National Bank of Commerce v. Town of Grenada

• Citation: 41 F. 87
• Parties: NATIONAL BANK OF COMMERCE v. TOWN OF GRENADA.
• Decision Date: 16 January 1890
• Court: U.S. District Court — District of Colorado

41 F. 87

NATIONAL BANK OF COMMERCE v. TOWN OF GRENADA.

United States Circuit Court, D. Colorado.

January 16, 1890

S. L Carpenter, for plaintiff.

Alvin Marsh, for defendant.

PHILIPS J.

This is an action of debt to recover on interest coupons attached to funding bonds issued by the defendant in 1887. The bonds are payable at the National Park Bank, New York, fifteen years after date, or after five years, at the pleasure of the city interest, 8 per cent. The bonds and coupons were duly signed by the mayor and clerk, and duly registered and recorded with the state auditor and the town treasurer.

A jury being waived, the cause was submitted for hearing before the court on the following agreed statement of facts, in their abbreviated substance, to-wit:

The town of Grenada was incorporated as a municipal corporation in the month of July, 1887. On the 1st day of October, 1887 a petition of 50 citizens and electors of the town was presented to the board of trustees, praying for the appropriation of a sum, not to exceed $36,000, for procuring water for domestic purposes. At a meeting of the board on the 8th day of October, 1887, on motion it was ordered that an appropriation of the sum of $36,000 be made for the purpose of supplying the town with water for domestic purposes. On the 6th day of October, 1887, an ordinance was passed by the board numbered 10, concerning water-works, which provided, in substance, that, for the purpose of supplying the city with water suitable for irrigation, domestic, and other purposes a reservoir of not less than 1,000 barrels' capacity shall be built, and water supplied therefrom from the Arkansas river, and that scrip be issued to pay therefor, not to exceed $36,000, passed November 12, 1887, signed by the mayor, and attested by the recorder, and duly published in the Grenada Exponent. At said meeting of October 6th, one Thomas Doak submitted a proposition to construct water-works for the town for the sum of $36,000, upon condition that the board would first issue warrants of the town, and deliver the same to him, to said amount, to enable him to raise funds, upon the sale of the same, for the purpose of constructing said works. The proposition was accepted by the town, and warrants to the amount of $36,000 were issued and delivered to Doak. On the 10th day of October, 1887, a petition of 50 qualified electors, alleging that they had paid taxes the preceding year, was presented to the board, requesting that a notice be published for 30 days to holders of warrants to present and exchange the same for bonds of said town, under the provisions of the act of the legislature entitled 'An act to enable the several towns and cities of the state to fund their floating indebtedness. ' In the recorded proceedings of the board the proper notice appears to have been given, duly certified by Ed. Walsh, the city clerk. It is admitted that this record entry is false, as no such notice was in fact published.

On the 4th day of November, A.D. 1887, said Doak entered into a written agreement with said board of trustees for the construction of said water-works, in substance as follows: The said Doak agreed to build a reservoir with the capacity of 1,000 barrels of water, from which water might be used for domestic purposes; said reservoir to be supplied with water through a ditch to extend from the Arkansas river at some suitable point westerly of said city to said reservoir. 'That said city of Grenada shall pay and deliver to said Doak, his heirs or assigns, its legally issued scrip, to the full amount of $36,000. * * * Said city shall also secure and grant to said Doak, his heirs or assigns, the right of way through said city limits free of all expense to said Doak, so that in digging or constructing said ditch through said city said Doak,' etc., 'shall be at no expense, either for right of way, damages, bridges, or any other expense, except excavation. Said city hereby agrees to pay all expense, damages, or other demands made on said Doak,' etc, 'in the digging or construction of said ditch through said city, except engineering and excavating. Said city shall also furnish with good and sufficient title to said Doak, his heirs or assigns, suitable lands, on or adjacent to the ditch, for the uses and purpose of a reservoir. Said Doak,' etc., 'shall locate said ditch in and through said city wherever he may choose, except said ditch shall be on or along some street, streets, alley, or alleys. Said city shall at once proceed to refund said issued scrip into refunding bonds, bearing interest at eight per cent., payable semi-annually, and deliver same to said Doak, his heirs or assigns. Said Doak, his heirs or assigns, to begin work as required by law, and complete the same as soon as it is practicable so to do.'

