City of Johnson City v. Charleston, C. & C.R. Co.

• Decision Date: 11 February 1897
• Parties: CITY OF JOHNSON CITY v. CHARLESTON, C. & C. R. CO. et al.
• Court: Tennessee Supreme Court

44 S.W. 670

100 Tenn. 138

CITY OF JOHNSON CITY v. CHARLESTON, C. & C. R. CO. et al.

Supreme Court of Tennessee.

February 11, 1897

Appeal from court of chancery appeals.

Action by the mayor and alderman of Johnson City against the Charleston, Cincinnati & Chicago Railroad Company and others to impeach and cancel city bonds. Judgment for plaintiffs. Both parties appeal. Affirmed.

Isaac Harr and Burrow Bros., for complainants.

E. C Reeves, H. H. Carr, and Webb & McClung, for defendants.

CALDWELL J.

The mayor and aldermen of Johnson City filed the bill in this cause to impeach and cancel $75,000 of coupon bonds issued by Johnson City to the Charleston, Cincinnati & Chicago Railroad Company, in payment of its subscription to the capital stock of that company. Most of the bonds had passed into the hands of innocent purchasers before the bill was filed, and those purchasers, with all other necessary parties, were impleaded as defendants. Briefly stated, the grounds of attack were (1) that the legislation under which the bonds were issued was unconstitutional; (2) that the company whose stock was subscribed for, and to which the bonds were issued, was not a Tennessee corporation; and (3) that the aggregate issue was in excess of that authorized by the statute. The defendants met the complainants on all these grounds, and denied that the bonds were invalid for any reason. The chancellor ruled for the defendants on the first proposition, and for the complainants on the other two, and thereupon granted the relief sought in the bill. Both sides appealed, and the court of chancery appeals affirmed the decree of the chancellor on all points. Both sides have again appealed, and, by appropriate assignments, reopened the three questions.

The subscription was made and the bonds issued under chapter 3 of the Acts of 1887 (Shannon's Code, §§ 1558-1573 inclusive). The first section is as follows: "That any county, incorporated city, or town, may become a stockholder in any railroad company incorporated under the general laws of the state, to an amount not exceeding, in the aggregate one-tenth of its taxable property, by complying with the requirements of this act." The next succeeding seven sections relate to the location of the road, the application for subscription, and the election upon the application. Section 9 prescribes the time and manner of ascertaining the result of the election, and directs that the subscription be made "effective, according to the terms thereof and the provisions" of the act, if it shall appear that the election "was in all respects fair, and that three-fourth of the votes cast *** were in favor of subscription." Section 10 authorizes a second election if the first one fails. The eleventh section declares that the subscription shall "become due and payable" only when the particular part of the road for which it is made shall be constructed and put in operation. Section 12 provides: "That when such a subscription shall become due and payable, as provided in section 11 of this act, the county, or city, or town, making the subscription shall made and execute its coupon bonds for the amount of such subscription, payable not more than twenty years after date and bearing interest at such rate as may be agreed upon, not exceeding six per cent. per annum, payable semi-annually, and deliver the same to the railroad company: provided, that the county, city or town may pay such subscription, in cash at maturity, if it shall so elect."

The point of objection is that the twelfth section, which alone mentions the question of issuing bonds, does not provide for a submission of that question to a vote of the people. The application for subscription and the proposition to issue bonds in payment thereof were both in fact submitted to the people at the same time, and as parts of the same transaction. The whole matter so submitted was voted on and carried by a three-fourths majority of all the votes cast. The complainants concede that the grant of power to subscribe for stock was valid, because the act provided for a submission of that question to a vote of the people; but they contend that the grant of power to issue bonds was void, because the act did not provide for a submission of that question to a vote of the people. Section 29 of article 2 of the constitution of 1870 is in these words: "The general assembly shall have power to authorize the several counties and incorporate towns of this state to impose taxes for county and corporation purposes respectively, in such manner as shall be prescribed by law; and all property shall be taxed according to its value, upon the principles established in regard to state taxation. But the credit of no county, city or town shall be given or loaned to or in aid of any person, company, association, or corporation, except upon an election to be first held by the qualified voters of such county, city or town, and the assent of three-fourths of the votes cast at said election. Nor shall any county, city or town become a stockholder with others in any company, association, or corporation, except upon a like election and the assent of a like majority." Here are three sentences or clauses. The first, which constituted the whole of that section in the constitution of 1834, states, generally, the purposes for which the legislature may "authorize" counties and incorporated towns to impose taxes. The second and third, which originated with the constitution of 1870, and were designed to cut off existing evils, and prevent their recurrence, define certain things which no county, town, or city may do in the exercise of such authority when granted, except upon a prescribed condition. These new clauses, though in juxtaposition, are entirely independent of each other, and relate to different things. Each contains a separate inhibition, absolute and self-executing. The former inhibits the giving or loaning of credit except upon a prescribed election. The latter inhibits the acquisition of corporate stock except upon a like election. The election must be had as to both where both are involved. An election for one will not suffice for the other also. This much is fixed and put beyond legislative control. Nevertheless, the legislature has an important part to perform before either can become effective. Indeed, it must take the first step. It must "authorize" the submission of each proposition to the vote of the people before the prescribed election can be lawfully held. No county, town, or city has independent authority to hold an election for the one purpose or the other. The inhibition contained in the second and third clauses does not of itself warrant an election upon the respective subjects therein mentioned, but authority to hold an election must first be granted by the legislature under the first clause. It follows, therefore, that the objection to the twelfth section of the act is well made, and that the bonds now in question are invalid, if the issuance of the bonds is to be deemed a giving or loaning of credit.

We are of the opinion, however, that the issuance of the bonds was not a giving or loaning of credit. On the contrary, it was only a legitimate part of the scheme of becoming a stockholder....