Coquard v. Village of Oquawka

Mr. Justice Carter delivered the opinion of the court: The question is presented by this record whether the defendant, as a municipal corporation, had any power to make and issue the bonds sued on. The question is not one of mere irregularity, but of power, and consequently it is immaterial to the decision of the case what was the consideration of the bonds or what the status of the holder, for it must be conceded that municipal corporations, organized, as they are, for restricted governmental purposes, have no power to issue commercial paper unless such power has been conferred by statute, and without such power such paper is void, even in the hands of an innocent holder for value before maturity. These bonds were issued, and so purported on their face, under an act of the legislature entitled “An act relating to county and city debts, and to provide for the payment thereof by taxation in such counties and cities.” (Rev. Stat. 1874, p. 789.) Section 1 provides: “In all cases where counties or cities have heretofore, under any law of this State, issued bonds or securities for money on account of any subscription to the capital stock of any railroad company, or on account of, or in aid of, any public improvement, and the same remain outstanding, or any debt arising thereout remains unpaid, the board of supervisors or county court of such county, and the city council or municipal authority of such city, as the cáse may be, having issued such bonds or securities, may, upon due surrender of any such bonds or securities, or cancellation of such debt, issue in place thereof to the holder or owner, new bonds, in such form, for such amount, upon such time, and drawing such interest as may be agreed upon with the holder or owner: Provided, such new bonds shall not be for a greater sum than the principal and accrued or earned interest unpaid of the . bonds or debts in place of which they shall be given, nor bear a greater rate of interest than six per cent per annum, payable on the first day of July in each year; and such bonds shall show on their face that they are issued under this act, and, if so agreed, may provide for payment of five per cent of the principal thereof, annually, until fully paid.” Section 9 provides: “If it shall be deemed advisable, any such county or city may issue such new bonds for the purpose alone of satisfying or taking up their respective bonds or debts.” It will be observed that the act, by section 1, was limited by its terms to counties and cities which had before its passage issued bonds, etc., and section 9 does not broaden the act so.as to include any municipal corporation other than such counties and cities as had theretofore become indebted. When passed it had no application to towns or to villages, nor to cities generally, but was confined to counties and cities which had theretofore become indebted. Ho municipality could be brought within its provision bjr changing its,form to that of a city. Without considering the alleged illegality of the incorporation of the town in 1871 as a city, the act no more applied to the city so organized after the act went into force than it did to the town superseded by such city. This court said in People v. Lippincott, 81 Ill. 193, that “the first section of the act by express terms limits its operation to debts created previously to the passage of the act;” and further, that the act limited the right to refund to counties and cities; that it “applies to only a comparatively small class of bonds,—those issued by counties and cities prior to February 13, 1865.” This is apparent from the language of the act. No room is left for interpretation or construction. The same conclusion was reached by the United States Circuit Court of Appeals for the Seventh Circuit, in Village of Oquawka v. Graves, 82 Fed. Rep. 568, in a suit on some of the same series of bonds sued on in this case, and it was there further held that the power to issue refunding negotiable bonds does not exist in a municipal corporation as of course, merely because it is indebted. This brings us to the second proposition of plaintiff in error, that the town or city had the power to compromise, settle, take up and cancel the original bonds constituting an outstanding indebtedness against it, and to issue in lieu or payment thereof new bonds, negotiable, interest-bearing- securities, payable at a future date, and this without statutory authority. That it had the power to settle and pay its debts which it had been authorized to create, and to take up and cancel its bonds which it had been authorized to issue, cannot be doubted; but it does not necessarily follow that the power to issue new, or refunding, negotiable bonds in the place of ^nd to take up the old cau also be implied. If it can, then, against the policy of our laws and without legislative authority, a municipal debt may forever be kept alive, and the municipality be subjected to the many disabilities and hardships which the law imposes on the makers of negotiable instruments when such instruments are held by innocent holders for value before maturity. Section 12 of article 9 of the constitution of 1870 provides that