Town of Plainview v. Winona & St. Peter Railroad

Vanderburgh, J. The town of Plainview seeks to recover the value of certain bonds, issued by its officers in its behalf, and alleged to have been procured by the Plainview Eailroad Company without authority of law, and thereafter negotiated, and which the town has, in consequence, paid, or is obliged to pay, to the present owners. The case presents some novel features, and involves questions of considerable doubt and difficulty, in the solution of which the court can find but little aid from precedents. The question of the validity of these bonds was considered and determined, in the case of Harrington v. Town of Plainview, 27 Minn. 224, (6 N. W. Rep. 777,) adversely to the railroad company, and that decision must be accepted without further discussion as the law governing this case. The bonds were not issued upon the vote of the electors of the town, in pursuance of Laws 1877, c. 105, § 5, (Gen. St. 1878, c. 34, § 96,) but in pursuance of section 7 of that act, (Gen. St. 1878, c. 34, § 98,) upon a petition of a majority of the tax-payers. The proceedings to procure such bonds were initiated and prosecuted by the railway company under the act, by filing with the town clerk its proposition in writing for the issuance to it of the bonds of the town, as provided by section 4, and thereafter in securing and filing the petition of the tax-payers as directed by section 7. We have no hesitation in saying that the evidence in the case is — 511 — sufficient to uphold the finding of the trial court, that the bonds in controversy were issued to the Plainview Railroad Company, and were by its agents transferred to the Chicago & Northwestern Railway Company at their par value, and in consideration of the amount due the latter company, which had been previously advanced by the Chicago Company in aid of the eonstruction'of the Plainview Company’s road. Before the issuance of the bonds, the action above referred to was commenced, to enjoin the same, and, while the case was pending in this court, the bonds were issued and transferred. The evidence, however, does not warrant the conclusion that there was any actual fraud in the procurement or transfer of the bonds. Both railway -companies were cognizant of the pendency of the action, and of the grounds of the alleged invalidity of the bonds; but the legal questions involved were still open and in dispute, and they were advised and believed them to be legal and valid. It is affirmed by the trial court, upon sufficient evidence, that, except as appears upon the face of the bonds, Marshall & Ilsley, and others to whom they were subsequently transferred, had no notice of the suit, and were bona fide purchasers and holders for value. The Chicago & Northwestern Railway Company was a foreign corporation, and the subsequent purchasers of the bonds were and are citizens of other states. The bonds all recite on their face that they were issued in pursuance of the authority given for that purpose by the laws of the state of Minnesota, and in compliance with a resolution of the board of supervisors of the town, and also “in pursuance of a mutual agreement, which agreement was made in accordance with the laws of Minnesota, and through and by a proposition made by said railroad company,- and duly accepted by said town, upon petition therefor signed by a majority of the resident tax-payers, said agreement having been fully performed by said railroad company on its part.” This court held in the Harrington Case that an agreement, consummated by proceedings under the provisions of the statute referred to, between the railway company and the majority of the tax-payers, could not, under the constitution, be considered as the lawful agree — 512 — ment of the town, nor be of any binding obligation as such, and that bonds issued in pursuance thereof would be void, except in the hands of bona fide purchasers. 1. These bonds were invalid in the hands of the Plainview Company, and could not have been enforced by it. It was not material that the company had executed the so-called agreement on its part by building the road. It proceeded on its own motion and at its own peril. There was no agreement made with the town; for it was necessary to secure the consent of the voters, who are the contracting party in its behalf, and the supervisors are simply agents of the town to carry out an agreement duly authorized. Rochester v. Alfred Bankf 13 Wis. 432; Lawson v. Schnellen, 33 Wis. 288. The town, in its corporate capacity, has received nothing and withholds nothing. It has been guilty of no laches, has waived nothing, and there is no estoppel. It represents the public, and is itself entitled to be protected against the unauthorized acts of its own officers, when it can be done without injury to third parties. Thomas v. City of Richmond, 12 Wall. 349, 356; Town of South Ottawa v. Perkins, 94 U. S. 260. 2. In our opinion, the recitals in the bonds were sufficient to put the purchasers, Marshall & Ilsley or others, upon inquiry as respects the authority under which such bonds were entitled to be issued, and the manner in which they were in fact issued. As we construe the bonds, therefore, all purchasers are chargeable with notice of the invalidity thereof by the recitals. 3. Marshall & Ilsley, however, brought suit upon the coupons of these bonds as they matured, and recovered thereon in the circuit court of the United States for the district of Minnesota, in a sum less than $5,000, and the bonds have been duly adjudged and determined, in a trial upon the merits in that court, to be valid in their hands. For the purposes of this case we are unable to see that it is material for us to inquire into the particular grounds of the decision of that court, as the result of the judgment is, in any event, to make the bonds valid negotiable securities held by Marshall & Ilsley as bona fide purchasers. In other words, it is sufficient to say, that court differs with this court upon the question of the validity of the bonds,. — 513 — and accordingly adjudges the holders entitled to recover thereon, and notwithstanding the recitals therein. The result would be the same if that court had differed with this court on questions of fact resting upon evidence dehors the bonds, as to their execution or the bona fides of their transfer to the present holders. And the Plainview Company and defendant not having been parties to that action, this plaintiff is not estopped from litigating the questions involved in this case in the state courts. The judgment of the circuit court cannot be reviewed or modified by the state courts; and it is not questioned, as we believe, in this case, that the result of the decision and judgment of the circuit court is to fix, irrevocably, the liability of the town for the whole amount of the indebtedness evidenced by the bonds. Beloit v. Morgan, 7 Wall. 619. It must therefore be deemed to have been conclusively settled that the bonds have been transferred to parties in whose hands they have become valid and legal obligations against the plaintiff