Van Hostrup v. Madison City

ERROR to the Circuit Court for the District of Indiana.

The suit was brought in the court below against the city of Madison, in Indiana, for moneys due upon coupons attached to certain bonds issued by the city authorities, signed by the mayor and the city clerk, and to which was affixed the seal of the corporation, by which the city acknowledged, that in virtue of an ordinance of the Common Council, passed 2d September, 1852, it owed and promised to pay the president of the Columbus and Shelby Railroad Company, or bearer, $1000, redeemable on the 1st of November, in the year 1872, with interest at the rate of six per cent. per annum, semiannually, on the first days of May and November of each year, from the date of the bonds, at the banking house of Winslow, Lanier & Co., in the city of New York.

These bonds were negotiated and put into circulation by the Columbus and Shelby Railroad Company, and purchased in the market by the plaintiffs, bon a fide, and for a valuable consideration. They had been issued to the railroad company for stock subscribed in that company by the city of Madison, aforesaid.

As respected the authority of the city to subscribe, it appeared that one section of its charter authorized it 'to take stock in any chartered company for making a road or roads to said city, provided, that no stock shall be subscribed, &c., unless it be on the petition of two-thirds of the citizens who are freeholders, &c., and provided, that in all cases where stock is taken, the Common Council shall have power to borrow money,' &c.

At the time when the subscription to the Columbus and Shelby road was made and the bonds issued, a railroad called the Madison and Indianapolis Railroad, a road leading from

Indianapolis, in the interior of the State, to Madison, was in operation, and brought down from one part of the interior where Indianapolis is, to Madison, on the Ohio River, the products of the State. This road passed through Columbus. The Columbus and Shelby Company (the company to which the subscription was made), was organized to construct a road from Columbus to Shelby County, terminating at Shelbyville. But Columbus was forty-six miles from Madison; Shelbyville being about twenty-three north of it. Through Columbus, and by means of the connection with the Madison and Indianapolis road, the Columbus and Shelby road did lead to Madison and nowhere else; though if regarded as an independent and isolated road, and as one between Shelby and Columbus only, it could not be said to be a road to the city designated. The diagram will elucidate the matter.

As respected the required 'petition of two-thirds of the citizens,' the matter rested apparently upon an entry on the minutes of the City Council, which stated that 'the freeholders of the city of Madison, with great unanimity, had petitioned,' &c.

The defences set up by the city, were 'that the bonds were issued to the Columbus and Shelby Railroad Company, to pay for a subscription by the city to the capital stock of the said railroad company, and for no other consideration; that the said Columbus and Shelby Railroad Company was not a chartered company for the purpose of making a road to the city of Madison aforesaid, but to make a road from Columbus to Shelbyville, the nearest terminus of said road being forty-six miles distant from Madison.'

2. That the bonds were issued without the petition or memorial of two-thirds of the freeholders of said city requesting the Common Council to take the stock and issue the bonds.

The court below gave judgment in the case, which was upon the pleadings wholly, for the city. On error here, the validity of the defences-as in the court below-were the points in issue.

Mr. Johnson, for the city of Madison: If these bonds were issued, as alleged, to the Columbus and Shelby Railroad Company,-a company not chartered to make a road to Madison, but to other points,-they were void in the hands of said railroad company when delivered to it. They appear on their face to be issued to such company, and every person must take notice of the charter of that company, and must know that it is a chartered company to make a road to Madison, because such charter is a part of the law of the land, and because it is the very thing that is required to exist to enable the city of Madison to act. Parties dealing with a corporation must know that the facts exist upon which its power to act is founded. The city of Madison, without special authority from the legislature, has no power to subscribe for stock in railroad companies. It cannot compel the citizens to become parties or stockholders in private corporations, nor pledge or incumber the individual property of the citizens in speculative undertakings. Its powers are only coextensive with its duties. The Common Council may borrow money for the special purposes of the trust and authority intrusted to them, and may levy taxes to raise money for these purposes, but none other.

If the city of Madison may subscribe to a road whose nearest terminus is forty-six miles away from it, because another road leads from that terminus to the city, it may subscribe not only to a road in parts of Indiana the most distant from Madison, but to roads in the most distant parts of the United States. It may build a road between any towns in California, provided only, that any other road or series or concatenation of roads exists by which a traveller can get from either terminus of that California road by rail, to Madison. It is easy to see how capable of abuse is such a power.

There is no sufficient evidence of a 'two-thirds' petition. The expression, 'great unanimity,' is loose. It is impossible to say, in reference to the population of a city, what it means. Whatever it may mean, it is no record of that fact which the act authorizing the subscription declares must pre-exist, and is therefore valueless.

Messrs. Porter and Roelker, contra:

1. In La Fayette v. Cox (5 Indiana, 38), it was held that the city had no power, under any circumstances, to subscribe for railroad stocks. In City v. West (9 Id., 74), that city had a power as this one has, 'to take stock in any chartered company for making roads to the city.' The Ohio and Mississippi Railroad Company was chartered to make a road between Lawrenceburgh and Vincennes, and to extend east to Cincinnati, and west to St. Louis. The city of Aurora, some five miles below Lawrenceburgh, on the Ohio River, was not mentioned in the charter; but the road was located through Aurora, and it was held that the city might subscribe for its stock as a road to the city. The court say, 'This case is entirely different from that of Lafayette v. ''Cox. There the charter did not confer the power to take stock, but it was attempted to be inferentially derived''. Here the power is expressly granted, and the question is merely whether the road in which the stock was subscribed is one contemplated by the charter.'

The geographical facts within the cognizance of the court, will not enable it to say, that the judgment of the people of Madison, in attempting to make the counties with which this road brought them into direct connection, tributary to the commercial and manufacturing interests of their city, was erroneous.

The city would undoubtedly have been authorized to take stock in a company for building a road from Shelbyville directly to the city line. But this would have secured her no greater commercial advantages, and would have involved a useless outlay of capital, since two-thirds of such a road must have run alongside the Madison and Indianapolis Railroad, already in operation. May not the city use the economical discretion that a natural person might? Must she pay three dollars instead of one, that the road to which she subscribes may fall within the literal description of the roads to which her privilege extends? Hills of solid rock surround the city of Madison. Did the legislature contemplate that the city should aid in making no roads except such as unnecessarily cut through them?

2. The City Council was the proper judge whether or not the required number of resident freeholders had petitioned for a subscription to the stock of the company to which the bonds were issued. Conceding that the entry was not in the precise language of the proviso, we nevertheless submit, that the plain implication is, that a greater proportion than two-thirds had petitioned. The entry is, that 'the freeholders of the city of Madison, with great unanimity, had petitioned,' &c.

Mr. Justice NELSON delivered the opinion of the court: