Travelers' Ins. Co. v. City of Johnson City

• Decision Date: 12 February 1900
• Docket Number: 732.
• Parties: TRAVELERS' INS. CO. v. MAYOR, ETC., OF JOHNSON CITY.
• Court: U.S. Court of Appeals — Sixth Circuit

99 F. 663

TRAVELERS' INS. CO. v. MAYOR, ETC., OF JOHNSON CITY.

No. 732.

United States Court of Appeals, Sixth Circuit.

February 12, 1900

This was a suit at law by the Travelers' Insurance Company to recover from the mayor and aldermen of Johnson City $50,000 and interest from January 5, 1892, as money had and received to the use of the defendants. The case made in the declaration was: That under the act of the general assembly of the state of Tennessee, providing: 'That any county incorporated city or town, may become a stockholder in any railroad company incorporated under the general laws of this state, to an amount not exceeding, in the aggregate one-tenth of its taxable property, by complying with the requirements of this act' (Laws 1887, c. 3, Sec. 1), and which provided in its twelfth section: 'That when such subscription shall become due and payable, as provided in section eleven of this act, the county, or city, or town making the subscription shall make 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 such county, city or town may pay such subscription in cash at maturity, if it shall so elect, '-- the Charleston, Cincinnati & Chicago Railroad Company, on December 30, 1890, applied to the defendant in error to subscribe $75,000 to the capital stock of said railroad company, the subscription to be paid in the coupon bonds of the defendant. That an election was held on January 30, 1890, pursuant to law, and under orders of the mayor and board of aldermen. That the sheriff made his return, showing that more than three-fourths of the electors voting voted for the subscription, and that thereupon the defendant made the subscription accordingly, and resolved that it be paid in coupon bonds of the town. That the bonds issued were in the form following:

'State of Tennessee, County of Washington, Corporation of Johnson City:

'Know all men by these presents, that the corporation of Johnson City, in the county of Washington, state of Tennessee acknowledges itself indebted and firmly bound to the Charleston, Cincinnati & Chicago Railroad Company, or bearer, in the sum of one thousand dollars, lawful money of the United States of America, and for value received hereby promises to pay to said company, or bearer, the sum of one thousand dollars at the National Bank of Deposit in the city of New York, state of New York, in twenty years after date, with interest thereon from the date hereof at the rate of six per cent. per annum, payable semiannually, on the first days of May and November in each and every year, on presentation and delivery of coupons hereto annexed, and duly signed by the recorder of Johnson City; for the performance of all which the taxable property of said Johnson City is irrevocably pledged, pursuant to an act of the general assembly of the state of Tennessee, entitled 'An act to enable the counties and incorporated cities and towns to subscribe to the capital stock of any railroad company incorporated under the general laws of this state, in the mode prescribed therein, and to provide for the payment of such subscriptions,' approved February 17, 1887, and also an act passed February 28, 1887, approved March 2, 1887, authorizing Johnson City to issue bonds to an amount not exceeding seventy-five thousand dollars. This bond is one of a series of seventy-five bonds of like tenor, date, and amount herewith, issued by virtue of said above-named statutes, and in issuing same all of the provisions and requirements of each of said statutes have been strictly fulfilled and complied with. In witness whereof the mayor and the recorder of the corporation of Johnson City, Tennessee, have hereunto signed their names, and the same has been countersigned by the board of trustees of the sinking fund of said town, at said Johnson City, on the first day of May, A.D. 1890.

'-- -, 'Mayor.

'-- -,

'Recorder.

'-- -,

'-- -,

'-- -,

'Board of Trustees of the Sinking Fund.'

That by the contract of subscription the bonds were to be deposited in the First National Bank in escrow, to be delivered to the railroad company, or its order, upon presentation of a certificate signed by the mayor of the city and the chief engineer of the railroad company. That the three conditions of the subscription, which were the delivery of the stock, the construction of the railroad, and the erection of a railway station, had been complied with. That the railroad and station were completed, and the stock issued in accordance with the contract, and the bonds were delivered to the railroad company upon proper certificate. That the stock issued to the amount of $75,000 has ever since been held by the defendants. That, soon after the delivery of the bonds by the city to the railroad company, the same were put by the railroad company upon the market for sale, and the plaintiff, relying upon the representations made on the face of the bonds that all the requirements of law had been strictly complied with in their issue, purchased $50,000 of the bonds, and paid $50,000 in lawful money for the same without notice of any infirmity in the bonds.

The declaration further shows that, after paying the interest coupons on these bonds for several years, the defendants filed a bill in the chancery court of Washington county, Tenn., against the railroad company and the plaintiffs and others, in which it sought to have the bonds declared void on the various grounds therein set up; that upon a final hearing of the cause the chancellor entered a decree, on March 13, 1895, adjudging the bonds to be void in the hands of bona fide purchasers, upon the ground that the Charleston, Cincinnati & Chicago Railroad Company was not a corporation under the laws of the state of Tennessee, but was a South Carolina corporation; and that $75,000 exceeded one-tenth of the taxable property of Johnson City, in violation of the terms of said statutes authorizing the subscription. On appeal this was affirmed by the court of chancery appeals. Plaintiff then appealed to the supreme court of Tennessee, which also affirmed the decree of the chancellor (44 S.W. 670), adjudging that said bonds were invalid and void upon the grounds stated, and enjoining their collection. The declaration avers further that the corporation to which this subscription was made was a Tennessee corporation, and not a corporation of South Carolina; that in fact there were two corporations, and that the application made by the railroad company for the subscription was made in the name of the Tennessee corporation. The bill further avers that the defendants were estopped by their recitals to deny that this was a Tennessee corporation, or that the statutory limit of indebtedness had been exceeded. The prayer of the bill is for the amount paid by plaintiff for the bonds, on the ground that the defendants have received this amount in value to their benefit. The declaration was demurred to on the ground that it did not state a cause of action, and the demurrer was sustained. The plaintiff not wishing to plead further, judgment was entered for the defendants, and that judgment is now here for review.

T. S. Webb, for plaintiff in error.

Isaac Harr (Burrow Bros., on the brief), for defendants in error.

Before TAFT, LURTON, and DAY, Circuit Judges.

TAFT Circuit Judge (after stating the facts as above).

The averments of the declaration that the railroad company whose stock was subscribed for by the defendants was a Tennessee corporation, and that the plaintiff was a bona fide purchaser for value, without notice of any infirmity in the bonds, and that the defendants were estopped by the recitals in their bonds from denying that the railroad company was a Tennessee corporation, lend no legal force to it, in the face of its other averments, which show that those very questions of fact and law were decided adversely to the plaintiff in an action to which the plaintiff and defendants were adversary parties, and in which the question of the validity of these bonds was the sole matter at issue. The question for our consideration here is, therefore, whether one who, for full value, purchases in the market negotiable bonds payable to bearer, and unindorsed, issued by a municipal corporation to a railroad company of another state, to whom it has no power to issue the bonds, in payment of a subscription to the company's stock to which it has no power to make a subscription, after the railroad has been built, and the depot has been constructed on the company's ground, and the certificates for the stock subscribed for have been delivered to the municipal corporation, all in accordance with the condition of the subscription agreement, may recover from the municipal corporation the money paid by it...