Hackett v. Ottawa

ERROR to the Circuit Court of the United States for the Northern District of Illinois.

This action is upon certain bonds issued by the city of Ottawa, Ill., in the year 1869, and of which the testator of plaintiffs in error became the holder and owner, for value, before maturity. They are in the usual form of municipal bonds, and, besides pledging the faith of the city irrevocably for their payment, contain these recitals:--

'This is one of one hundred and twenty bonds of like amount and even date herewith, numbered one to one hundred and twenty respectively, issued by the city of Ottawa, by virtue of the charter of said city; wherein it is provided that the city council shall have power to borrow money on the credit of the city, and to issue bonds therefor, and pledge the revenue of the city for the payment thereof, provided that no sum or sums of money shall be borrowed at a greater interest than ten per cent per annum. Art. 5, sect. 3.

'No money shall be borrowed by the city council until the ordinance passed therefor shall be submitted to and voted for by a majority of the voters of said city attending an election for that purpose. Art. 10, sect. 20. And also in accordance with a certain ordinance passed by the city council of said city on the fifteenth day of June, A.D. 1869, entitled 'An ordinance to provide for a loan for municipal purposes,' which ordinance was ratified by a majority of all the qualified voters of said city at an election holden on the twentieth day of July, A.D. 1869, and in conformity with an ordinance passed by the city council of said city on the thirtieth day of July, 1869, entitled 'An ordinance to carry into effect the ordinance of June 15, 1869, entitled an ordinance to provide for a loan for municipal purposes.'

'Witness the signatures of the mayor and clerk of said city, and the corporate seal thereof, this twentieth day of August, in the year of our Lord one thousand eight hundred and sixty-nine.

[SEAL] 'HENRY A. SCHULER, Mayor.

'R. N. WATERMAN, Clerk.'

The defendant below filed two special pleas. The first, after setting forth the ordinance of June 15, 1869, and also that of July 30, 1869, and what is alleged to be the substantial privileges granted to the Ottawa Manufacturing Company, by an act of the General Assemby of Feb. 15, 1851, and an act amendatory thereof, passed Feb. 16, 1865, avers that the first act and the amendatory act were the same franchises and powers referred to in the ordinance passed July 30, 1869, as having been granted for that purpose by the legislature of the State of Illinois, under which one Cushman was authorized and directed to expend the proceeds of the bonds aforesaid; that the manufacturing company was a private corporation, not connected with or controlled by the city, and that the bonds were issued and delivered to Cushman as a donation to him, or to the company, to aid in the prosecution of a private enterprise, and were not issued for any municipal purpose whatever; that their issue was without authority of law, and that they are void.

The second plea is in all respects like the first, except it avers that Cushman has failed to comply with his contract, as provided by the ordinance of July 30, 1869.

To each of these pleas a general demurrer was filed by the plaintiffs, which was overruled by the court below; and they having elected to stand by the demurrer, judgment was rendered for the city. The plaintiffs then sued out this writ of error.

The ordinances of the city and the acts of the General Assembly of Illinois referred to in the pleas are substantially set forth in the opinion of the court.

The Illinois Constitution of 1848 declares that 'the corporate authorities of counties, townships, school districts, cities, towns, and villages may be vested with power to assess and collect taxes for corporate purposes.' Art. 9, sect. 5.

The charter of the city of Ottawa, granted in 1853, confers upon its council the power to establish hospitals; provide the city with water; open, widen, extend, and otherwise improve and repair streets and other public highways; establish, erect, and keep in repair bridges; erect market-houses; provide all needful public buildings for the use of the city; and grants various other municipal powers, the exercise of which necessarily involves the raising and disbursement of large sums of money. Laws of Ill., 1853, p. 296.

Among the powers expressly delegated to the council is the power 'to appropriate money and provide for the payment of the debts and expenses of the city,' and, with the sanction of a majority of voters attending at an election for that purpose, 'to borrow money on the credit of the city, and to issue bonds therefor, and pledge the revenue of the city for the payment thereof.'

Mr. Frank W. Hackett and Mr. G. S. Eldredge for the plaintiffs in error.

The language of the charter, 'to borrow money on the credit of the city, and to issue bonds therefor, and pledge the revenue of the city for the payment thereof,' conferred upon the corporate authorities power as ample to negotiate the bonds in this suit as if a legislative enactment had specially provided for their issue. Gelpcke v. Dubuque, 1 Wall. 220; Meyer v. The City of Muscatine, id. 384; Rogers v. Burlington, 3 id. 654; Mitchell v. Burlington, 4 id. 270.

