Bushnell v. Beloit

By the Court, Cole, J. This action was brought to recover interest on coupons attached to town bonds issued by the appellant in 1853, for the purpose of aiding the construction of the Racine and Mississippi railroad. The bonds were issued under an act of the legislature, authorizing the board of supervisors of the town, to subscribe one hundred thousand dollars to the capital stock of a railroad company, authorized to construct a railroad from the city of Racine to the village of Beloit, and to pay for such subscription in the bonds of the town, payable in twenty years, with inter — 219 — est payable annually, in the city of New York, not exceeding seven per cent, per annum. The law provided that no bonds should be issued until a majority of the legal voters of the towns, voting upon the question, should vote in favor of the subscription, at a special election, called and held for that purpose. From the record it appears that an election was held, and that three hundred and twenty-one ballots, out of three hundred and eighty-eight cast upon the question, were in favor of the subscription. The supervisors issued the bonds, and delivered them to the company, receiving therefor, an equal amount of the capital stock of the company. The bonds, by their terms, were made transferrable by general or special endorsement, or by delivery, the same as a note of hand, payable to bearer. The respondent bought the bonds and coupons sued upon, for value, and without any actual notice of any of the matters of defense set up by the town in its answer. The payment of the interest due upon these bonds is now resisted by the town on various grounds. But the fundamental question raised and discussed in the case, is in regard to the power of the town to subscribe for stock in, and to loan their credit to railroad companies, even when authorized by an act of the legislature so to do. Unless expressly authorized by the legislature to make the subscription, it is not contended that any could have been made in behalf of the town. But having been authorized by an act of the legislature, it must be admitted, that upon the authorities, the subscription made in conformity to the provisions of the act is valid, unless the law is unconstitutional. It is true, some objections were taken to this legislation, based upon general principles of law and sound policy, aside from the prohibitions of our constitution. It is said to be entirely foreign to the object and purpose of a town or municipal corporation to subscribe stock to aid in constructing railroads, or to carry on works of internal improvement of this — 220 — nature. And it is insisted, not -without' force of reasoning, that town and municipal corporations exist, or are created for no such purpose, and that it is an entire perversion of the powers of such corporations to permit them to do so. But this field of discussion has frequently been gone over in the adjudged cases, and the whole argument has been thoroughly exhausted. In most of the cases found in the reports of the different states of the Union, laws authorizing towns, cities, and villages to subscribe stock for railroad companies, and incur indebtedness for making certain internal improvements, have been sustained, and declared valid, unless they were in conflict with some provision of the state constitution. The cases upon this subject will be found, most of them, in the notes to pages 108 to 125, inclusive, of Pierce on American Railroad Law. The precedents for this kind of legislation are so numerous; the sanction which it has received from the executive, legislative, and judicial departments of the government, in other states, is so uniform; the rights and interests vested on the faith of it, are so important, when considered'in connection with the fact that the laws were to have no effect, unless with the assent of the people directly affected by them; and after the subject was fully discussed by the press, and in public meetings, the people directly interested, voted in favor of these subscriptions, thereby authorizing their corporate authorities to make them; and also when it is borne in mind, that great amounts of capital have been invested in the bonds of towns, counties, and cities, thus issued, by innocent bona fide holders; when all these considerations are regarded, it seems rather late to raise the objection that this policy has been all wrong from the beginning; that the legislation, by which the present condition of things has been brought about, is not wise and wholesome, but evil and pernicious, and must now be repudiated' altogether. — 221 — As a matter of course, if this species of legislation is forbidden by the constitution, or comes fairly within the intent and meaning of any of its prohibitions, it must fall whatever may he the consequences to the honor and character of our people, or however great may he the loss to those whose means have been honestly invested in this class of securities. But, unless the constitution does restrain the legislature from conferring upon towns, counties and cities the authority to make subscriptions to the capital stock of companies incorporated to construct rail roads, in which- they áre interested, it is the plain manifest duty of the courts to sanction this kind of legislation. Considerations in respect to its wisdom and sound policy must be addressed to another forum. These general observations were deemed not inappropriate as an answer to some remarks made by counsel in the argument of the present case, and that of Clark et al. vs. The City of Janesville, which involves substantially the same questions under the constitution. I will now proceed to notice the various provisions of the constitution which are relied upon to show that all acts of the legislature