Swanson v. The City of Ottumwa
| Decision Date | 10 February 1906 |
| Citation | 106 N.W. 9,131 Iowa 540 |
| Parties | JOHN P. SWANSON, Appellee, v. THE CITY OF OTTUMWA, et al., MAYOR AND ALDERMEN OF SAID CITY, Appellees; THOMAS LAMBERT AND THE NATIONAL LIFE INSURANCE CO., OF MONTPIELER, VERMONT, Appellants |
| Court | Iowa Supreme Court |
REHEARING DENIED THURSDAY, SEPTEMBER 27, 1906.
Appeal from Wapello District Court.--HON. F. W. EICHELBERGER and M A. ROBERTS, Judges.
SUIT in equity to enjoin the defendant city, its officers and agents from paying certain bonds or the interest coupons therein, or from appropriating any money for the payment thereof. Defendants Lambert and the National Life Insurance Company holders of said bonds, were made parties, and as to them the relief asked was that they be enjoined from presenting the same, from demanding or receiving anything from the city thereon, and that the bonds and coupons thereto attached be canceled. The city and its officers appeared, confessed the allegations of the petition, and joined with plaintiff in his prayer. The holders of the bonds also appeared, admitted their purchase of the bonds from the Chicago, Ft. Madison & Des Moines Railroad Company, and pleaded that they purchased the same in good faith, before maturity, and without knowledge of any defenses thereto. They each pleaded the validity of the said bonds, and, in cross-petitions, asked judgment for the amount due thereon, and further asked that, in the event the bonds were held invalid, they have judgment against the city for the amount they paid the railroad company for said bonds as for money had and received for its use and benefit. Plaintiff and the city each demurred to the answer and cross-petitions of the bondholders, and these demurrers were sustained; and, the bondholders electing to stand on their pleadings, decree was entered against them as prayed in plaintiff's petition. Lambert and the National Life Insurance Company appeal. Affirmed.
Affirmed.
Fred A. Howland, Dillon & Hubbard, and Lane & Waterman, for appellant National Life Ins. Co. Baker & Ball, for appellant Lambert.
Mitchell & Hunter, for appellee Swanson. M. C. Gilmore, for appellee city.
From the pleadings we extract the following facts, which are deemed material to a proper determination of the case:
In the year 1893, the Chicago, Ft. Madison & Des Moines Railroad Company, an Iowa corporation, had built and was operating a line of railroad from Ft. Madison to the city of Ottumwa. The city was desirous of making a donation to this company of a site for depot grounds, machine shops, etc. , under chapter 133, Acts 19th Gen. Assem. The railway company had already selected grounds for these purposes at a much lower price than the city was able to do, and so it proposed to issue bonds directly to the company for the amount it had agreed to pay for the property it desired within the city limits, to wit, the sum of $ 34,000; said bonds to be delivered when the railroad company secured absolute title in fee to the land desired by it. A proposition of this kind was submitted to the electors at a special election, and was carried. Thereupon in due course the city executed and delivered to the railroad company $ 34,000 in negotiable bonds in denominations of $ 1,000 each, with interest coupons attached. The bonds were issued and delivered to the railroad company June 8, 1893. Ten of them fell due February 20, 1904, ten on February 20, 1905, and the remaining fourteen on February 20, 1906. These bonds bore interest at the rate of 5 per cent., payable semiannually. After receiving these bonds, the railway company negotiated them before maturity, selling thirty-two of them to the National Life Insurance Company and one to Lambert. The ownership of the other is not disclosed. The bondholders claim that these bonds were regularly and properly issued, that they are good-faith holders thereof before maturity, and that in any event they are entitled to judgment against the city for the amount they paid for the bonds. On the other hand, plaintiff and the city contend that the city had no power to issue negotiable bonds for the purpose of raising money for the purchase of real estate to be donated to a railway company, that in no event could it issue negotiable bonds, that such bonds were and are void, that no action in any form can be based thereon, and that there can be no recovery on the common counts, for the reason that the city has received no benefit from the money advanced by the bondholders. Some other incidental claims are made, which will be noticed as we proceed.
