Winona St. Company v. Plainview

By an act of the legislature of the state of Minnesota approved March 5, 1877, (Gen. Laws 1877, c. 106,) it was enacted by sections 4, 5, 6, and 7 thereof, as is printed in the margin.

Purporting to proceed under sections 4 and 7 of that act, the Plainview Railroad Company, a Minnesota corporation, on the 31st of January, 1878, delivered to the town-clerk of the town of Plainview a proposition in writing, signed by the president and secretary of the company, containing the statements and specifications required by section 4 of the act, and stating that the amount of the bonds of the town desired by the company was $50,000, The town-clerk indorsed on the proposition the date of filing, and transcribed the proposition in his records on March 30, 1878. On the 31st of January, 1878, the company posted in three public places in the town a notice that, after February 6, 1878, a petition to the supervisors of the town, appended to a copy of said proposition, would be presented to the resident tax-payers of the town, asking the supervisors to agree to the proposition. The notice and the proposition were published in a newspaper printed and published in the town.

On the 30th of March, 1878, within three months after the filing of the proposition with the town-clerk, the company delivered to him four petitions, in the form required by section 7 of the act, addressed to the town board of supervisors, stating that the petitioners, being residents of the town and assessed for taxes upon real or personal estate therein, as shown by its last assessment roll, asked the supervisors, as the proper authorities of the town, to agree to the proposition of the company to which the petition was appended. The petitions bore the signatures of a majority of the persons residing in the town who were assessed for taxes on real or personal estate therein, as shown by its then latest assessment roll, and the signatures tures were verlfied by the affidavits of the persons witnessing such signatures; but the petitions were not signed by a majority of the electors or legal voters of the town. Those petitions were the only ones ever made asking the authorities of the town to agree to the proposition of the company, and they and section 7 of the act constituted the only authority had or claimed for the issue of the bonds hereinafter mentioned. No election was held in the town to authorize its supervisors to agree to the proposition or to the issue of any such bonds.

On the 30th of March, 1878, the board of supervisors of the town adopted and placed on file in the office of the town-clerk resolutions which recited the proposition of the company, the posting of the notices, and the presenting of the petitions, with signatures and affidavits, from which it appeared that a majority of the resident tax-payers of the town, assessed for taxes upon real or personal estate therein, as shown by its last assessment roll, had signed the petitions, and that the construction of the railroad by the company, as set forth in its proposition, would promote the general prosperity and welfare of the tax-payers of the town. The resolutions were that the proposition of the company was accepted, so far as related to the issue of bonds; that bonds of the town to the amount of $50,000, with interest coupons attached and payable as requested in the proposition, be issued to the company as soon as it should have its railroad completed, with the cars running thereon; and that the issue of stock to the town by the company, in consideration of the bonds, was waived.

The company constructed its railroad, had the cars running thereon, and performed what was stated in the proposition, except that it never issued to the town any stock of the company.

Before any bonds of the town were issued to the company, one George W. Harrington, a resident citizen and tax-payer of the town, brought a suit in the district court for Wabasha county, in which county the town is situated, against the town and its officers and the railroad company, setting forth the proceedings on which the bonds were to be issued; that they were illegal; and that it was intended to issue the bonds; and praying that the town and its officers, particularly the chairman of the board of supervisors and the town-clerk, might be enjoined from issuing, and the railroad company from accepting or receiving, any such bonds. The town answered the complaint, and in January, 1879, the case was tried by the district court, which, on February 6, 1879, gave judgment for the defendants, and dismissed the suit. Harrington took an appeal to the supreme court of the state, but, before it was perfected, the bonds were issued and delivered to the company. The supreme court, on October 6, 1880, reversed the judgment below, its opinion being reported in 27 Minn. 224, 6 N. W. Rep. 777. It held that, under the constitution of Minnesota, it was not competent for the legislature to authorize any person or class of persons, other than the electors of a town or the officers chosen by such electors, to determine what action, requiring local taxation, the town would take in any particular case; that, therefore, section 7 of chapter 106 of the Laws of 1877, which assumed to empower a majority of the 'resident tax-payers,' whether they were electors or not, to bind a town to issue its bonds to aid in the construction of a railroad, was unconstitutional and void; and that, although the mode for authorizing the issue of bonds provided by section 7 was invalid, yet, as the same act provided another mode for authorizing such issue, which was valid, and as the bonds need not recite under which of the two provisions of the act they were issued, but only that they were issued under and pursuant to such act generally, and a purchaser would then have the right to presume that they were issued under its valid provisions, and there might thus be bona fide purchasers of the bonds, a suit for an injunction would lie to restrain the issuing of the bonds by the town officers under the invalid mode provided by section 7 of the act.