authorizing towns, counties and cities to subscribe to the capital stock of railroad companies, and issue bonds for such subscriptions, are unconstitutional and void. The two following provisions may he conveniently considered together. Section 3 of Art. VIII. reads as follows: “ The credit of the state shall never be given or loaned in aid of any individual, association, or corporation.” And, section 10 of the same article : “ The state shall never contract any debt for works of internal improvement, or be a party in carrying on such works.” It is difficult to perceive how these provisions can fairly be said to apply to anything but the state in its political capacity as such. The whole article appears to he — 222 — designed, to regulate the finances of the state proper. This is the fair reasonable and consistent construction to be placed upon its provisions. If it was intended to regulate the finances of the towns, counties and cities, and to restrain them from loaning their credit in aid of any corporation, or to inhibit them from contracting debts for works of internal improvement, or from being a party to carrying them on, the language was most unfortunately chosen to convey that intention. The leading idea is, and this corresponds precisely to the fact, that the state; as a body politic or political organization, independent of and distinct from its constituent parts, would have its treasury, its money, its credit and its debts; and that the power of the legislature over these things, which would otherwise have been unlimited, should be restricted and exercised in a certain manner. Hence, in the second section it says, “ no money shall be paid out of the treasury^ except in pursuance of an appropriation by law.” To what does this refer ? What does it mean ? Does it mean that no money shall be paid out of the treasuries of the different towns, counties and cities in the state without an appropriation made by the legislature ? This construction is too absurd to be seriously insisted upon. And yet, if the 3d and 4th and 10th sections of this article, which speak of “ the state,” “the credit of the state,” the-“public debt of the state,” and that “ the state shall not contract a debt for works of internal improvement,” if these sections can be held to apply to towns, counties and cities, why may it not be claimed with .equal reason that the other sections of'the article apply to the towns, counties and cities as well as the state ? The town of Beloit, or the city of Janesville, might give or loan its credit in aid of a corporation, without the credit of the state becoming pledged in any way thereby. Such indebtedness would be the indebtedness of the town or the city, not the indebtedness of the state. It might with the — 223 — same propriety be said that the indebtedness of the state of Wisconsin was the indebtedness of the United States, as to say that the indebtedness of the town of Beloit is the indebtedness of the state of Wisconsin. Why then is it claimed that because the constitution forbids that the credit of the state shall be given or loaned in aid of any corporation, that by the force of this language the town of Beloit is forbidden to loan its credit in aid of any corporation ? Such construction is doing violence to all language and all known rules of interpretation. And, to my mind, it is equally clear that though the state, in its political capacity as such, is prohibited from contracting any debt for works of internal improvement, and from becoming a party to carrying them on; yet, this prohibition does not apply to the political subdivisions of the state, the towns, counties and cities, which, when properly authorized, may contract such indebtedness and become a party to such improvements. At all events, the natural and rational construction of these restrictive clauses is that they apply to the state in contradistinction to the subdivisions of the state. Otherwise, how would it be possible for our cities and villages to improve their harbors; to pave and grade their streets; to build their bridges; or to do many other things calculated to increase their trade and property, and promote the comfort and welfare of the citizens ? This construction derives additional force from a reference to the mischiefs and evils which these prohibitions in the constitution were intended to guard against and prevent. It is well known to every person of common information in respect to the history of this country that at the time our constitution was adopted many of the neighboring states had become almost hopelessly involved in debt, by attempting to carry forward and sustain a general system of internal improvements. The credit of some of the states was ruined, and public confidence in all greatly impaired. — 224 — It was notorious that these works always cost the state more than they did individuals and private corporations, and were operated at much greater expense. Besides, no system could he devised which would operate alike over the whole state. If the money to carry on internal improvements was raised by general taxation, and there was no other way to raise it, the burdens would fall upon all, while the benefits would enure to a comparatively small portion of the state. And to save the state from the bankruptcy and ruin which had followed in other states in consequence of their embarking in a general system of internal improvements, and to avoid the unequal taxation inseparable from that policy, the framers of the constitution wisely provided that the state should neither loan its credit to any corporation or be a. party to carrying on such works. It was thought best to leave their construction to private enterprise and associated capital, rather than that the state should have anything to do with them. It was not