City of Cadillac v. Woonsocket Inst. for Savings

• Decision Date: 20 November 1893
• Docket Number: 104.
• Citation: 58 F. 935
• Parties: CITY OF CADILLAC v. WOONSOCKET INST. FOR SAVINGS.
• Court: U.S. Court of Appeals — Sixth Circuit

58 F. 935

CITY OF CADILLAC v. WOONSOCKET INST. FOR SAVINGS.

No. 104.

United States Court of Appeals, Sixth Circuit.

November 20, 1893

D. E McIntyre, (F. A. Baker, of counsel,) for plaintiff in error.

John W Beaumont, (W. H. Rossington, of counsel,) for defendant in error.

Before BROWN, Circuit Justice, and TAFT and LURTON, Circuit Judges.

LURTON Circuit Judge.

This is a suit at law, brought by the appellee, a Rhode Island banking corporation, against the city of Cadillac, a municipal corporation of the state of Michigan, to recover upon certain bonds issued by that city. A jury was waived and the circuit court, upon the facts, rendered a verdict for the plaintiff. The bonds involved are part of a series issued in place of other bonds about to mature. The bonds refunded were issued under and in pursuance of an act of the Michigan legislature passed March 2, 1885, and entitled 'An act to authorize the city of Cadillac, in the county of Wexford, to borrow money to make public improvements.' The first section of that act was in these words:

'Section 1. The people of the state of Michigan enact that the common council of the city of Cadillac, in the county of Wexford, shall be, and is hereby authorized and empowered to borrow money on the faith and credit of said city, and issue bonds therefor to an amount not exceeding thirty-five thousand dollars, which shall be expended in making public improvements in said city of Cadillac, provided, that a majority of the qualified electors of said city, voting at an election to be called in compliance with the provisions of act number one hundred and seventy-eight of the session laws of eighteen hundred and seventy-three, shall vote in favor of such loan in the manner specified in such act, and not otherwise.'

The bonds issued under that act were misapplied. They were used in the aid of the extension of a railroad. This, under the law of Michigan, was not a public improvement. People v. Salem, 20 Mich. 452; Bay City v. State Treasurer, 23 Mich. 499. At the time these bonds were refunded, they were in the hands of one James M. Ashley, Jr., who had received them from the city with full notice of their misapplication. In his hands they were void under the law of Michigan, as settled in cases cited above. The evidence, however, shows that the taxpayers of Cadillac did not wish to repudiate their obligations. They had received a substantial benefit by the performance of the contract in consideration of which they had been issued to Ashley. In this situation, the people of Cadillac, with great unanimity, petitioned their council to refund these bonds, which were about to fall due. The council, thus moved, passed an ordinance, authorizing new bonds to issue 'in place of and to extend the time of payment of former bonds of the city.' The bonds thus authorized, a part of which are now sued upon, were in words and figures as follows:

City of Cadillac. Refunding Bond.

'Know all men by these presents, that the city of Cadillac, in Wexford county, state of Michigan, is indebted to and promises to pay the bearer the sum of one thousand dollars in lawful money of the United States of America, at the National Bank of Deposit in the city of New York, on the first day of April, A. D. 18__, with interest thereon at the rate of six per cent. per annum, payable semiannually on the first day of April and October of each year, upon the presentation and delivery of the proper coupon hereunto annexed, signed by the clerk of said city, at the said National Bank of Deposit in the city of New York, for the payment of which sum and interest the said city of Cadillac is hereby held and firmly bound, and its faith and credit are hereby pledged. This bond is one of a series of thirty bonds of like date and tenor, amounting in the aggregate to thirty thousand dollars, issued under and in pursuance of the provisions of the general laws of the state of Michigan as found in chapter 80 of title 16 of Howell's Annotated Statutes, for the purpose of extending the time of payment of bonds formerly issued by said city. Also by virtue of, and in accordance with, an ordinance duly passed by the council of said city, and approved by the mayor thereof on the ninth day of May, A. D. 1888, entitled 'An ordinance authorizing new bonds of the city of Cadillac to be issued in place of, and to extend the time of payment of, former bonds of said city, falling due.' And it is hereby certified and recited that all acts, conditions, and things required to be done precedent to and in the issuing of said bonds have been properly done, happened, and performed in regular and due form, as required by law. In testimony whereof, we, the undersigned officers of the city of Cadillac, being duly authorized to execute this obligation on behalf of said city, have hereunto set our signatures officially, and caused the corporate seal of said city to be hereunto affixed, this first day of April, A. D. 1888.

[Seal]

'Wellington W. Cummer,

'Mayor of City of Cadillac.

'Ernest M. Hutchinson,

'City Clerk.'

To each of said bonds were annexed the proper interest coupons. And the said bonds were duly numbered in the series, and the year when payable duly inserted in each.

1. The first defense interposed is that the city of Cadillac had no power to issue negotiable bonds, and that the holder of these bonds is not, therefore, protected against any defense which the city can make. The city of Cadillac, by the act incorporating it, was subject to all the provisions of the general act for the incorporation of cities; being Act No. 178, of the Public Acts of 1873, and being chapter 80 of Howell's Annotated Statutes of the state of Michigan. Section 2717 of the latter compilation is as follows:

'No loans shall be made by the council or by its authority in any year exceeding the amount prescribed in this act. For any loans lawfully made the bonds of the city may be issued, bearing a legal rate of interest. A record, showing the dates, numbers and amounts of all bonds issued, and when due shall be kept by the city clerk or comptroller. When deemed necessary by the council to extend the time of payment, new bonds may be issued in the place of former bonds falling due, in such manner as merely to change but not increase the indebtedness of the city. Each bond shall show upon its face the class of indebtedness to which it belongs and from what fund it is payable.'

This act clearly authorizes the issuance of 'bonds' bearing a legal rate of interest for any loans lawfully made. It also empowers the council to issue 'new bonds,' to extend the time of payment of 'bonds falling due.' That this contemplates, and by necessary implication authorizes, the issue of negotiable bonds, we have no doubt. The general power to issue 'bonds' must be taken to authorize 'bonds' in the usual form of such well-known commercial obligations.

That usual form embodies a contract and obligation negotiable in its terms. The case of Brenham v. Bank, 144 U.S. 173, 12 S.Ct. 559, has no bearing upon this question. Nothing more is there decided than that an act empowering a city to 'borrow for general purposes not exceeding $15,000 on the credit of the city,' did not authorize the issuance of negotiable obligations for the money so borrowed. Here the power to issue obligations, by necessary implication, in the usual commercial form of 'bonds,' is expressly given. But one meaning can be fairly deduced from the terms of the act. The question now presented was not discussed in the Brenham Case, and we have no doubt whatever as to the conclusion we have announced.

2. It is next insisted that, if the city had power...