On the 18th March, 1879, the town board of supervisors passed a resolution that the town issue to the company its bonds in the sum of $50,000, dated on January 1, 1879, to become due on or before 20 years from that date, with interest thereon, payable annually, at 7 per cent. per annum; that the bonds be signed and issued by the chairman of the board and the town-clerk; and that the issue of stock by the company to the town in a corresponding amount was waived. The bonds were issued on the 19th of March, 1879, being 100 in number, and numbered, consecutively, from 1 to 100, each purporting to be the bond of the town of Plainview, payable to the Plainview Railroad Company or bearer, for $500, dated January 1, 1879, due on or before January 1, 1899, with interest at 7 per cent. per annum, payable annually, according to the conditions of the 20 interest coupons attached, one of them payable January 1, 1880, and one on January 1 of each year thereafter until the maturity of the bond. Each bond contained on its face the following statement: 'This bond is issued in pursuance of a mutual agreement between the said town and the said railroad company, which agreement was made in accordance with the laws of the state of Minnesota, and through and by a proposition made by said railroad company, and duly accepted by said town upon petition therefor signed by a majority of the resident tax-payers of said town, said agreement having been fully performed by the said railroad company on its part. This bond is issued in pursuance of the authority given for that purpose by the laws of the state of Minnesota, and in compliance with a resolution of the board of supervisors of said town.'

The company, on or about July 9, 1879, sold, transferred, and delivered the bonds and coupons to citizens of the state of Wisconsin, who purchased the same without notice of any facts invalidating the bonds, and paid the company $50,000 for them. The bonds and coupons were purchased and acquired by Samuel Marshall and Charles F. Ilsley, citizens of Wisconsin, who purchased them in good faith, for value, without notice of any facts invalidating them. On the 29th of January, 1881, Marshall and Ilsley commenced an action at law in the circuit court of the United States for the district of Minnesota against the town of Plainview, to recover the amount of 46 coupons for $35 each, cut from said bonds, which coupons fell due January 1, 1881. The action was defended by the town, and was tried before the circuit court without a jury, which found in favor of the plaintiffs, and entered a judgment in their favor for $1,746.98. The opinion of the circuit court of the United States is reported in 3 McCrary, 35, 8 Fed. Rep. 783. It held that the recitals in the bonds were conclusive evidence in favor of a purchaser, without further information; that the conditions precedent prescribed by the statute had been complied with; that, as the law under which the bonds were issued had been recognized as valid by the highest court of the state of Minnesota, before they were purchased by Marshall and Ilsley, no subsequent decision could affect their validity in the hands of such purchasers; and that the rule charging every one with notice of pending suits was inapplicable where negotiable securities constituted the subject-matter. The case referred to by the circuit court, as that in which the supreme court of Minnesota had recognized section 7 of chapter 106 of the Laws of 1877 as constitutional and valid, was that of State v. Town of Highland, 25 Minn. 355, (decided January 10, 1879.) The circuit court arrived at the conclusion that, as the bonds in question had been purchased by Marshall and Ilsley before the case of Harrington v. Town of Plainview had been decided by the supreme court of Minnesota, and that court had said nothing on the subject previously except what was contained in its opinion in State v. Town of Highland, the bonds were not affected by the decision in the Harrington Case. As to the point that the bonds were invalid in the hands of Marshall and Ilsley, from the fact that they were purchased during the pendency of the Harrington suit, the circuit court made answer that said purchasers were not parties to that suit, and had no knowledge of it, and that the rule that all persons were bound to take notice of a pending suit did not apply to negotiable securities; citing County of Warren v. Marcy, 97 U.S. 96.

