Kelley v. Milan

This is an action at law, brought in the circuit court of the United States of the Western district of Tennessee, by Albert Kelley and Lawrence D. Alexander, copartners under the firm name of Kelley & Alexander, citizens of New York, against the mayor and aldermen of Milan, a municipal corporation organized under the laws of Tennessee, to recover the sum of $5,040, being the amount of 144 coupons, for $35 each, cut from 12 bonds purporting to have been issued by the defendant, bearing date July 1, 1873, each for the payment of the sum of $1,000, payable to _____, or bearer, on the 1st of July, 1893, 24 of which coupons matured on the 1st of July, 1876, 24 on the 1st of Jyly, 1877, 24 on the 1st of July, 1878, 24 on the 1st of July, 1879, 24 on the 1st of July, 1880, and 24 on the 1st of July, 1881. Interest was claimed on each coupon from its maturity. Each of the bonds was in the following form, all being alike except as to the numbers:

'No. 1.

State of Tennessee, Town of Milan.

$1,000.

'Be it known that the town of Milan, by its mayor and     aldermen, in consideration of the location of the Mississippi      Central Railroad by said town, the citizens thereof, in      pursuance of the laws of Tennessee authorizing the same,      having agreed to issue bonds, payable on twenty years' time,      to the amount of twelve thousand dollars, with annual      interest at seven per cent., with coupons attached, in bonds      of one thousand dollars each. And whereas, the people of     Milan voted the same by a majority and in the form required      by law, the vote being in pursuance of due notice, and in all      respects according to the laws of Tennessee, said bonds to be      payable to the Mississippi Central Railroad, under lease and      control of the Southern Railroad Association, now, be it      known that the town of Milan, by its mayor and aldermen, in      pursuance of the authority given by the people thereof, and      in obedience to the duty required of them, issues and      delivers this bond, being one of twelve; and said town of      Milan hereby acknowledges itself to owe and be indebted to      _____, or bearer, in the sum of one thousand dollars, which      sum said town of Milan binds itself to apy, in lawful money      of the United States, to the Mississippi Central Railroad      Company, or to the order of the Souh ern Railroad      Association, or bearer, in the city of New York, on or before      the 1st day of July, in the year of our Lord 1893, with      interest at the rate of seven per cent. per annum, payable     annually on the 1st day of July of each year, on presentation      of the proper coupons hereto annexed. And the town of Milan,     by its mayor and aldermen, hereby pledges the legal      responsibility and the faith of said town for the payment of said coupons and bond according to      the terms and effect hereof.

'In testimony whereof, the mayor and aldermen of the town of     Milan have caused the signature of the mayor to be hereto      set, and the seal of the corporation to be affixed, this 1st      day of July, 1873, A. D.

[L. S.]

A. JORDAN, Mayor of the Town of Milan.'

The declaration alleged that the 12 bonds constituted the entire number of the issue by the defendant, and that the plaintiffs owned the bonds and coupons by the purchase of them in good faith. The defendant, for plea, averred that it did not make the bonds or the coupons, nor was any person authorized to make the same for it, and that the coupons were not its act and deed. The plaintiffs, for replication to the plea, averred that theretofore, in the chancery court for the county of Gibson, in Tennessee, the defendant instituted suit against the payee of the bonds, and certain other persons, holders thereof, by filing its bill in said chancery court against the Mississippi Central Pailroad Company, H. S. McComb, and others, alleging that the bonds were invalid, and praying to have the same so adjudged, and to be surrendered to the defendant and canceled; that thereafter, in January, 1875, in said chancery court, a final decree was rendered adjudging that the bonds and coupons were valid obligations against the town of Milan; and that, therefore, the matter was res adjudicata. The defendant put in a rejoinder to the replication, averring that the decree referred to was produced by combination and fraud between the vice-president of the New Orleans, St. Louis & Chicago Railroad Company, and the agents and attorneys of the defendant, by which a decision of the court in the cause, upon the matters involved, was prevented, and the decree was consented to for the purpose of giving it effect as res adjudicata upon points in litigation not honestly contested; that the decree was not the judgment of the court on the issues involved, but was founded upon the unauthorized consent of certain agents and attorneys of the defendant, who had no power to give such consent or to bind the defendant in the premises; that the court had no power to bind the defendant by the decree; that the decree was not rendered in favor of a party to the record, but in the interest of a stranger thereto; and that the plaintiffs were not bona fide holders, without notice, of the bonds or the coupons. The plaintiffs demurred to the rejoinder, alleging various causes of demurrer. The demurrer was overruled, and the plaintiffs then took issue upon the rejoinder. The case was then tried by the court on due waiver in writing of a jury. At the trial, the coupons sued on, and the bonds from which they were detached, were offered in evidence by the plaintiffs; the genuineness of the signatures being admitted. Each coupon was in the following form:

'Town of Milan.

'$35. Warrant for thirty-five dollars, being for six months'     interest, payable on the 1st day of July, 1880, in the city      of New York, on bond No. ___.

'A. JORDAN, Mayor of the Town of Milan, Tenn.'

The defendant objected to the admissibility of the coupons and bonds, on the ground that they were signed, sealed, and delivered by the constituted authorities of Milan, without any legislative power having been given to them, or to the defendant or its agents, to sign, seal, deliver, or issue the coupons or the bonds. The court, being of opinion that such objection was well taken, sustained it, and excluded the coupons and the bonds, and the plaintiffs excepted.

Te re was a stipulation of facts made by the parties, which is set forth in the bill of exceptions, stipulating (1) that the bonds in question were issued by the defendant in payment of a stock subscription made by it to the Mississippi Central Railroad Company, the subscription being for the sum of $12,000; (2) that, at the time of making the subscription, the railroad company was about to extend its line from Jackson, Tenn., to Cairo, Ill., and the subscription was to aid in making such extension, and to secure its location through* the defendant's town; (3) that such extension was completed in 1873, the same running through the town limits of the defendant, as it stipulated for, and the extension had been operated ever since that time. The following facts also appeared by the stipulation: On the 10th of July, 1874, A. Jordan and six other persons, residents and tax-payers of the town, instituted proceedings in the chancery court at Humboldt, in Gibson county, Tenn., against the Mississippi Central Railroad Company and others, for the purpose of avoiding the liability of the town upon the bonds; the complainants constituting the board of mayor and aldermen of the town. The bill alleged, that, in the record of proceedings of the board, of the date of May 11, 1872, there was the following entry: 'The board was convened by order of the mayor. Present: A. Jordan, mayor; W. M. McCall, M. B. Harris, J. H. Dickinson, J. M. Douglas, W. E. Reeves, W. H. Algea, aldermen. On motion, it was ordered that 12 bonds of $1,000 each, with coupons attached, payable 20 years after issuance, bearing interest at 7 per cent. per annum, be issued by the corporation of the town of Milan, Tenn., to the Mississippi Central Railroad Company, upon the following conditions, namely: That the Mississippi Central Railroad be extended from Jackson, Tenn., to the town of Milan, and intersect or cross the Memphis and Louisville Railroad at the point agreed upon by Col. Read, chief engineer of the Mississippi Central Railroad, and the committee on behalf of the corporate authorities of the town of Milan, near S. P. Clark's residence, the interest on said bonds to be paid annually; and that the town marshal open and hold an election on the 12th day of June, 1872, within the corporate limits of said town, for a ratification or rejection of said proposition.' That in such record were entered the following proceedings as having taken place at a meeting of said board on the 17th of June, 1872: 'The board met pursuant to adjournment. Present: A. Jordan, mayor; W. M. McCall, M. B. Harris, J. M. Douglas, W. H. Algea, and W. E. Reeves, aldermen. The minutes of the former meeting were then read and adopted The election was held on the 12th day of June, 1872, for the ratification or re jection of the action of the board of mayor and aldermen of the town of Milan in regard to the issuance of the $12,000 in bonds to the Mississippi Central Railroad Company upon certain conditions. The returns of said election show a vote of 117 for subscription, and 2 no subscription.' 