Newgass v. City of New Orleans

• Decision Date: 01 February 1890
• Docket Number: 10,458
• Citation: 42 La.Ann. 163
• Court: Louisiana Supreme Court
• Parties: HERMANN NEWGASS v. CITY OF NEW ORLEANS

42 La.Ann. 163

HERMANN NEWGASS v. CITY OF NEW ORLEANS

No. 10,458

Supreme Court of Louisiana

February 1, 1890

APPEAL from the Civil District Court for the Parish of Orleans. Monroe, J.

W. S Benedict, for Plaintiff and Appellant.

Francis B. Lee, Assistant City Attorney, Carleton Hunt, City Attorney, and Walter H. Rogers, for Defendant and Appellee.

OPINION

BERMUDEZ C.J.

The question to determined in this case involves the right of the plaintiff to recover from the City of New Orleans, as holder of certain certificates of indebtedness, issued by the Comptroller and Mayor, in the name of the city, under a certain ordinance, in favor of parties named therein, or bearer, and which on their face purport to be evidences of liability; in other words: whether such vouchers can be assimilated to ordinary promissory notes, State or municipal bonds, and such as can be recovered upon by holders in good faith and for value, etc.

Substantially the answer is a denial of ownership in plaintiff and of the right to sue and a declaration of the worthlessness of the instruments, and the assertion, under any contingency, of the right of setting up equities destructive of the rights of plaintiff.

From a judgment of dismissal plaintiff appealed.

In April, 1881, and in June, 1883, Ordinances Nos. 6968 A. S., and 347 C. S., were adopted by the City Council of New Orleans, authorizing the issuance of certificates of indebtedness to certain creditors of the city, to be signed by the Comptroller and the Mayor.

They are to the effect:

1. That any creditor of the city to whom the appropriation has been made, but in whose favor the Comptroller can not draw a warrant until there be money in the treasury to the credit of the appropriate account, nor otherwise appropriated, shall be authorized, upon demand, to receive a transferable certificate of ownership entitling him or bearer to receive a cash warrant.

2. That the creditor shall sign a receipt therefor, stipulating that the cash warrant shall be claimed only on the surrender of the certificate, and the acceptance of the warrant shall be an acceptance of the conditions of the ordinance.

3. That the warrant shall issue strictly in the order of the promulgation of the appropriating ordinance.

4. That the certificate shall not novate or affect the nature of the claim, but shall be simply an evidence of transferable ownership. . . .

5. That the certificate shall state upon its face the nature and effect of its issue, with numbers, dates and names, and that upon its reverse the ordinance shall be printed.

Ordinance 347, C. S., contains the form of the certificate mentioned in it and which reads as follows:

"OFFICE OF THE COMPTROLLER.

"Certificate of Ownership of Appropriation.

"Issued under Ordinance No. 347, C. S., approved June 26, 1883.

"NEW ORLEANS, , 188 .

"This is to certify that under Ordinance No. , adopted 188 , the sum of $ has been appropriated to for and on account of , and the said , or bearer hereof, shall, upon the surrender of this certificate (and not otherwise) be entitled to receive in the order of the promulgation of said ordinance a cash warrant on the Treasurer on any fund in the treasury to the credit of the appropriate fund, and not otherwise appropriated.

"It is herein specially agreed to by the holder of this certificate that it bears no interest, and shall not novate, nor in any manner affect, the nature of the claim against the city under the ordinance referred to, but shall be simply an evidence of transferable ownership thereof: and whenever the ordinance, or that portion of it to which this certificate applies, is paid or canceled by being tendered and received in payment of taxes when authorized by law, then this certificate shall be surrendered to the office of the Comptroller.

" , Comptroller.

" , Mayor."

The certificates sued on are in that form and bear on their reverse a copy of the ordinance. Naturally the blanks are filled up.

The right of municipal corporations to borrow money and to issue negotiable securities has frequently been questioned, and although judicial adjudications on the subject may have considered it from different standpoints, recognizing or denying it according to circumstances, it may now be admitted as settled that they can do neither without express legislative sanction or irresistible implication.

After reviewing all the authorities on the subject, Mr. Dillon says that he regards it as the true doctrine, that, as incidental to the discharge of its ordinary corporate functions, no municipal or public corporation has the right to invest any instrument it may issue, whatever its form, with that supreme and dangerous attribute of commercial paper which insulates the holder for value, from equities which attach to its inception, and he adds that this point should be guarded by the courts with the utmost vigilance. Sec. 126, Mun. Corp.

The consequences of recognizing such a power, in the extravagance it will stimulate, in the frauds it will engender and in the ruinous indebtedness it will inevitably produce, are alarming to contemplate. Paragraph 2 of Sec. 125.

Further on he says, that although warrants or orders, negotiable in form, may be made by the proper municipal officers, and, in many States, may be transferred by delivery or indorsement and the holder may sue thereon, yet they are not commercial or negotiable paper in the hands of holders, which exclude inquiry into the legality of their issue, or preclude defence thereto. They are not bills of exchange. Sec. 487. Such warrants and orders are not intended to have the qualities of negotiable paper; but are instruments authorized for convenient use in conducting the current or ordinary business of the corporation and as a means of anticipating its ordinary revenue. It would overwhelm municipalities with ruin, to hold that they protect an innocent holder for...