as a loan of the credit of the city to the Burlington and Missouri River Railroad Company.
3d. That there was no law of the State of Iowa authorizing the city to issue such bonds, or to lend her credit to any railroad company.
The demurrer was sustained, and judgment rendered for the defendant. To review this judgment, the case was brought here on writ of error.
Messrs. Ewing, Browning and Phelps, for the City of Burlington: The question before the court arises on demurrer, and is a precise one. We assert that the city had no authority to issue the bonds sued upon; and that, having been issued without authority, they are null and void, and cannot be recovered upon. More particularly, our position is, that this is not a case of the irregular and informal execution of an admitted power, but the performance of an act without power; one, therefore, which no formality of execution can validate.
1. The well-settled and familiar principle of law is, that a corporation can bind itself only in pursuance of the powers given by the act of incorporation, and not otherwise. 
2. And all persons dealing with a corporation are bound to take notice of the extent of its powers. They are bound, at their peril, to know whether the corporation has competent authority to make the contract.
3. It is a further well-settled rule of English and American law, that every corporation is limited, as to its powers, by the objects to be accomplished-to the sphere of action prescribed by its charter. 
4. And these principles are as applicable to public as to private corporations-to municipal as to commercial.
5. Moreover, the powers of a corporation can never be extended, by implication, beyond the objects of its creation. If a clause of its charter be susceptible of two constructions, one limiting it to the purposes of its creation, and the other extending its powers to objects foreign to the general scope of its charter, the former is to be adopted. 
6. And if a corporation exceeds its powers, and makes contracts, and issues evidences of indebtedness, not authorized by its charter, such contracts and evidences of indebtedness are void, and cannot be enforced against the corporation. 
7. In this charter, section 27 authorizes borrowing money for public purposes. But the words used are to be construed as referring to the powers elsewhere granted by the charter; and this section was intended to enable the city to exercise the powers conferred by the charter, or rather to prevent their defeat for want of cash on hand, and not as a sweeping authority to borrow money at their discretion for any purpose whatever. Moreover: A railroad company is a private corporation, and borrowing money to lend to it is not borrowing money for a public purpose.
8. But, even if it were admitted that the city of Burlington had authority to borrow money for other objects than than those pertaining to the good order and government of the city, such admission would not uphold these bonds. These were issued on a contract of lending-not of borrowing. It was a lending of the credit of the city to a railroad corporation; not borrowing money for any purpose whatsoever, either public or private. Power given to a corporation to borrow money, does not include the power to lend either its money or its credit. 
9. The cases on county and city bonds heretofore considered by this court-Mercer County v. Hackett; Gelpcke v. City of Dubuque, 6 resisting payment, mainly on the ground that the bodies issuing the bonds were estopped from making the defences which they sought to interpose. In none of these cases, however, was it a question of power; but a question, whether a power, admitted to exist, had been executed with technical precision. In all of them the bonds recited that the requirements of the law had been complied with. The cases were applications of the rule, that where a corporation acts within the sphere of its general authority, but fails to comply with some formality or regulation which it should not have neglected, but which it has chosen to disregard, it is estopped to deny recitals of conformity to the law, upon which others have been induced to act.  Here, however, the objection is not to the mode and manner of executing a power, but that there is a total defect of power. If so, there can be no estoppel. No formality of execution, however exact, can give validity to an act which the corporation had no right, under the law, to do; there being no estoppel against a legal disability. 
10. The bonds show upon their face-in the recitals, we mean, upon them-the object for which they were issued. Had they been obligations, without explanatory recitals, they might have been presumed to be for a lawful consideration; issuable within the corporate powers; and, under decisions of this court, the city would have been estopped to show the contrary. But they show that they were made, not as a means of borrowing money, or securing the payment of money borrowed for any purpose public to the city, in the sence in which the statute giving the power must be construed, but as a loan to a railroad company, with which the city had no connection, and with which, as a matter of fact, it does not appear to have had the power to connect itself.
Of course, all parties had notice of the charter of the city; a public act. We need not enlarge on that point.
Mr. F. A. Dick, contra, for the bondholder, Rogers, plaintiff in error, contended that under numerous decisions made in former years in the Supreme Court of Iowa  (and only departed from of late years), as well as by not less numerous ones made in the last two years in this court -the city had power under its charter to borrow money to subscribe to the stock of the company and issue bonds in payment; that this power to borrow money authorized the issue that had been made to the company, and that the bonds were regular, valid, and binding on the city.
Mr. Justice CLIFFORD delivered the opinion of the court.
^1 Dartmouth College v. Woodward, 4 Wheaton, 636; Augusta v. Earle, 13 Peters, 584; Runyan v. Lessee of Costar et als., 14 Id. 129; Perrine v. The Chesapeake and Delaware Canal Company, 9 Howard, 184.
^2 Ohio Life Insurance and Trust Company v. The Merchants' Insurance and Trust Company, 11 Humphreys, 19; Broughton v. Salford Water Works, 3 Barnewall & Alderson, 1; Beatty v. Lessee of Knowler, 4 Peters, 169, 171.
^3 Perrine v. The Chesapeake and Delaware Canal Company, 9 Howard, 185.
^4 Attorney-General v. Life and Fire Insurance Company, 9 Paige, 476; Bank of Chillicothe v. Dodge, 8 Barbour, Supreme Court, 233.
^5 Colman v. Eastern Counties Railway Company, 10 Beavan, 1 to 14; The Caledonian Railway Company v. The Hellensburg Harbor Trustees, 39 English Law and Equity, 28; Smith v. The Alabama Life Insurance and Trust Company, 4 Alabama, 561.
^7 See Cincinnati City v. Morgan, supra, 275.
^8 Fairtitle v. Gilbert, 2 Term, 169.
^9 State v. Bissell, 4 G. Greene, 328; Clapp v. County of Cedar, 5 Iowa, 15; Ring v. County of Johnson, 6 Id. 265; McMillen v. Boyles, Id. 304; McMillen v. County Judge of Lee County, Id. 391; Games v. Robb, 8 Id. 193.
^10 Gelpcke v. Dubuque, 1 Wallace, 175; Mercer County v. Hackett, Id. 83; Seybert v. City of Pittsburgh, Id. 272; Van Hostrup v. Madison City, Id. 291; Meyer v. City of Muscatine, Id. 384.