The authority for donating land or bonds to a railway company is found in chapter 133, Acts 19th General Assembly, which reads as follows:
Section 1. That it shall be lawful for any incorporated town or city to procure for the purpose of donation, and to donate to any railway company owning a line of railway in operation or in process of construction in such incorporated town or city, sufficient land for depot grounds, engine houses, and machine shops for the construction and repair of engines, cars and other machinery necessary to the convenient use and operation of said railroad. Before such donation shall be made or appropriation of funds to procure land for such purpose, a petition shall be presented to the trustees or council of such town or city, asking that such donation be made, and limiting the sum to be appropriated for that purpose. Upon the presentation of such petition a special election of said city or town shall be called. On the ballots used at such an election shall be printed the words "For the donation" and "Against the donation," and if two-thirds majority of the qualified electors voting at such election shall vote for the donation, said trustees or council shall determine the site to be donated designating the boundaries thereof, and the amount to be appropriated in procuring said site, not exceeding the amount named in the said petition; and may in the name of such incorporated town or city procure said land by purchase or by payment of the estimated damages in case said land or any part thereof shall be taken in the name of such railway company by process of condemnation for railway purposes, and may also vacate any streets and alleys within the boundaries of said site and may prescribe the terms and conditions and limitations upon which such grant shall be made, which shall be binding upon the railway company accepting such donation: Provided, etc.
It will be noticed, first, that the city did not directly procure any land for the purpose of donating the same to a railway company, nor did it in fact make any such donation. On the contrary, it issued, delivered, and donated its negotiable bonds to the railway company. Further, it will be observed that the statute we have quoted authorizes cities to procure for the purpose of donating and to donate sufficient land, etc., and that before any donation shall be made or any appropriation of funds determined upon, a petition shall be presented asking that such donation be made, and limiting the sum to be appropriated for that purpose. And in the event of the required majority being cast in favor of the donation, the city may procure the land by purchase or by payment of the estimated damages in the event condemnation is made. For present purposes we shall assume that the city had power to issue some form of obligation directly to the railway company in lieu of the donation of land, and our first inquiry shall be as to the authority of the city to incur any sort of indebtedness in procuring a site for depot grounds, etc., and second, as to the nature of the obligations it may issue.
As no authority is expressed by this statute or elsewhere for any additional tax to meet any obligations which may be incurred for depot sites, and no authority is given to issue negotiable bonds therefor, there is much reason for saying that land so procured by a city must be paid for out of its general funds, and that, as cities are now supposed to be on practically a cash basis, they cannot issue any form of indebtedness in excess of their current revenues. This last proposition, however, is not argued with much force, and is of so much doubt that we do not, at this time, make any pronouncement thereon. But as there is no provision whatever whereby the city is authorized to levy any tax for the purpose of meeting any indebtedness it may incur in procuring a depot site, and no special fund is created whereby to pay its indebtedness, it must follow that it has no express power to do more than issue warrants payable out of its general or incidental funds. Merrill v. Monticello, 138 U.S. 673 (11 S.Ct. 441, 34 L.Ed. 1069); Police Jury v. Britton, 15 Wall. 566 (21 L.Ed. 251); Witter v. Board, 112 Iowa 380, 83 N.W. 1041. Under the Witter case we shall assume that the city had power to purchase real estate for the purpose of donating it to the railway company, and that in so doing it had the right to create an indebtedness therefor which did not exceed the constitutional limit. See, also, Mullarky v. Town, 19 Iowa 21; Austin v. District, 51 Iowa 102, 49 N.W. 1051.
But, as we have said, it had no express power to borrow money for this purpose, and no authority to issue negotiable bonds therefor. The implied authority, if any, was to issue warrants or other nonnegotiable instruments recognized by law or universal custom; that is to say, to the party from whom it purchased the land, it might execute warrants in the usual form, or perhaps nonnegotiable promissory notes. This was the extent of its implied power. Even where power to borrow money is expressly given, we have held that there is no implied authority to issue negotiable bonds to accomplish that end. Heins v. Lincoln, 102 Iowa...
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