City of Lynchburg v. Slaughter

• Decision Date: 25 November 1880
• Citation: 75 Va. 57
• Parties: CITY OF LYNCHBURG v. SLAUGHTER.
• Court: Virginia Supreme Court

75 Va. 57

CITY OF LYNCHBURG v. SLAUGHTER.

Supreme Court of Appeals of Virginia.

November 25, 1880

Absent, Burks, J.^[a1]

1. A municipal corporation having a general authority under its charter to contract loans or cause to be issued certificates of debt or bonds, may issue coupon bonds and sell them at public auction for less than their par value, and for bonds sold during the war might receive payment for them in Confederate money.

2. A municipal corporation having authority to provide for the poor and needy of the city in 1864, pass an ordinance for the issue of $50,000 of the coupon bonds of the city, and the ordinance provides that the proceeds shall be paid into the treasury of the city, subject to the order of the council for the use and benefit of indigent families and citizens--HELD: A bona fide holder of these bonds is not required to look further than the ordinance to see whether the bonds were issued for a legitimate purpose; and his right to recovery upon the bonds will not be affected by the fact that the council may have applied the proceeds of the bonds to other purposes.

3. Though coupon bonds may have been issued by a municipal corporation for the purpose of aiding the rebellion, this not appearing on the face of the bonds, or the ordinance authorizing their issue, the bonds in the hands of a bona fide holder for value without notice or knowledge of the purpose, are valid, and binding upon the corporation. And though the holder of the bonds had such notice, yet if the party from whom he purchased was a bona fide holder for value, without such notice, the bonds are valid and binding in the hands of the present holder.

This was an action of debt in the circuit court of Bedford county brought by Mary J. Slaughter against the city of Lynchburg to recover the interest on a coupon bond No. 8, issued by the city of Lynchburg in 1864. The defendant pleaded " nil debit, " and it was agreed that under this plea the defendant might rely upon any defence, and give in any evidence that it might rely upon or give in evidence under any proper special plea. On the trial there was a verdict and judgment for the plaintiff. And thereupon the city of Lynchburg applied to a judge of this court for a writ of error and supersedeas; which was awarded.

Upon the trial the defendant asked for five instructions, the first of which was given, and the others refused; to which the defendant excepted. The instructions and the evidence are sufficiently set out in the opinion of Judge Staples.

R. G. H. Kean, for the appellee.

Bocock and Davis, for the appellants.

OPINION

STAPLES J.

This case was argued at the last term of this court by the counsel for the plaintiff. The decision was, however, deferred by consent to enable the counsel for the defendant to put in a written or printed brief. This has not been done, and the court at last has been compelled to decide the case without the benefit of an argument from the party taking the appeal. In order properly to understand the points of controversy, it may be proper to premise that the city council of Lynchburg is authorized by its charter " to contract loans, or cause to be issued certificates of debt or bonds, such loans, certificates or bonds, however, not to be irredeemable for a period greater than thirty-four years."

In June, 1864, the city council passed an ordinance authorizing the issue of coupon bonds to the amount of $50,000, in sums of $100, or its multiple, bearing interest at the rate of six per cent., payable semi-annually. The ordinance directed a sale of the bonds at public auction, and the payment of " the proceeds into the treasury, subject to the order of the council, for the use and benefit of indigent families and citizens." The bonds were accordingly sold in market to the highest bidder at the sum of $124,704.50, being a premium of about $74,000.

The object of this loan and the disposition made of the proceeds will be stated hereafter in considering another branch of the case. The plaintiff, being the holder of a part of the bonds so issued, brought her action in the circuit court of Bedford for the recovery of the past due coupons taken therefrom.

Upon the trial in that court the defendant, the city of Lynchburg, asked for five instructions, one of which was given without objection, and the other four were refused. These four objections cover the whole ground of controversy, and in disposing of them we settle all the questions arising in the case. It will be sufficient to state the propositions involved in each of the instructions, without quoting them in full. And first, it is insisted that the issue and sale of the bonds for a highly depreciated currency was a violation of law, and an exercise of power on the part of the council not warranted by the city charter.

In the petition for an appeal, it is said it cannot be supposed it was the design of the legislature that the city council should be allowed, under the guise of borrowing money, to put its bonds upon the market and sell them for a currency depreciated at the rate of one dollar in gold for nine of the face value of the bonds.

This argument might have been addressed to the legislature which granted the charter to the city of Lynchburg with more propriety than to this court. By that charter authority to contract loans and issue certificates of debts or bonds is conferred in the broadest language. No limitation is imposed with respect to the terms on which such loans may be negotiated. In the absence of some such limitation, the power to borrow money carries with it as an incident the power to agree upon the terms of the borrowing. According to a well-known usage and custom, municipal corporations almost universally contract loans by a sale of their bonds made with reference to prices current, and not to their par value.

If the argument now advanced should prevail with the courts, it would invalidate three-fourths of the municipal bonds of the country in the hands of the original purchasers. For, in but few instances, until very recently, were these securities sold at their face value. And this fact must have been well understood by the legislature when it conferred upon the various municipalties of the State the power to contract loans and issue bonds and certificates of indebtedness for municipal purposes. It has been held by the supreme court of the United States in several cases where the city charter expressly prohibits the sale of its bonds at a discount, and such a sale is nevertheless made, the city is estopped to make the defence against a bona fide holder for valuable consideration without notice. There the plaintiff was not the original purchaser of the bonds, but acquired them by purchase for value from the original owner, and there is nothing to show that she had any notice whatever of the price paid for them by the latter. Woods v. Lawrence County, 1 Black's U. S. R. 386; Mercer County v. Hacket, 1 Wall. U. S. R. 83, 96.

The sale of a municipal bond, as of any other bond, for a sum less than its par value may constitute usury, as was held by this court in the case of the City of Lynchburg v. Norvell, 20 Gratt. 601. After that decision was rendered, however, the legislature passed an act prohibiting municipal corporations from interposing the defence of usury in any case; and that act was held by this court to be retrospective in its operations. See Town of Danville v. Pace, 25 Gratt. 1. The act of course presupposes the issue and sale of municipal bonds at less than their face value; and its object manifestly was to take away a defence calculated to lessen the value and impair the public confidence in that class of securities. If, however, a municipal corporation upon the same facts may substitute the plea of ultra vires for the plea of usury, it is obvious that the legislation on this subject has not accomplished the objects intended.

For these reasons, and others which might be given, I think the circuit court did not err in refusing to give the defendant's second instruction to the jury.

The proposition asserted in the third instruction is, that the bonds are invalid, because they were issued to be sold, and were in fact sold for Confederate money.

It would be a waste of time to discuss this proposition. The answer to it is found in the uniform decisions of this court and of the supreme court of the United States. Thorington v. Smith, 8 Wall. U. S. R. 1.

The fourth instruction asserts that whilst the city council of Lynchburg is authorized to provide for the poor of the city this object is to be accomplished through the instrumentality of a board of overseers, and a certain mode of procedure. But that this power does not extend to the appropriation of money to...