supposed that towns and counties whose inhabitants were mostly farmers, or that even cities would involve themselves in debt for these works. Probably, if the country had then had the experience of the last ten years, and seen the distress and financial ruin which towns, counties and cities have brought upon themselves by subscribing to the capital stock of rail road companies, and issuing their bonds therefor, a provision would have been incorporated in the constitution to prevent the evil. But this was not done; and we cannot construe the constitution as though such a prohibition was there. The prohibitions therein incorporated apply to the state, but do not reach subscriptions of the character in question. See Cass vs. Billon, 2 Ohio St., 607. But it was further contended, in behalf of the town, that if the state itself was prohibited from loaning its credit in aid of a corporation, or from building railroads, or of becoming — 225 — av party thereto, that it cannot authorize a town or. city to do so. The argument in brief is, that a state cannot authorize one of its political * divisions to do what it cannot itself do. A slight examination will show that this position is unsound. We suppose it to be a well settled political principle that the constitution of the state is to be regarded not as a grant of power, hut rather as a limitation .upon the powers of the legislature, and that it is competent for the legislature to exercise all legislative power not forbidden by the constitution or delegated to the general government, or prohibited by the constitution of the United States. The legislature, subject to a qualified veto of the executive, possesses all the legislative power of the state. If there is nothing in the constitution forbidding it, why was it not competent for the legislature to authorize towns and municipal corporations to subscribe stock for rail roads. But a sufficient answer was given to this argument by the counsel who sustain the validity of these bonds, by saying that if the proposition was sound that the state could not authorize a municipal corporation or town to do what itself could not do, that the argument proved too much, and therefore must be rejected. It would go to the extent of denying that the legislature could create corporations^ build rail roads, plank roads, gas works, and for doing many other things which the state cannot do. These corporations have been created since the organization of the state government; various works of internal improvement have been carried on by them; they have exercised the right of eminent domain in the prosecution of their enterprises, and the constitutionality of this legislation has not been questioned. It is very true that in some of the cases sustaining the constitutionality of laws authorizing towns" and municipal corporations to subscribe for stock to rail road companies, it is — 226 — said that as the state could carry on these works, or aid in carrying them on, therefore it could authorize the local authorities to do what it refuses to do itself. Clark vs. The City of Rochester, 24 Barb., 447; Sharpless vs. The Mayor o Philadelphia, 21 Penn. St., 147. But it seems to me that the true reason is that when the legislature is authorized to create municipal corporations, and no limit is imposed by the constitution as to the power which shall be conferred upon them,, that then the extent of such powers rests in the discretion of the legislature. Of course the legislature could not authorize any corporation to violate directly or indirectly any provision of the constitution. But when the constitution does not prohibit the legislature from conferring the power upon cities and towns to take stock in railroad companies, or to loan their credit in aid of such works, I cannot understand why that power may not be granted to them as well as many others which they exercise. The state could not construct water works for, or pave and grade the streets in the city of Janesville; but does any one doubt that the legislature might authorize the corporate authorities to contract a debt for making these improvements? The City of Aurora vs. West, 9 Ia., 74. Another objection taken to the constitutionality of this legislation may be disposed of in this connection. It is said that subscribing stock and issuing bonds for building railroads, is no legitimate part' of the authority of a' city or a town, and certainly foreign to the purpose for which they are created. Sections 1 and 3, of article IX, are relied upon to sustain this position. It is evident that section one was intended to regulate the manner in which corporations should be created by the legislature. It provides that “ corporations, without banking powers or privileges, may be formed under general laws, but shall not be created by special act, except for municipal purposes, and in cases where, in the judgment — 227 — of the legislature, the object of the corporation cannot be attained under general laws.” But this section does not limit the power which the legislature may confer upon a corporation. It declares that they shall be created only by general laws, except when it is a municipal corporation; then it may be created by special act. The plain, obvious intent of the section is, to prevent the evils and mischiefs of special legislation ; and its object was not to restrict the legislature from conferring plenary powers upon municipal corporations. It was further objected, that towns, cities and counties are organized and created' strictly for governmental or police purposes, and that the building of railroads, and embarking in a system of internal improvements, on account of some benefits which may accrue from such works, to the citizens, is foreign to the objects, and a perversion of the powers of these