Jarrott v. Moberly

DILLON, Circuit Judge. This case presents a new question in respect to municipal bonds. The bonds recite that they were issued under the act of March IS, 1S70 (Laws 1870, p. 163), in pursuance of an election held March 26, 1872, which was prior to the act of March 29, 1872 (Laws 1872, p. 176), amending the first-mentioned act. This last-named act, of March 29, 1872, has, therefore, no application to the bonds now in suit, and is immaterial, except in so far as it may be regarded as a legislative confession that the original act, authorizing a majority of the qualified voters to create such a debt as the act contemplated, was in conflict with the constitutional provision requiring the assent of two-thirds of the qualified voters. Const. 1865, art. 11, § 14. The bonds in question recite that they are “issued in pursuance of an election held in said town on the 26th day of March, 1872. to decide whether the said town should purchase and donate to the St. Louis, Kansas City, and Northern Railway Company two hundred acres of land for machine shop purposes.” etc., in accordance with the said act of March IS, 1870. The purchasers of the bonds are, of course, charged with notice of the facts [367] therein stated. Harshman v. Bates Co., 92 U. S. 569. They knew, therefore, the date of the election, the act under which and the purpose for which the bonds were issued. The demurrer presents two questions: 1st The first question is, whether the particular purpose for which these bonds were issued, viz., for “the purpose of assisting and inducing the railroad company to locate and build machine shops upon the land” purchased by the city and donated to the company, is a public purpose in such a sense as to justify compulsory taxation to pay the debt thus incurred. If such aid had been given to an individual or to a private company proposing to erect shops for manufacturing or repairing machinery, the act would fall within the principles declared and established by the supreme court of the United States in the Iola and Topeka Cases, and would be void. Loan Ass’n v. Topeka, 20 Wall. [87 U. S.] 655; Commercial Nat. Bank v. Iola [Case No. 3,061]; Savings Ass’n v. Topeka [Id. 2,734]. The supreme court, there hold that a statute which authorizes the issue of bonds, to be paid by taxation, to aid individuals or private corporations to establish or carry on manufacturing enterprises, is void, because the taxation is not for a public purpose, although, in a remote or collateral way, the local public may be benefited thereby. Same principle: Lowell v. Boston, 111 Mass. 454; Allen v. Jay, 60 Me. 124. But, as it is settled law in Missouri that aid of this character can be constitutionally given to railroad companies, it would seem to follow that if machine shops are an integral or essential part of a railroad, or necessary for its convenient use and operation (as on this demurrer we ought to assume them to be), then the act of March 18, 1870, under which the bonds in question were issued, is not void within the doctrine of the Iola and Topeka Cases. 2d. The next question is whether the act of March IS, 1S70, is in conflict .with section 14 of article 11 of the state constitution of 1865. That section provides that “the general assembly shall not authorize any county, city, or town to become a stockholder in or to loan its credit to any company, association, or corporation, unless two-thirds of the qualified voters of such county, city, or town, at a regular or special election to be held therein, shall assent thereto.” The act of March IS, 1870, under which these bonds were issued, authorized the municipalities therein mentioned to purchase lands and donate, lease, or sell the same to a railroad company as a means of inducing it to locate and build its machine shops on the lands, and assisting it to do so, and for this purpose, to issue its bonds, to be paid by taxation, on the sanction of a majority vote. In the present suit, the bonds recite that the lands were to be purchased by the city and paid for in bonds, and donated to the railroad company; and this, the case of a purchase on credit and a donation, is the precise case now presented for judgment If this is a “loan of the credit” of the town to the railroad company, the bonds are void, because the act which authorizes this to be done on a majority vote is in conflict with the constitution, which, in such a case, expressly requires the sanction of a two-thirds vote. What, then, is a “loan of municipal credit” to a railroad company within the meaning of this provision of the constitution? The provision of the constitution confessedly had its origin in the abuses and frauds which had, prior to 1865, been seen to grow out of the unlimited power of the legislature over the subject. Literally, scores of charters and acts had been passed, authorizing county justices and municipal bodies to subscribe for stock in railways, and to issue bonds without limit as to amount, and without the sanction of the people to be affected. The plain purpose of the constitution was to prevent or check this in the future, by the provision that municipalities • shall not be permitted to incur debts in aid of railways, to be paid by taxation, unless two-thirds of the qualified voters of the municipality should formally assent thereto. The constitution enumerates cities, counties, and towns (the only incorporated public or municipal bodies known to the laws of Missouri), and extended the prohibition to all of them; and it has been held to extend to townships, although not named in the constitutional provision. Harshman v. Bates Co., 92 U. S. 568; Jordan v. Cass County [Case No. 7,517]. As counties, cities, and towns had and could have no cofisiderable funds applicable to such purposes, unless procured on credit, the convention doubtless supposed that a provision that they should not become stockholders in any corporation, or loan their credit* to