any municipal corporation incurring any indebtedness shall, before or at the time of doing so, provide for the collection of a direct annual tax sufficient to pay the interest on such debt as it falls due, and also to pay and .discharge the principal thereof within twenty years from the time of contracting the same. It is not meant to be said that this provision of the constitution was violated by the issue of the bonds in question, but only that it is thus indicated that it is against the policy of our laws that municipal corporations should, at their pleasure or convenience, exercise the mere implied power of issuing- and putting upon the market negotiable securities, even though they are issued to refund an outstanding indebtedness of unquestioned validity. This is also indicated by various acts of the legislature authorizing such corporate bodies to refund their indebtedness and to issue new bonds therefor, under such restrictions as are imposed by such acts. Thus, the act of March 26, 1872, (Gross’ Stat. p. 115,) and the act of 1877 amending the said act of 1865, recite, in substance, that certain municipalities in this State have outstanding bonds and other evidences of indebtedness due or soon to fall due, and that such municipalities were without authority to refund or renew the same. But it so happened that no statute authorizing any such refunding and issuing of refunding bonds applied to the town or city of Oquawka, and we are of the opinion that such power cannot be implied merely from its ordinary powers as a municipal corporation, or from its power conferred by statute to issue the original bonds. Merrill v. Monticello, 138 U. S. 673; Brenham v. Bank, 144 id. 173; County of Hardin v. Mc-Farlan, 82 Ill. 133; Locke v. Davison, 111 id. 19. Counsel for plaintiff in error refers us to cases in other jurisdictions holding a contrary doctrine, and to cases decided by this court containing expressions also at variance with the view here taken. We are referred to City of Quincy v. Warfield, 25 Ill. 279, as sustaining his conten: tion. But in that case it was expressly said that while no express power is granted to issue a bond for and in lieu of an over-due bond, the general power to issue bonds within certain fixed limits was expressly given by the charter of the city and without any regard to the purpose. It therefore appeared in that case that the charter authorized the issue of the bonds sued on. The next case cited is City of Galena v. Corwith, 48 Ill. 423. But in that case the city was authorized by its charter to borrow money as it might deem necessary, not exceeding $20,000 in any one year, and to issue bonds, scrip or certificates therefor, to be used in liquidation of the debts of the city and for permanent and useful improvements. ■ It seems clear that the city of Galena was authorized by its charter to issue the bonds sued on, and although language was used in the opinion sustaining the view of plaintiff in error, the case is not one where a recovery was had on refunding bonds issued without authority given for that purpose. In County of Hardin v. McFarlan, 82 Ill. 138, this court, speaking by the same judge who delivered the opinion in City of Galena v. Corwith, (the late Justice Breese,) said: “It was held in Commissioners of Highways v. Newell, 80 Ill. 587, that more was said in that case (City of Galena v. Corwith) than the subject justified, and that it needed modification, confining it to cases where the charter of incorporation expressly grants a power, for a corporation cannot exercise any powers save those granted or necessarily implied, in order to carry into effect a granted power.” This court, as well as the Supreme Court of the United States, has quoted with approval the rule laid down by Judge Dillon in his work on Municipal Corporations, that “a municipal corporation possesses and can exercise the following powers and no others: First, those granted in express words;' second, those necessarily or fairly implied in or incident to the powers expressly granted; third, those essential to the declared objects and purposes of the corporation,—not simply convenient, but indispensable.” (Cook County v. McCrea, 93 Ill. 236; Huesing v. City of Rock Island, 128 id. 465; Merrill v. Monticello, supra.) “Any reasonable doubt concerning the existence of power is resolved by the courts against the corporation, and the power is denied.” See, also, Marsh v. Fulton, 10 Wall. 676; Ottawa v. Carey, 108 U. S. 110; Jonesboro v. Cairo, 110 id. 192; Kelly v. Milan, 127 id. 139. In view of what has been said, we think the power to issue new negotiable bonds, having the incidents of commercial paper, to take the place of a former issue, cannot be implied merely from the power originally conferred authorizing such former issue. It is usual, and is now required by the constitution of this State, that, provision be made for a tax to pay the interest and the principal of the debt when due. Such provisions, in the absence of statutory authority to renew, would seem to. negative the implication of power to re-issue, as contended for. As bearing" upon this'question plaintiff in error cites also Kane v. City of Charleston, 161 