Thereafter Marshall and Ilsley brought five other suits against the town of Plainview, to recover severally upon coupons cut from said bonds, which coupons became due from year to year, two of which suits were defended by the town, and in all of them judgments were recovered against it, amounting, respectively, to $1,717.31, $4,154.08, $2,595.57, $771.15, and $3,906.22, three of which six judgments the lown paid.

Like judgments with those against the town of Plainview were recovered in the circuit court of the United States for the district of Minnesota by Marshall and Ilsley against the town of Elgin, Minn., and one of the judgments against each of the two towns was brought to this court by a writ of error. Neither of the two judgments exceeding $5,000, this court dismissed the writ of error in each case, (106 U.S. 578, 583, 1 Sup. Ct. Rep. 484,) for want of jurisdiction in this court, although the defendants in error were holders and owners of bonds to the amount of more than $5,000, from which the coupons sued on in the two cases were cut.

On the 3d of March, 1881, an act passed by the legislature of Minnesota was approved by the governor, entitled 'An act to authorize the Winona and Saint Peter Railroad Company to purchase the stock and to purchase or lease the property and franchises of the Plainview Railway Company,' (Spec. Laws Minn. 1881, c. 414,) the provisions of which were as follows: 'Section 1. The Winona and Saint Peter Railroad Company is hereby authorized to purchase the stock or to purchase or lease the property and franchises of the Plainview Railway Company; and said last-named company hereby authorized to sell and convey or to lease its property and franchises to the said first-named company, upon such terms as may be agreed upon by the respective boards of directors of said companies, so as to make the property and franchises of the last-named company part of the property and franchises of said Winona and Saint Peter Railroad Company, to be used and operated by it under its charter: provided, that any such purchase of the property or franchises of the Plainview Railway Company shall be made, and all such property held by said Winona and Saint Peter Railroad Company, subject to all demands, claims, and rights of action against said Plainview Railway Company, arising or growing out of the latter company's having heretofore obtained and disposed of certain bonds and coupons purporting to have been issued by the towns of Plainview, Elgin, and Viola to said Plainview Railway Company, and in taking such trans fer under this act said purchasing company shall assume all claims and demands against said Plainview Railway Company to the extent and value only of the property and franchises so transferred. Sec. 2. The Winona and Saint Peter Railroad Company is hereby authorized to issue its capital stock to an amount necessary to make and complete the purchase aforesaid. Sec. 3. This act shall take effect and be in force from and after its passage.' In September, 1884, the town of Plainview brought a suit against the Winona & St. Peter Railroad Company, in the district court for the county of Wabasha, in the state of Minnesota, the complaint in which set forth the making by the Plainview Railroad Company of the proposition in writing and the aforesaid acts of compliance with the provisions of chapter 106 of the Laws of 1877, and the filing with the town-clerk of the petitions signed by the tax-payers, and alleged that the petitions were not signed by a majority of the electors or legal voters of the town; that no election was held in the town to authorize the supervisors to agree to the proposition or to issue any bonds; that the board of supervisors adopted the resolutions before referred to without authority or right from the electors of the town or otherwise, the supervisors and the railroad company well knowing that a majority or the electors or legal voters of the town had not signed the petitions, and that no election had been held authorizing the passing of the resolutions; that there was no authority to pass the same, or to bind the town thereby, or to issue the bonds; that the bonds were issued and delivered to the company; and that the latter, on or about July 9, 1879, intending to injure and defraud the town and deprive it of any defense to the bonds or coupons as against bona fide holders thereof for value, sold and transferred the bonds to citizens of Wisconsin, who purchased the same of the company bona fide, without notice of any of the facts invalidating the bonds, and paid the company $50,000 therefor. The complaint then set out the suits and judgments against the town by Marshall and Ilsley, and the passing of the act of March 3, 1881, and averred that the passage of that act was procured by the Winona & St. Peter Railroad Compamy, and the act duly accepted and assented to by that company; that the bonds and coupons mentioned in that act were the same before referred to, and the said company under said act issued and disposed of its stock to an amount necessary to make and complete the purchase authorized by the act; and that, about May, 1881, that company, acting solely under the provisions of the act, purchased all the property and franchises of the Plainview Railroad Company, of the value of $200,000, and in making such purchase, and as part of the consideration therefor, assumed all claims, demands, and rights of action against the Plainview Railroad Company, as provided in the act, including the claim, demand, and right of action set forth in the complaint, and agreed to pay the same. The complaint demanded judgment against the Winona & St. Peter Railroad Company for $50,000, with interest from January 1, 1879, at 7 per cent. per annum.