any corporation, without a two-thirds vote, would effectually accomplish the purpose in view, viz., to prevent public debts from being created for the benefit of railway corporations without the previous approval of two-thirds of the voters on whom the consequent taxation would fall. Constitutional provisions are usually expressed in general terms, and do not descend to the detail often necessary in legislative enactments, and they are intended to secure some essential right, or to prevent wrongs or injuries or abuses. Such provisions are protective and remedial, and are not to be construed with the strictness of penal statutes, but with reference to the public ends sought to be protected or secured. The mischief felt by the constitu [368] tional convention of 1865 was that, in the absence of constitutional restriction, the legislature had conferred upon public and municipal officers unguarded powers of dangerous extent, the sting of the evil being the creation of burdensome debts to be paid by taxation. The remedy applied was that for the future municipalities should not be allowed to become stockholders in private corporations (which involves the necessity of paying for the stock), or to loan their credit to such corporations (which involves the creating of a debt for the benefit of such corporations), and both involve the necessity of taxation, unless two-thirds of the qualified voters should assent thereto. If the act of March 18, 1870, which only requires the assent of a majority, is valid, it would have been equally valid if the like power had been conferred without requiring any vote whatever. So that the real question is, whether what was done by the defendant city, as recited in the bonds, was the loan of its credit to the railway corporation within the meaning of the constitutional provision in this regard. If the bonds in suit had been executed and delivered directly to the railroad company, as the consideration for its agreement to locate its machine shops within the town, then, on the only assumption on which the bonds can be sustained, viz., that such shops are part of the railroad, or necessary for its use, would not the execution and delivery of such bonds to the railway company be the loaning by the town of its credit to the company? It is not different in essence, and particularly in view of the object of the constitu-' tion, viz., to prevent taxing the people without the required consent, that the town sells its own bonds and gives to the company the proceeds, instead of the bonds themselves. The bonds in question, if valid, create a debt against the defendanf city for the benefit of a railroad corporation, and are thus within the mischief or evil which the constitution aimed to remedy. Why, then, should not the constitutional provision be held applicable to these bonds? It cannot be maintained on solid grounds that the barrier of a two-thirds vote, weak and ineffectual as it has proved to be, can be evaded by a mere change of the form of the aid — that is, by giving the aid in the shape of a donation of the proceeds of credit, instead of a subscription for stock, or, instead, giving the bonds directly to the company. which the municipality desires to assist In my judgment, a municipality “loans its credit” to a railway company, within the meaning of the constitutional provision here involved, whenever it issues its bonds to assist such company in building its road, or any part of it, or to assist it in erecting shops which are necessary or useful in operating its road. Taylor v. Ross Co., 23 Ohio St. 22, 76, 79; Pennsylvania R. Co. v. Philadelphia, 47 Pa. St. 189, 194. This • viewT has a direct and strong support in the judgment of the supreme court, of the state in the Phelps Co. Case, construing this constitutional provision. State v. Curators of State University, 57 Mo. 178. It was there held that the legislature could not authorize a county to issue its bonds to secure the establishment of a public school of mines within its limits, unless the proposition was assented to by a vote of two-thirds of the voters. Napton, J., delivering the opinion of the court, inquires: “What was the object of the (constitutional) restriction on county courts, city and town municipalities?” And he answers: “The object was plainly to prevent them from taxing the people without their consent.” The subsequent case, in relation to Forest Park (County Court v. Griswold, 58 Mo. 175), is not considered by the supreme court as inconsistent with the Phelps Co. -Case, above referred to. It is my judgment that the act under which the bonds in question were issued is in conflict with the constitution, and, hence, that the bonds are void, in whosesoever hands they may be. I should have so declared without much hesitation if the question had arisen on an application to enjoin the issue of the bonds. I feel the increased difficulty of so holding in a case where the bonds have been issued upon a vote almost unanimous and afterwards negotiated for value, and where purchasers in actual good faith will be the sufferers if my view is sustained. I desire to add that I am not insensible to the force of the argument so fully presented by Judge Krekel in support of the opposite conclusion, and I cannot but feel more than the usual distrust of my own judgment when it differs from his on a question of local law, and particularly on a question as to the meaning of a provision of the constitution of the state which he, as the president of the convention, assisted to frame. Fortunately, the result of this difference of opinion is that it will enable the judgment of this court to go for revision to the supreme court, which could not otherwise be done, in consequence of the amount involved not being sufficient. The demurrer will be sustained, and judgment will be entered for the defendant. If desired, we will join in a certificate of division to the supreme court. Judgment accordingly.