Rogers v. Burlington/Dissent Field

Mr. Justice FIELD (in whose opinion concurred the CHIEF JUSTICE, and GRIER and MILLER, JJ.), dissenting.

I am compelled to dissent from the judgment of the court in this case. I am unable to find any authority for the city of Burlington, either in her charter or in any other legislation of Iowa, to issue the bonds, to recover the interest upon which the present action is brought. Municipal corporations differ from private corporations only in the purpose of their creation. They are equally dependent for their existence, and the powers they can exercise, upon the legislative will. They are limited to the powers specifically granted, and such other powers as are necessary to carry into effect those granted. They can exercise none other, and the plea of ultra vires may always be interposed as a defence to the enforcement of any contract or obligation not made or incurred within the limits prescribed. And the rule rests upon the most obvious reasons. The corporation consists of all the inhabitants within the corporate limits; they are the corporators. Thus, in the charter of Burlington, the first clause, after defining the limits of the city, declares that 'the inhabitants thereof shall constitute a body corporate and politic.' The officers of the corporation, the mayor and city council, constituting its legislative body, are merely the public agents of the corporation, and are bound by all the restrictions which bind other agents acting for their principals. The charter is to them the letter of authority, to which every one may look when called upon to consider the validity of their acts. The corporation can only be bound when these agents keep strictly within their prescribed limits.

But this is not all; the power granted must be exercised substantially in the mode designated. The adoption of the mode to this extent is essential to the validity of any act done. If the charter provide that a measure shall be authorized by ordinance of the council, it cannot be authorized by resolution of that body; if it prescribe a sale at auction, a sale in any other manner is void; if it authorize a borrowing of money upon a vote of the citizens, the money cannot be borrowed in any other way. In all such cases the mode becomes the measure of the power. This is too obvious to require argument; and so are all the adjudications. Thus, in Head v. The Providence Insurance Company, Mr. Chief Justice Marshall, in speaking of bodies which have only a legal existence, says: 'The act of incorporation is to them an enabling act; it gives them all the power they possess; it enables them to contract, and when it prescribes to them a mode of contracting they must observe that mode, or the instrument no more creates a contract than if the body had never been incorporated.'

But still more: the power granted must be exercised for the purpose designated; it is limited to the objects to be accomplished, to the sphere of action prescribed by the charter. If it be given for the construction of a city building, it cannot be exercised for the construction of a city railroad; if it be allowed for the establishment of a public library, it cannot be exerted for the opening of a public market; if it be conferred to enable the corporation to borrow money, it cannot be used to enable the corporation to lend money, or to lend its credit.

These observations are legal truisms. They are elementary principles. They are recognized by all the authorities both of England and America. They are controverted in none, and they envelop the present case on all sides.

Here the authority conferred is to borrow money; yet no money was borrowed, but the bonds of the city were lent. Borrowing money and lending credit are not convertible terms. The two things which they indicate are essentially distinct and different. The utmost which can be said is, that the railroad company might have borrowed money on these bonds, and thus the transaction would amount to a borrowing of so much money by the city through the railroad company as its agent. The answer to this suggestion is, that there is no authority to be found for constituting the railroad company the fiscal agent of the city. The company having possession of the bonds might dispose of them at any rate of discount which it deemed proper. Could the legislature have intended that the city should be liable in any event to taxation on the supposition that a public enterprise had been aided by its money to a specified amount, when in fact no such sum was ever given for the enterprise?

The question presented is not a new one. In Gould v. The Town of Sterling, a statute of New York had authorized the officers of the town to borrow the sum of twenty-five thousand dollars, and pay it over to the president and directors of a railroad company, to be expended by them in grading and constructing a railroad. Instead of borrowing the money, the officers of the town delivered over the bonds of the town to the company in payment for stock, for which they were authorized by the act to subscribe, and the company sold them at a discount. The question was, whether this was within the authority conferred by the act? Mr. Justice Selden, speaking for the Court of Appeals of New York, in an opinion of marked ability, answers the question in the negative. 'It is clearly,' says that learned justice, 'not within its language. No money was borrowed, and nothing else was authorized by the terms of the act. If, however, what was done was the same in effect as if the money had been borrowed and paid over to the railroad company, the difference in form would not be material. But it is plain that neither in respect to the railroad company nor the town was its effect the same. If the statute had been pursued, the company would have had a sum equal to the par value of the bonds to expend upon their road. As it was, they were compelled to sell the bonds at a discount in order to realize the money.'. . .. 'It is true, the town did not itself sell the bonds, nor make any sacrifice upon them. It transferred them to the railroad company at par, in payment for stock for which it was authorized to subscribe. This, however, does not strengthen the plaintiff's case. It was as much a departure from the terms of the statute as if the town had itself sold the bonds as a discount, and was equally inconsistent with the object and intent of the act, which was, that the railroad company should receive a sum equal to the amount of the debt incurred by the town, to expend upon the road, in the completion of which the town was supposed to have an interest. There is, therefore, in this case, not only a literal but a substantial difference between the course pursued and that pointed out by the statute. It follows that the bonds were illegally issued, and were, consequently, void in the hands of the railroad company; and as the referee has expressly found that the plaintiff became the purchaser with full knowledge that the bonds had not been issued for money borrowed, but in payment for the stock of the company, he is in no better situation than the railroad company itself.'

I can add nothing to this language, or to the cogency of the reasoning of the learned judge. Every word is applicable to the case under consideration.

I might proceed and show that the purpose for which the bonds in this case were issued, was not within the objects to be accomplished by the charter of incorporation; that those objects were such as are usually contemplated in the creation of a municipal corporation,-the establishment of a local government, the securing of peace, good order, and health within the corporate limits, and the promotion of such measures as would conduce to the general good of the municipality, and that the power to borrow money was restricted to the purposes declared. But it is unnecessary to pursue the matter further. When the authority to borrow money is made to cover a case of lending credit, it is vain to contend that the 'public purpose' prescribed by the charter was limited to any of the purposes for which such charter was created.

This is not a case where the doctrine of estoppel has any application. It is not a case where the purchaser of the bonds was misled by any recitals of conformity to law. Here the statute and the ordinance of the city of Burlington, under which authority to issue the bonds was assumed to exist, are both printed in full in the indorsements upon the bonds; and the ordinance is also referred to on their face. But if this were not so the case would not be changed, as the statute did not authorize the issue of the bonds. No formality of execution, and no extent of recitals could give validity to instruments thus issued. The public agents of the city could not cure the inherent defect in their action arising from want of power, by any amount of representation that they had the requisite authority.

I am clear that the bonds are void, and that the judgment should be affirmed.

In addition to what has been said by my brother Field, in all of which I concur, I desire to state, that on the 8th of January, 1866, the Supreme Court of Iowa, by a decision which was unanimous, held the bonds which are the foundation of this suit to be void, on the ground that the charter conferred no authority on the city to lend its credit, and that the transaction in this case was a loan of credit, and not a borrowing of money.