The record shows that on the 11th of May, 1881, the Plainview Railroad Company conveyed, by an instrument in writing, to the Winona & St. Peter Railroad Company all its railroad, about 16 miles in length, and all its franchises and property, for the consideration of $225,000 paid, 'and by virtue of the power and authority conferred upon the parties' by the act of March 3, 1881.

The defendant put in an answer to the complaint, denying its liability, to which answer the plaintiff replied. Evidence was given as to the suit of Harrington and the suits of Marshall and Ilsley against the town, and the case was tried in June, 1885, before the district court for Wabasha county, which made findings of fact and conclusions of law, on December 26, 1885, and entered a judgment for the plaintiff for $74,451.31, being $50,000, with interest from January 1, 1879, at 7 per cent. per annum.

The defendant moved for a new trial, which was denied in May, 1886, and it then appealed to the supreme court of Minnesota from the order denying the motion. The case was decided by that court April 28, 1887, (36 Minn. 505, 32 N. W. Rep. 745,) and it affirmed the order denying the motion for a new trial, and adjudged that the plaintiff have judgment accordingly. On the mandate of the supreme court, the district court gave judgment for the plaintiff for $80,031.86 damages and $257.09 costs and disbursements, being in all $80,288.95. From that judgment the defendant took a further appeal to the supreme court of the state, which court affirmed the judgment below, for the reasons given in the opinion of the court reported in 36 Minn. 505, 32 N. W. Rep. 745, and directed judgment accordingly, which was entered in the supreme court. To review that judgment, a writ of error was sued out from this court on the allowance of the chief justice of the supreme court of Minnesota.

The writ of error in the case of Winona & St. Peter R. Co. v. Town of Elgin is presented for consideration at the same time with the Case of the Town of Plainview, and was argued at the same time on the same briefs. The two cases have gone along together pari passu in the lower courts, and the proceedings in them have been alike, mutatis mutandis. The bonds in the case of the town of Elgin were for $40,000, being 80 in number, of $500 each, bearing date January 1, 1879, and containing the same recital as in the case of the town of Plainview. The judgments in favor of Marshall and Ilsley against the town of Elgin were five in number, being, respectively, for $1,696.85, $1,443.91, $2,852.85, $2,745.12, and $3,175.82, all recovered upon coupons. The judgment of the supreme court of Minnesota against the plaintiff in error here in the suit brought against it by the town of Elgin was rendered July 30, 1887, for $64,245.77. In 36 Minn. 517, 32 N. W. Rep. 749, the supreme court says that the case of the town of Elgin against the railroad company was argued and submitted with the case of the town of Plainview against the same defendant, and involved the same questions, and that court affirmed the order of the lower court.