town. On the other hand, it was also conclusively determined that the bonds were void in the hands of the Plainview Company, by the judgment of this court in the Harrington Case. Upon that question the Plainview Company had its day in court in the case referred to, and the issuance and disposition of the bonds must be treated by the state courts as unlawful and wrongful; and it is immaterial that the agents of the company entertained mistaken views of their legal rights in the premises. Comstock v. Hier, 73 N. Y. 269, 275. ’ If it be conceded that these bonds, when once placed on the market, were liable to pass into the hands of purchasers who would be entitled to enforce the same as valid negotiable securities in the United States courts, as the result in this case has proved, it must necessarily follow, we think, that plaintiff has a cause of action for damages. Of course, the extent of the injury would depend upon the result of the negotiation of the Securities, -and in any particular case courts might differ in their determination of the question whether or not the purchasers were bona fide holders, upon evidence either dehors, or appearing on the face of the instruments. If these bonds had not indicated the provisions of the statute under which they were issued, the plaintiff would have been entitled to an — 514 — injunction to restrain the negotiation thereof, and if negotiated in the same manner aB they have been, and purchased by the same parties, plaintiff’s right of action for the face value of the bonds and interest would be unquestioned. Comstock v. Hier, supra; Thayer v. Manley, 73 N. Y. 305. But in their practical results, the case supposed and the case at bar are alike. The Plainview Company transferred the same for full value in payment for moneys advanced for building the road, and Marshall & Ilsley paid nearly par for them. They were treated by all parties as valuable commercial securities, placed on the market and sold, and enforced as such against the plaintiff. If the bonds are invalid, and the Plainview Company acquired no title to them as obligations of the town, upon what principle can it claim to be entitled to the proceeds as its property ? In Comstock v. Hier, supra, the court say: “It would be illogical, conceding the invalidity of the note in the hands of the defendants, .and the non-liability of the plaintiff to them, to hold that the defendants would acquire a title to the proceeds of the note by a transfer of the same to a third person. A party cannot fortify his title to property by a sale, as the title to proceeds upon sale will be the same as vto the property before sale. I am of the opinion that the plaintiff had an election of remedies, — trover for the conversion of the note, or an action for money had and received, for the amount whieh the defendants realized upon the sale of the note. This follows from the conceded rule that the defendants were without title to the note, or authority to dispose of the same.” In Chit. Bills, '*251, the author says: “Where a note or bill was void in its creation, the party entitled to the instrument may maintain an action of detinue or trover to recover the same or its value, or assumpsit for money had and received, if the proceeds of the bill have been received.” And in Lamb v. Clark, 5 Pick. 193, 197, the court say: “There are eases where an injured party may have his election of remedies, as where there has been a tortious taking of his property, he may bring trespass or trover, or he may waive both, and bring assumpsit for the proceeds when it has been converted into money.” In such case the maker is regarded as the party entitled to the note, as against the holder, whose transfer of the same is liable to — 515 — work an injury to the former, by imposing on him a liability which could not be enforced by the payee, so as to validate that which was before unlawful or unauthorized. And there appears to be no question that, where a person has wrongfully obtained possession of the property of another, and has sold and received the money for it, the real owner may waive the tort, and bring an action for money had and received; he has his election to sue for a conversion, or he may affirm the transaction, and recover of the wrong-doer for the proceeds, in which case the title to the property sold will be confirmed in the purchaser. Solutio pretii emptionis loco habetur. Lamb v. Clark, 5 Pick. 193; 4 Wait, Act. & Def. 472-475, and cases. In this case, since the Plainview Company received the full face value of the bonds, the amount of the recovery, if any is had, would be the'same in either form of action, and the allegations of the complaint and findings of fact are sufficient to support the action in either form. The title to the bonds has been confirmed in the present holders, and they have recovered, or will recover, the full amount thereof; and the liability of the town has been fixed through the acts of the Plainview Company in procuring and negotiating the same, which acts this court holds to have been unauthorized and wrongful. Upon what theory, then, can that corporation claim, either that it should be exempted from the consequences of such acts, or that it is entitled to retain the proceeds of the bonds ? They are in form the bonds of the town, and were procured, held, and negotiated as its obligations, and were treated as negotiable securities, and set afloat as such; and that such proceedings should result in their enforcement must be presumed to have been intended and contemplated by the company, either in its own hands, or by purchasers who might occupy a more advantageous position; and it will not be permitted to object that the bonds are of no value, or allege its own wrong, for the purpose of defeating this action. Comstock v. Hier, 73 N. Y. 269, 276; Lamb v. Clark, supra. Had that company brought suit upon the bonds, the whole controversy would have been settled in one action; but the plaintiff is not estopped by the result of the suit of Marshall & Ilsley, to which the Plainview Company was not a party, and is not, therefore, concluded by the determination in that ease. — 516 — 4. The Winona & St. Peter Railroad is made defendant, because it has purchased and succeeded to all the rights of the Plainview Railroad Company, in pursuance of Sp. Laws 1881, c. 414, under which it was authorized to make such purchase, “subject to all demands, claims, and rights of action against said Plainview Company, arising out of the latter company’s having heretofore obtained and disposed of certain bonds and coupons, purporting to have been issued by the towns of Plainview and Elgin to said Plainview Railway Company,” etc. The purchasing company acquired the property and franchises o:: the Plainview Company by virtue of that act, and, of course, too i the grant cum onere, and subject to the provisions and conditions cf the act. Chicago, etc., Ry. Co. v. Lundstrom, 16 Neb. 254, (20 N. W. Rep. 198.) We are of the opinion that the plaintiff was entitled to recover, and that the order denying a new trial should be affirmed. Berry, J., concurs.