corporations. I have already alluded to this objection, and I do not propose to discuss the proposition more. That it is competent for the legislature, in the absence of constitutional restrictions, to confer upon towns and cities the power to subscribe stock for railroads, has been 'generally affirmed by the courts where the question has arisen. I could add nothing to the reasoning of these cases, were I to enter upon the discussion of the question involved. The subject is very ably discussed in the decisions to which I have referred, and I am content to rest the question upon those authorities, providing our constitution does not render them inapplicable. I cannot perceive that section 3, of article XI, can possibly have any application to this case. That section makes it the duty of the legislature “ to provide for the organization of cities and incorporated villages, and to restrict their power of taxation, assessment, borrowing money, contracting debts, and loaning their credit, so as to prevent abuses” of the same.. The town of Beloit is not one of those corporations embraced within this section, as in effect, was decided in the case of228 Peck vs. Norton, 3 Wis., 714. Were this otherwise, and could it be assumed that the appellant fairly came within this provision of the constitution, the section itself would furnish the strongest argument which could be adduced, in favor of the validity of the bond, since it is a clear recognition that the corporations therein named may be clothed with this power to "borrow money,” "contract debts,” and "loan their credit.” And for what purpose do these corporations borrow money, and loan their credit? Not certainly to defray the ordinary expenses of the local government. It is only to enable them to engage in such public improvements as are deemed necessary to develop the resources of the tributary country, and increase the business, commerce and traffic of the respective localities. And the simple fact, that it was made the duty of the legislature to restrict the power of corporations in loaning their credit and borrowing money, is the strongest implication that such a power was supposed to exist, and that it would require regulation ; for certainly it would not be pretended that the legislature could restrict the exercise of a power which did not exist. But it is unnecessary to dwell upon this clause of the constitution. It in express language applies only to cities and incorporated villages; and therefore the town of Beloit cannot be considered within it. There remains to be noticed one or two clauses of article VIII, which, it is claimed, have some bearing upon the law in question. And I will merely say, in reference to the 4th and 8th clauses of that article, that like the 3d and 10th, they appear to me to relate to the state, and to a state indebtedness, or to a law directly imposing, a tax, and not to one authorizing a town to subscribe stock, if the people of such town shall vote to do so. The remarks which have already been made upon the other clauses of that article, apply to the ones now being considered. This law authorizing the super — 229 — visors of the town of Beloit to make the subscription, providing a majority of the people should vote in favor of it, did not create a state indebtedness, or impose such a tax as was contemplated by the eighth clause of this article. And the conclusion at which I have arrived upon the subject is, that the constitution of this state neither expressly, nor by any fair implication, prohibits the legislature from granting the power to towns and municipal corporations to subscribe stock for the construction of railroads in which they are interested, and to issue bonds therefor. A few subordinate points remain to be noticed. It was objected that the railroad company had no power to exchange its stock for bonds of the town of Beloit. But the act authorizing the town to subscribe the stock, was a sufficient authority to the company to receive the subscription. What legislation whs necessary to authorize the company to receivS a subscription, which the town has ample power to make? Again, it was objected, that the supervisors had no authority to make the subscription, and issue the bonds, on account of some alleged omission to comply with the provisions of chapter 12, Pr. Laws, 1853, in giving notice of the election, and canvassing the votes, &c. I am unable to discover any defect in the notice, or any such irregularity in conducting the election, or ascertaining the result, as should in any wise affect the validity of the bonds in the hands of the respondent. Indeed, the election appears to have been legally conducted ; and the circumstance that the inspectors, when they canvassed the votes, stated the result in figures, instead of writing the numbers out in full, ought' not to affect the validity of these securities. If irregularities in the election in fact existed, or if the notice was defective, the case of The Commissioners of Knox County, Indiana, vs. Aspinwall et al., 21 How., U. S. R., 539, is an authority in point'to show that such matters would not constitute a good defence in this action. — 230 — It was further objected, that the authorities of the town had no power, under the act of the legislature, to make the bonds negotiable, like commercial paper. But the authority to issue the bonds carried with it the incidental power to issue them in that form, and to give them that character usually belonging to this class of securities. Such securities are ordinarily transferable, and are more readily disposed of in market on that account. I think the supervisors had ample power to issue the bonds in the manner they did. Upon the finding of the circuit court, I have no doubt but the judgment of that court is right, and must be affirmed.