On the 7th day of November, 1887, a petition containing the same names as the former petition was presented to the board, petitioning it to submit to a vote a proposition to fund $36,000 of the city indebtedness with 8 per cent. funding bonds. On the 10th day of November, 1887, Doak presented, at a meeting of the board, the $36,000 of warrants, and offering to accept in lieu thereof the funding bonds of the town, which was accepted. On the 11th of November, 1887, the board adopted the following ordinance: Section 1 directs the submission to the qualified electors of the town to vote on the question whether the board of said town shall issue bonds thereof under the provisions of an act of the legislature of the state of Colorado entitled 'An act to enable the several cities and towns of the state to fund their floating indebtedness,' in exchange at par for warrants of said town issued prior to date of the first publication of the notice heretofore published in this behalf, in accordance with the petition heretofore presented to said board, etc.; such question to be submitted at the special election, at the usual place of holding elections, on the 12th day of December, 1887. Section 3 provided that if, upon the return of the canvass of the vote of said election, according to law, it should be found that a majority of the electors who shall have paid taxes upon property assessed to them in said town the preceding year shall have voted in favor of said proposition, and the result of said election be so declared, then the mayor and clerk of said town were authorized and directed to exchange bonds of said town to the amount of $36,000, and no more, at par, for and on account of certain warrants to the amount heretofore issued to one Thomas Doak, in payment for the construction and operation of water-works within said town, as per the ordinance heretofore passed in that behalf. Section 4 directed that notice of said election be published according to law. This ordinance was not recorded in the ordinance book, nor signed by the mayor and clerk, nor published in any paper.

It is admitted that no poll-tax was ever paid by the citizens of said town after its incorporation, and that the total value of the real and personal property, as shown by the legal assessment in said town, was $119,000. Notice was duly given of the special election ordered in said ordinance, which recited that the election was 'for the purpose of voting upon the proposition to issue $36,000 in bonds for water-works for the town of Grenada. Those voting for said bonds shall have written or printed upon their ballot, 'For water-works bonds. Yes.' Those voting against the bonds will have written or printed upon their ballots, 'for water-works bonds. No.'' At a meeting of the board of trustees held December 17, 1887, as a canvassing board, it was found that a majority of the electors of said town voted in favor of funding the town debt; whole number of votes case, 24; all in favor thereof, none against. At this same meeting it was ordered that the mayor and clerk of the town be authorized to issue bonds in the sum of $36,000, which bonds were thereafter issued and delivered to said Doak in exchange for his said warrants. No annual appropriation ordinance was passed by the town board in 1887, and no ordinance was ever passed providing for a tax to pay principal or interest upon said bonds or coupons. The water-works in question were never constructed, nor any part thereof.

It is admitted that of said bonds, with coupons attached, numbered 9 to 72, inclusive, were sold or negotiated to plaintiff, who purchased them before maturity, in good faith, and without notice of the proceedings of the said town board; that they were so bought in open market, for a valuable consideration; and that the plaintiff is a banking corporation, resident of Kansas City, Mo.

The agreed statement contains other specifications, not deemed important to recite.

If the parties joining issue herein were Doak, the contractor, on one side, and defendant town on the other, I should not hesitate to hold that the consideration of the bonds had failed, and no recovery could be had. That Doak and the town officials, or some of them, entered into a conspiracy to plunder the tax-payers of this town, does not admit of debate. It was as bold in conception as it was graceless and impudent in execution. That an honest constituency, with the instinct of self-preservation, could sit quietly by and permit such a larcenous scheme to culminate before their eyes is almost incredible. It is transparent, from the face of the whole proceedings, and especially on the face of the contract made by Doak with the town, that he never intended to construct the water-works. No place near or approximate to the town is fixed for planting the reservoir, while the title to the land for the reservoir, and the right of way for the ditch, were to vest in Doak. The city obligated itself to issue to him...