In the decision reported in 36 Minn. 505, 32 N. W. Rep. 745, the first opinion was given by Judge VANDERBURGH and concurred in by Judge BERRY. A second opinion was given by Chief Justice GILFILLAN and Judge DICKINSON. Judge MITCHELL dissented. In the first opinion it was said that the question of the validity of the bonds was considered and determined in Harrington v. Town of Plainview, 27 Minn. 224, 6 N. W. Rep. 777, that the bonds were not issued on the vote of the electors of the town, in pursuance of section 5 of chapter 106, Laws 1877, but in pursuance of section 7 of that statute, on the petition of a majority of the resident tax-payers; that the proceedings to procure the bonds were initiated and prosecuted by the railroad company under the act, by filing with the town-clerk its proposition in writing, as provided by section 4 of the act, for the issue to it of the bonds of the town, and thereafter by securing and filing the petition of the tax-payers, as directed by section 7; and that the evidence in the case was sufficient to uphold the finding of the trial court that the bonds in controversy were issued to the Plainview Railroad Company, and by its agents transferred to the Chicago & Northwestern Railroad Company, at their par value, in consideration of the amount due to the latter company, which it had previously advanced in aid of the construction of the other company's railroad. The first opinion then proceeded as follows: 'Before the issuance of the bonds, the action above referred to was commenced to enjoin the same, and, while the case was pending in this court, the bonds were issued and transferred. The evidence, however, does not warrant the conclusion that there was any actual fraud in the procurement or transfer of the bonds. Both railway companies were cognizant of the pendency of the action, and of the grounds of the alleged invalidity of the bonds; but the legal questions involved were still open and in dispute, and they were advised and believed them to be legal and valid. It is affirmed by the trial court, upon sufficient evidence, that, except as appears upon the face of the bonds, Marshall and Ilsley, and others, to whom they were subsequently transferred, had no notice of the suit, and were bona fide purchasers and holders for value. The Chicago & Northwestern Railway Company was a foreign corporation, and the subsequent purchasers of the bonds were and are citizens of other states. The bonds all recite on their face that they were issued in pursuance of the authority given for that purpose by the laws of the state of Minnesota, and in compliance with a resolution of the board of supervisors of the town, and also 'in pursuance of a mutual agreement, between the said town and the said railroad company, which agreement was made in accordance with the laws of the estate of Minnesota, and through and by a proposition made by said railroad company, and duly accepted by said town, upon petition therefor signed by a majority of the resident tax-payers of said town, said agreement having been duly performed by said railroad company on its part.' This court held in the Harrington Case that an agreement, consummated by proceedings under the provisions of the statute referred to, between the railway company and the majority of the tax-payers, could not, under the constitution, be considered as the lawful agreement of the town, nor be of any binding obligation as such, and that bonds issued in pursuance thereof would be void, except in the hands of bona fide purchasers.'

The first opinion then said that the bonds were invalid in the hands of the Plainview Company, and could not have been enforced by it; that, although that company had built its road, there was no agreement made with the town; that the town, in its corporate capacity, had received nothing, been guilty of no laches, and waived nothing, and there was no estoppel; and that it was entitled to be protected against the unauthorized acts of its own officers, when that could be done without injury to third parties; citing Thomas v. City of Richmond, 12 Wall. 349, 356, and Town of South Ottawa v. Perkins, 94 U.S. 260. The first opinion also said that, while the recitals in the bonds were sufficient to put the purchasers upon inquiry as to the authority for the issue of the bonds and the manner in which they were in fact issued, and by the recitals all purchasers were chargeable with notice of the invalidity of the bonds, Marshall and Ilsley had brought suit upon the coupons in the circuit court of the United States for the district of Minnesota, and the bonds had been duly adjudged and determined, in a trial upon the merits in that court, to be valid in their hands, and the result of that judgment was to make the bonds valid, negotiable securities held by them as bona fide purchasers; that, as the Plainview Company and the Winona & St. Peter Company were not parties to that action, the town was not estopped from litigating in the state courts the questions involved in the case; that the judgment of the circuit court of the United States could not be reviewed or modified by the state courts; that the result of its decision and judgment was to fix irrevocably the liability of the town for the whole amount of the indebtedness evidenced by the bonds; and that it must be deemed, therefore, to have been settled conclusively that the bonds had been transferred to parties in whose hands they had become valid and legal obligations against the town.

It was further said that it was determined conclusively, by the judgment in Harrington v. Town of Plainview, that the bonds were void in the hands of the Plainview Company, that company having had its day in court in that case; that the issuing and disposition of the bonds must be treated by the state courts as unlawful and wrongful; that as the bonds, when once placed on the market, were liable to pass into the hands of purchasers who would be entitled to enforce the same as valid negotiable securities in the United States courts, it followed that the town had a cause of action for damages; that the Plainview Company transferred the bonds for full value, in payment of moneys advanced for building its road, and Marshall and Ilsley paid nearly par for them; that they were treated by all parties as valuable commercial securities, placed on the market and sold, and enforced as such against the town; and that, as the bonds were invalid, and the Plainview Company acquired no title to them as obligations of the town, it could not claim to be entitled to the proceeds of them as its property.