Ill. 179, where, as applicable to the case then before the court, we said (p. 185): “It is also a matter of public interest that oppressive taxation should, as far as possible, be avoided, and if, in the judgment of the city council, the emergency which has here arisen can be met with less inconvenience and with less oppression by issuing bonds bearing the lower rate of interest, to mature in the future, than by levying a tax to be collected in a single year, we see no reason why, from the standpoint of public policy, it might not be allowed to do so. It was said in City of Quincy v. Warfield, 25 Ill. 279: ‘It is true, the provisions of the charter authorizing the issuing of bonds do contemplate that the city council will provide, by taxation, for their payment when due * * * and establish a sinking fund for that purpose, and doubtless that is the true policy. ’ Nevertheless, it was held in that case that the failure to perform that duty did not deprive the city council of the power to issue a new bond in payment of the old, if not prepared to pay it at maturity.” But in that case (Kane v. City of Charleston) express authority to refund and issue new bonds had been Conferred by statute, and the question was whether the statute was constitutional or not,—a question altogether different from the one presented in this case; and what was said as to the holding in City of Quincy v. Warfield, supra, that the failure of the city to pay did not deprive it of the power to issue a new bond in payment of the old, had reference to a case where the city had the power, by virtue of its charter, to issue bonds generally, without regard to the purpose, and therefore to issue the new or refunding' bonds. We are unable to find in it any authority for the proposition that from the mere power to subscribe to the capital stock of a corporation' and to issue certain bonds therefor or in aid of it, continued power is to be implied to issue and re-issue its interest-bearing bonds, negotiable in the mercantile world, to take the place of the bonds originally authorized, vhe question is not one of power to pay or to execute a written promise to pay, but of a continuing power to make and issue commercial paper. Counsel cites also Smith v. Peoria County, 59 Ill. 412, Bissell v. City of Kankakee, 64 id. 249, Burr v. City of Carbondale, 76 id. 455, and others, which refer to City of Galena v. Corwith as authority. As has before been said, it is not the decision of that case, but certain language of the opinion, which we have held should be modified; otherwise it is not in conflict with the views we have expressed in this case. In Hewitt v. Normal School District, 94 Ill. 528, this court said (p. 531): “Municipal corporations are not usually endowed with power to enter into traffic or general business, and are only created as auxiliaries to the government in carrying into effect some special governmental policy, or to aid in preserving the order and in promoting the well-being of the locality over which their authority extends. * * * Being created for governmental purposes, the borrowing of money, the purchase of property on time and the giving of commercial paper are not inherent or even powers usually conferred, and unless endowed with such power in their charters they have no authority to make and place on the market such paper, and persons dealing in it must see that the power exists. This has long been the rule of this court. [Citing cases.] We might refer to other cases where it has beeri held that bonds issued without authority are void, even in the hands of purchasers before maturity and without actual notice.” Counsel, however, insists, that if defendant in error did not have the inherent power, as a municipal corporation or by virtue of the act of 1865, to issue the bonds sued on, it had power under the act of April 16, 1869. We do not think so. Without setting out the lengthy provisions of this act, confined, as they are, to bonds issued in aid of railroads, it is sufficient to say that they do not, in our opinion, apply to the bonds issued by the defendant in error. Besides, the bonds on their face stated that they were issued under the act of 1865, the provisions of which were printed in full on said bonds, and in accordance with which they were registered in the Auditor’s office. Then, again, the declaration alleges they were issued under the act of 1865. The next contention is, that a recovery should have been allowed on the common counts on the original bonds or indebtedness. But said original bonds and indebtedness became due in 1871, and the Statute of Limitations having been pleaded, the action was barred before the suit was brought. In the next place, the defendant in error was never indebted to the plaintiff in error unless indebted to him as assignee of .the bonds sued on, and never promised to pay him except as the holder of a negotiable bond payable to bearer. The original transactions were not had with nor were the bonds sued on issued or delivered to him or the written adjustment made with him, hence he cannot recover under the common counts in this action. The judgment of the Appellate Court will be affirmed. Judgment affirmed.