A power to borrow money and issue bonds therefor includes the right to make a donation. ''Chicago, &c. Railroad Co. v. Smith'', 62 Ill. 268; Railroad Company v. County of Otoe, 16 Wall. 667.

The issue of the bonds in suit was not in violation of sect. 5, art. 9, of the Constitution of Illinois of 1848. Taylor v. Thompson, 42 Ill. 11; Burr v. City of Carbondale, 76 id. 455; Briscoe v. Allison, 43 id. 291; Johnson v. Campbell, 49 id. 316; Misner v. Bullard, 43 id. 470; ''Chicago, &c. Railroad Co. v. Smith, supra''.

The power conferred by that section gives the unquestionable right to the city of borrow money for any 'corporate purpose,' within the meaning of the Constitution.

Power to issue bonds for public purposes being lodged in the corporate authorities, and they having put upon the market negotiable securities which purport on their face to have been issued by a city that had charter authority to issue bonds for municipal purposes, the defendant is estopped from setting up that in point of fact the purpose was not municipal, when the bonds themselves recite that the loan is for municipal purposes, and they have come into the hands of a bona fide purchaser, who took them relying on such recitals, and without actual notice of the purpose for which they had been issued other than as disclosed on the face of the bonds. Commissioners of Knox County v. Aspinwall et al., 21 How. 539; Bissell et al. v. City of Jeffersonville, 24 id. 287; Van Hostrup v. Madison City, 1 Wall. 291; Mercer County v. Hackett, id. 83; Supervisors v. Schenck, 5 id. 772; Grand Chute v. Winegar, 15 id. 355; St. Joseph Township v. Rogers, 16 id. 644; Town of Coloma v. Eaves, 92 U.S. 484; County of Moultrie v. Savings Bank, id. 631; Marcy v. Township of Oswego, id. 637; Humboldt Township v. Long et al., id. 642; Commissioners, &c. v. January, 94 id. 202; Commissioners, &c. v. Bolles, id. 104; Cromwell v. County of Sac, 96 id. 51; San Antonio v. Mehaffy, id. 312; County of Warren v. Marcy, 97 id. 96; Mealey v. St. Clair County, 3 Dill. 163; Allen v. Cameron, id. 175; Wyatt v. City of Green Bay, 1 Biss. 292.

Mr. C. B. Lawrence, contra.

In the absence of express legislative authority, the city could not issue the bonds in suit. Town of South Ottawa v. Perkins, 94 U.S. 260; Township of Coloma v. Eaves, 92 id. 484; Pendleton County v. Amy, 13 Wall. 297; Kennicott v. The Supervisors, 16 id. 452; St. Joseph Township v. Rogers, id. 644; Bissell v. City of Kankakee, 64 Ill. 251; City of Galena v. Corwith, 48 id. 423; Trustees, &c. v. McConnel, 12 id. 138; Marshall County v. Cook, 38 id. 44; Schuyler County v. The People, 25 id. 181; Supervisors, &c. v. Clark, 27 id. 305; Rogers v. Burlington, 3 Wall. 654; Mitchell v. Burlington, 4 id. 270.

Even if express authority had been given by legislative enactment to the city to issue the bonds as a donation to the Ottawa Manufacturing Company, such enactment would have been void under the Constitution of Illinois. Loan Association v. Topeka, 20 Wall. 655; Harward v. St. Clair Drainage Co., 51 Ill. 133; The People v. Salomon, id. 48; ''The People ex rel. McCagg v. The Mayor, &c. of Chicago'', id. 17; The People v. Dupuyt, 71 id. 651; Johnson v. Campbell, 49 id. 317; Madison County v. The People, 58 id. 463.

The bonds in suit were not issued for a corporate purpose. Loan Association v. Topeka, 20 Wall. 655; Board of Supervisors v. Werder, 64 Ill. 427; Bissell v. City of Kankakee, id. 251.

There is no question in this case of innocent purchasers of negotiable paper, for two reasons: first, the bonds were issued without statutory authority, and for a purpose for which such authority would have been unavailing; and, second, the bonds showed this defect on their face. Township of East Oakland v. Skinner, 94 U.S. 255; Township of South Ottawa v. Perkins, id. 260; McClure v. Township of Oxford, id. 429; Marsh v. Fulton County, 10 Wall. 676.

MR. JUSTICE HARLAN delivered the opinion of the court.