The Mayor v. Ray

[Syllabus from pages 468-470 intentionally omitted]

to the Circuit Court for the Middle District of Tennessee; the case being thus:

Ray sued the mayor and city council of Nashville to recover the amount of nineteen corporation drafts, or orders, ranging from a few dollars in amount to over $1000, and together amounting, with interest, to over $9000. In form, they were drawn by the mayor and recorder upon the city treasurer, payable to some person named, or bearer, and were impressed with the city seal. The following is one of the orders, and shows the form of them all.

This was the form in which all city dues were usually paid. The indorsement by the treasurer was made when the orders were presented to him. Evidence was given by the plaintiff tending to show that it had been the custom for many years, when the treasurer failed to pay such checks on presentation, for him to write his name on the back, with the date of presentation, and afterwards, in the payment of such checks, to allow interest from that date, and that it was usual to present such checks for indorsement to draw interest when it was known there were no funds for their payment; also, that it was the well-known custom of the proper collecting officers of the corporation to receive such checks for taxes and other dues of the corporation; that at the time these checks were issued, and at the time they were bought by the plaintiff, the city was largely involved in debt, and that many such checks were outstanding unpaid, and were bought and sold in the market, and that nearly all the city taxes were paid therewith; that for some time before the plaintiff purchased the checks in question the taxes for the support of public schools were collected and paid over to the treasurer of the board of education in such checks; and for about five months before, it had been the practice of such treasurer to sell such checks and to use the proceeds in payment of teachers; also, that all the checks sued on (except one for $1000, payable to Julius Sax), were so received for taxes, and paid to the said treasurer of the board of education, and by him sold soon after receiving them to one McCrory as agent of the plaintiff to buy the same, at the rate of eighty cents on the dollar, and the proceeds paid to teachers; that the check payable to Sax was purchased from him by McCrory, as the plaintiff's agent, for $800, being one of sixteen checks of $1000 each, issued by order of the chairman of the finance committee of the city council without any order of the council, and hypothecated with Sax as security for a loan of $12,000, payable in four months (half of which was made in city checks), power being given in the loan note to sell the hypothecated checks, if the loan was not paid when due. Sax sold the check in question to the plaintiff within a week after receiving it. The plaintiff also offered the evidence of the city recorder to show that the checks sued on were made in the usual course of business of the corporation and for corporation purposes; also, evidence tending to show that the city collector, in collecting checks for taxes, was in the habit, in making change, of paying out checks previously collected, and that the mayor and council were informed of the practice pursued by the collector of reissuing checks which he had received in payment of taxes by paying a portion of them over to the board of education, and knew of the practice of issuing and hypothecating checks for loans and selling them for money.

The defendant introduced proof tending to show that McCrory, the agent of the plaintiff, when he purchased the eighteen checks, had notice that they had been received by the tax collector and reissued by him to the treasurer of the board of education (the evidence showing that the presentation and neglect to pay had in most instances been made nearly two months before, and in one instance nearly four months); also, that the city council had no knowledge of the manner of making checks on the mere order of the chairman of the finance committee, and their hypothecation and sale for money; and that some of them had no knowledge of the reissue of checks by the collector.

The charter and ordinances of the city were put in evidence, and were referred to on the argument before this court.

The former was couched in the usual form of such charters, conferring upon the corporation power to receive, hold, and dispose of property, to levy taxes, appropriate money, and provide for the payment of the debts and expenses of the city; to establish hospitals, schools, water-works, markets, and erect buildings necessary for the use of the city; to open, regulate, and light the streets; to establish a police, night watch, &c., and to pass all ordinances necessary to carry out the intent of the charter.

It contained, however, no express power to borrow money. But former laws (which were superseded by the charter) had authorized the issue of specific city bonds for that purpose; and such securities were outstanding in 1868, as appeared by an act of the legislature, passed March 16th of that year, by which it was provided that the taxes necessary to pay the coupons and interest on the bonds and funded debt of the city should be kept distinct and should be payable only in legal currency, and no checks or orders of the city were to be received therefor. It was also enacted by the same statute that the amount necessary to be raised by tax for the sinking fund for paying said bonds, and for the support of the public schools, should be paid in the same manner.

The public ordinances of the city were published in a book, and by these it was, among other things, provided that there should be a committee of improvements and expenditures, and that all propositions for improvements, or the expenditure of money, or the incurring of any liability, should be referred to this committee, who were to report to the city council, and that no liability should be incurred unless authorized by existing laws, or by order of the city council, and that no check should be issued by the recorder upon the treasurer, unless by authority of the city council, or in pursuance of existing laws of the corporation.

The defendant offered proof tending to show that there was no evidence of any authority having ever been given by the city council for the issue or reissue of checks in the manner in which the checks in question were issued and reissued; and that one of them (specified) had been issued in virtue of a corrupt contract with a member of the council. The proof was rejected under the defendant's exception.

The court charged in substance as follows: That the charter of Nashville authorized the corporation to issue promissory notes and other securities for lawful debts; that the instruments in question, if signed by the proper officers and given for a good consideration, were, in effect, promissory notes, legal and obligatory; that by long usage the corporation had sanctioned the authority of the officers to issue such instruments; that the purchasers thereof were authorized to presume that they were properly issued; that if it was the usage to reissue these securities by sale in the market, they would, when so sold, be obligatory on the corporation; and, though upon their face overdue, they would be in law payable on demand, and not to be deemed dishonored so as to let in defences against a subsequent holder of the paper, until after the lapse of a reasonable time for making demand; that the reissue and sale of the securities in question by the treasurer of the board of education, if done by the consent and sanction of the mayor, aldermen, and council, made them valid obligations against the city; and that such consent and sanction might be presumed from the publicity of the transactions, the want of other resources to support the schools, and the other circumstances of the case, without any formal official action taken on the subject; and that the common usage of the finance committee, to pledge the city checks as security for its notes, if known to the corporation, was binding upon it, and that the checks so pledged would be valid in the hands of a purchaser before maturity, not having notice of a premature sale or other irregularity in their issue.

This charge was excepted to in all its parts, and upon these exceptions the case was argued before this court in reference to the following points:

1. Has a municipal corporation the power, without express legislative authority, to borrow money for any of the purposes of its incorporation?

2. Has it the power, without express legislative authority, to issue its paper clothed with all the attributes of negotiability?

3. Conceding the affirmative of these two queries, can the executive officers of a municipal corporation borrow money, or issue negotiable securities for the corporation, so as to bind it, without 'ordinance;' that is to say, without express authority from the legislative department of the corporate government in its collective official capacity?

The case was elaborately argued, both upon principle and authorities, on these points, by ''Messrs. W. F. and H. Cooper, for the plaintiff in error, and by Messrs. G. F. Edmunds and R. McP. Smith, contra; the latter counsel referring specially to Adams v. The Memphis and Little Rock Railroad Company'', in the Supreme Court of Tennessee, in which State the transactions now in question arose.

Mr. Justice BRADLEY delivered the judgment of the court, and the opinion of himself and Justices MILLER, DAVIS, and FIELD; Mr. Justice HUNT concurring in the judgment.