It was further said that, as the Plainview Company received the full face value of the bonds, the amount of the recovery would be the same whether the suit was one for money had and received or one for a conversion; that the allegations of the complaint and the findings of fact were sufficient to support the action in either form; that the title to the bonds had been confirmed in the present holders of them, who had recovered, or would recover, the full amount thereof; that the liability of the town had been fixed through the acts of the Plainview Company in procuring and negotiating the bonds, which acts were unauthorized and wrongful; that such proceedings as would result in the enforcement of the bonds must be presumed to have been intended and contemplated by the Plainview Company, either in its own hands or by purchasers who might occupy a more advantageous position, and it could not be permitted to object that the bonds were of no value, or allege its own wrong, for the purpose of defeating the action; citing Comstock v. Hier, 73 N. Y. 269; Lamb v. Clark, 5 Pick. 193, 197; and that the town was not estopped or concluded by the result of the suit of Marshall and Ilsley, to which the Plainview Company was not a party.

The first opinion further held that, under the provision of the act of March 3, 1881, the Winona & St. Peter Company should make the purchase from the Plainview Company 'subject to all demands, claims, and rights of action against said Plainview Railway Company arising or growing out of the latter company's having heretofore obtained and disposed of certain bonds and coupons purporting to have been issued by the towns' named to the Plainview Company, the Winona & Saint Peter Company acquired the property and franchises of the Plainview Company by virtue of that act, and, of course, took the grant cum onere, and subject to the provisions and conditions of the act. The conclusion was that the town was entitled to recover, and that the order denying a new trial should be affirmed.

The second opinion concurred in the conclusion of the first opinion, but based the responsibility of the company on the following considerations, viz.: That the company, having procured the unauthorized execution and delivery to itself of the bonds, in form expressing the obligation of the town, and having negotiated them so that they had come into the hands of parties who had enforced a recovery upon them by proper action in a competent tribunal, was answerable for its own unauthorized acts, which had resulted in that injury to the town, unless the recovery upon the bonds was to be deemed to be too remote a consequence to afford a ground of legal liability; that, as to the acts of the company, the injurious consequence was not remote, but proximate; that, when the company procured and disposed of the bonds, it must be deemed to have contemplated that the town should pay the bonds, either voluntarily or by legal compulsion; that it made no difference if the judgment by which the liability of the town to pay the bonds had been conclusively established was erroneous; and that that did not make remote the damage complained of.

The federal questions alleged to be involved in these cases are thus stated by the plaintiff in error: (1) Did the supreme court of Minnesota, in rendering its judgments in these cases, fail to give to the judgments of the United States circuit court in the Marshall and Ilsley Cases such faith and credit as they were entitled to under the constitution and laws of the United States? (2) Did it, in rendering these judgments, disregard the provision of the constitution of the United States that no state shall pass any law impairing the obligation of a contract? They are otherwise stated in another of the briefs for the plaintiff in error as follows: (1) The supreme court of Minnesota, in rendering the judgments under review, disregarded the provision of the constitution of the United States that no state shall pass any law impairing the obligation of a contract, in that it erroneously decided that the contracts and bonds of the towns were invalid, and on that ground gave effect to the act of March 3, 1881, as making the Winona & St. Peter Railroad Company liable for the transfer of the bonds; (2) the supreme court, in rendering its judgments in these cases, disregarded the constitution and laws of the United States in deciding that the Winona & St. Peter Railroad Company was liable to the towns, because it was responsible for the consequences to them of the judgments in the Marshal and Ilsley Cases, although the company would not have been liable but for said judgments.

The towns have moved to dismiss the writs of error for want of jurisdiction in this court, on the ground that the records present no federal question.

Thomas Wilson and Lloyd W. Bowers, for plaintiff in error.

[Argument of Counsel from pages 387-389 intentionally omitted]

Mr. Justice BLATCHFORD delivered the opinion of the court.