'W. M. McCall and W. H. Algea were appointed a committee to correspond with Judge Milton Brown, of Jackson, Tenn., in regard to the proposition of Milan corporation in regard to issuing the $12,000 in bonds to the Mississippi Central Railroad Company.' That the foregoing entries constitute all the proceedings in regard to the subscription of the $12,000 in bonds, and in regard to the election held for ratifying or rejecting the action of the board in directing the issue of the bonds. That there was nothing to show the manner in which the election was held, or by whom the returns were made, or that the required number of votes was polled in favor of the proposition, as required by law. That the order of the board directing the issue of the bonds was without authority, (1) because the order was adopted and the election ordered without any application in writing, or otherwise, to the board for the purpose, as required by section 1144 of the Code of Tennessee; (2) because the election was ordered to be held, and was held, by the town marshal or constable, and not by the sheriff of the county of Gibson, as required by section 1143 of the Code; (3) because the marshal, after the polls were opened, and before they were closed, suffered the box in which the votes were deposited to be removed from the place in the town fixed for receiving ballots, to various other places in the town, and put into the ballot-box votes offered at such places not fixed by law as a place of voting, and without authority; and (4) because, at the time, the entire line of the contemplated road in which the stock was to be taken had not been surveyed by a competent engineer, and substantially located by designating the termini, and approximating the general direction of the road, and no estimate of the grading, embankment, and masonry had been made by any one authorized to make it, and no such estimate as was required by section 1145 of the Code had ever been filed. That, at the time of ordering and holding such election, the population of Milan was less than 1,000 inhabitants, and therefore it was not authorized by law to take stock in railroads, issue bonds, or levy a tax for their payment; that on the 23d of June, 1873, the said board made the following order: 'On motion of W. M. McCall, the mayor was instructed to issue twelve bonds to the said Mississippi Central Railroad Company, of the denomination of $1,000 each, with interest from date of issuance at the rate of 7 per cent. per annum.' That thereupon said mayor prepared 12 bonds, designated as the 'Bonds of the Town of Milan,' of $1,000 each, payable to the Mississippi Central Railroad Company, or bearer, 20 years from the date of issue, and dated July 1, 1873, bearing 7 per cent. interest per annum, to which bonds were attached coupons for the payment of such interest on the 1st of July of each year the bonds had to run; each one of the bonds and coupons being signed by A. Jordan, mayor and recorder, and being made payable in the city of New York. That on the 4th of August, 1883, the bonds and coupons were delivered to the Mississippi Central Railroad Company, through one Hall, its treasurer and cashier. That the bonds, with the coupons, one year's interest being due on July 1, 1874, were still in the possession of Hall, or some other officer or agent of the company, and the company was attempting to collect the interest due on the bonds. That the town was not bound to pay the bonds, their issue being made contrary to law; but, if the company should sell them to innocent purchasers, the town would be bound in law to pay them. That the officers of the company would sell and assign the bonds, with a view to making the town liable, if they had not already done so in part, and that they were attempting to negotiate them, and would do so unless restrained by injunction. The bill prayed that the company and its officers be enjoined perpetually from transferring or disposing of the bonds and coupons, and from collecting the same, and that they be delivered up and canceled. On the 10th of July, 1874, (the same day on which the bill was filed,) a temporary injunction, in accordance with its prayer, was issued. The defendants thereafter filed a demurrer to the bill, and on the 9th of January, 1875, the following final decree was entered in the suit:

'A. Jordan, W. I. House, J. Q. Boyd, M. L. Baird, W. Y.     Williamson, S. F. Rankin, et als., Mayor and Aldermen of the      Town of Milan, vs. The Mississippi Central Railroad Company,      H. S. McComb, and James Hall.

