City of Ottawa v. Carey

• Citation: 27 L.Ed. 669,2 S.Ct. 361,108 U.S. 110
• Parties: CITY OF OTTAWA v. CAREY. *
• Decision Date: 19 March 1883
• Court: United States Supreme Court

108 U.S. 110

2 S.Ct. 361

27 L.Ed. 669

CITY OF OTTAWA v. CAREY.^*

March 19, 1883.

C. B. Lawrence, for plaintiff in error.

[Argument of Counsel on pages 115-117 intentionally omitted] G. S. Eldredge and John Dean Caton, for defendant in error.

[Argument of Counsel on pages 117-118 intentionally omitted]

WAITE, C. J.

This is a suit to recover upon bonds issued by the city of Ottawa, Illinois, as a donation to aid in the improvement of the water-power upon the Fox and Illinois rivers within the city, or in its immediate vicinity. Other bonds of the same issue were involved in Hackett v. Ottawa, 99 U. S. 86, and Ottawa v. First Nat. Bank of Portsmouth, 105 U. S. 342, where it was held, in substance, that, as there was legislative authority to issue bonds for municipal purposes, and it was recited in the bonds then sued on that they were issued for such purposes, the city was estopped from proving, as against bona fide holders, that the recitals were untrue. Neither Hackett nor the bank had any knowledge of the precise purposes for which the bonds were issued, and it was adjudged that they had the right to rely on what was recited. The facts on which this case rests are, in brief, these:

The city of Ottawa was incorporated as a city in Illinois on the tenth of February, 1853, and given the ordinary powers of municipal corporations of that class for local government. It was specially authorized 'to provide the city with water, to erect hydrants and pumps in the streets for the convenience of its inhabitants,' and, upon a vote of the people, 'to borrow money on the credit of the city, and to issue bonds therefor, and pledge the revenue of the city for the payment thereof.' Our attention has not been called to any other provision of the charter as having a bearing on the questions to be considered.

In February, 1851, the Ottawa Manufacturing Company was incorporated by the general assembly of Illinois to build a dam across the Fox river for the purpose of creating a water-power to be leased and used. On the sixteenth of February, 1865, the charter of this company was amended so as to authorize the building of a dam across the Illinois river, and a race to bring the water from that river into the pool of the dam across the Fox.

On the nineteenth of February, 1867, the general assembly passed an act purporting to constitute a board of commissioners to subscribe $100,000 to the capital stock of the manufacturing company for and on behalf of the city, and to pay the subscription by an issue of the bonds of the city. No subscription was ever made under this authority, and we understand the counsel for the defendant in error to concede that the act itself was unconstitutional.

On the fifteenth of June, 1869, an ordinance was passed by the city submitting to the voters, at an election to be held on the twentieth of the same month, the question whether the council should borrow $60,000 on the bonds of the city to be 'expended in developing the natural advantages of the city for manufacturing purposes.' This election was held, and resulted in a vote by a majority of the legal voters in favor of the project. Thereupon, the city, on the thirtieth of July, 1869, passed another ordinance, directing the mayor to issue the bonds and deliver them to William H. W. Cushman, 'to be used by him in developing the natural resources and surroundings of the city,' and authorizing and directing him 'to expand the same in the improvement of the water-power upon the Illinois and Fox rivers, within the city and in the immediate vicinity thereof, under the franchises and powers which have been granted for that purpose by the legislature of the state, or which may hereafter be granted for that purpose, in the manner which, in his judgment, shall best secure the practical and permanent use of said power in the city and its immediate vicinity.'

Under this ordinance the bonds were issued and delivered to Cushman on the second of August, 1869, as a donation to aid the city in securing the contemplated water-power, he agreeing in writing to cause the necessary works to be completed in the two rivers within a reasonable time, and, if not, to return the bonds, or a part thereof, according to the special provisions of the contract. No arrangements were made or contemplated for providing the city with water.

Cushman was one of the original corporators of the manufacturing company, and a director at the time the bonds were issued to him, and he, on the eleventh of March, 1871, delivered them to the company 'to be used by said company for the purpose of making the improvement hereinbefore mentioned, without further consideration.' During the month of June, 1871, the company sold and delivered the bonds involved in this suit to Lester H. Eames, a citizen of Ottawa, for their face value and part of the interest which had accrued after August, 1870. When Eames made his purchase and paid for the bonds he knew they had been issued as a donation to aid in the completion of the improvement contemplated in the contract with Cushman, and was cognizant of all the proceedings of the council in reference thereto. He also knew of the contract with Cushman. In November, 1879, after the bonds fell due, Eames sold them to William H. Carey, the plaintiff below, who paid value for them, with full knowledge of all that was known by Eames about their issue.

Upon these facts, found by the court and set forth in the record, judgment was rendered against the city and in favor of Carey for $72,814.76. To reverse that judgment this writ of error has been brought.

This case differs from those of Hackett and the First Nat. Bank of Portsmouth, supra, in that Carey cannot claim protection as a bona fide holder, while Hackett and the bank could. Neither Carey, nor Eames, nor the manufacturing company, nor Cushman were purchasers without notice. Carey and Eames both paid value, but Carey bought after maturity, and it is expressly found that both he and Eames had actual knowledge of the purposes for which the bonds were issued and of the contract with Cushman. Under the circumstances of this case the manufacturing company is chargeable with knowledge of all the facts known to Cushman, one of its directors and the original contractor with the city. The questions then to be considered are such as may arise between the city and a purchaser for value from Cushman with full knowledge of all the facts affecting the validity of the bonds at their inception.

In Illinois, under the constitution of the state, the corporate authorities of cities cannot be invested with power to levy and collect taxes except for corporate purposes. This has long been settled. Weightman v. Clark, 103 U. S. 259, and numerous Illinois cases there cited. What may be made a corporate purpose is not always easy to decide, but it has never been supposed that if...