'Be it remembered that this cause, this 9th of January, 1875,     came on to be heard and was heard before Hon. JOHN SOMERS,      chancellor, etc.; and, it appearing that this suit had been      settled by the following agreement, to-wit.

"Whereas the board of mayor and aldermen of the town of Milan     in Gibson county, Tenn., having filed a bill in the chancery      court at Humboldt against the Mississippi Central Railroad      Company to eno in the collection of certain bonds issued by      the town of Milan to aid in the construction of said road,      to-wit, twelve bonds of $1,000 each, with coupons attached,      and said suit is now pending in said court; and whereas, it      is agreed by and between said corporation of the town of      Milan and the New Orleans, St. Louis & Chicago Railroad      Company, into which said Mississippi Central R. R. Co. has      been merged by contract of consolidation between said      last-named company and the New Orleans, Jackson & Great      Northern R. R. Co., that said suit be compromised as follows,      to-wit: The said New Orleans, St. Louis & Chicago R. R. Co.      is to issue to the town of Milan certificates of stock in the      sum of $500 each, dollar for dollar, for said bonds, and the      said town of Milan on their part agrees, on receipt of said      stock, to let a decree be entered in said cause in favor of      the validity of said bonds, which are to be redelivered, with      the seal of the town affixed, and the costs of said suit to      be paid by the said New Orleans, St. Louis & Chicago R. R.      Co.

"In testimony whereof we herewith sign our names, and affix     our official seal, this December 18, 1874.

A. JORDAN, Mayor.

"A. M. WEST,

"2d Vice-President N. O., St. Louis & C. R. R. Co.', 'In pursuance of this agreement, and by consent of the     parties, it is or dered, adjudged, and decreed, that the New      Orleans, St. Louis & Chicago R. R. Co. shall issue to the      town of Milan certificates of stock in said company in sums      of $500 each, dollar for dollar, for said twelve bonds of      $1,000 each referred to in the bill; and it is further      ordered, adjudged, and decreed, that, on the presentation of      these certificates of stock, the town of Milan shall have the      corporate seal of said town affixed to each of said twelve      bonds, and delivered to H. S. McComb, to whom they rightfully      belong, or his authorized agent, and said bonds and coupons      attached are declared to be valid and binding on said town      and its authorities. It is, by consent, further ordered,      adjudged, and decreed that the injunction be dissolved, the      demurrer herein filed be, and the same is hereby, overruled,      and this decree is declared a final settlement of the right      of the parties; the New Orleans, St. Louis & Chicago Railroad      Company to pay the costs, and this case only retained on the      docket so far as is necessary to enforce the final execution      of this decree.'

It was further agreed by said stipulation that the records of the town were destroyed by fire in 1879; that no census authorized by law, of the town, had been taken before 1880, when the population was ascertained to be 1,600; that the railroad was not completed to the town until after July, 1873; that, after the final decree in the chancery court, the plaintiffs became the owners of the bonds and the coupons attached, purchasing the same for value and before they were due; and that, in the proposition submitted to the voters of the town, the question of subscribing $12,000 to the stock of the railroad company, payable in the bonds, 'was also submitted in one question and at one and the same time, and was so approved by the requisite majority.' The bill of exceptions states that the plaintiffs offered in evidence the above-named record of the chancery court at Humboldt, found in the stipulation; that the defendant, waiving all other objections, objected to the same because the record showed upon its face that it was not binding in law upon the town as a matter of adjudication, and therefore did not sustain the replication to the plea; that the court sustained the objection, and the plaintiff excepted; and that the court found, as one of the facts to support its judgment, that, at the time the bonds and coupons were issued, the town did not contain 1,000 inhabitants. The court found that the facts and the law were with the defendant, and rendered a judgment in its favor for the costs of the suit, to review which the plaintiffs have brought a writ of error. The opinion of the circuit cor t is reported in 21 Fed. Rep. 842.

Holmes Cummins and John B. Henderson, for plaintiffs in error. [149]

Sparrel Hill, for defendant in error.

BLATCHFORD, J.