City of Ottawa v. Carey/Opinion of the Court

by Morrison Waite

United States Supreme Court

108 U.S. 110

City of Ottawa  v.  Carey

This is a suit to recover upon bonds issued by the city of Ottawa, Illinois, as a donation to aid in the improvement of the water-power upon the Fox and Illinois rivers within the city, or in its immediate vicinity. Other bonds of the same issue were involved in Hackett v. Ottawa, 99 U.S. 86, and Ottawa v. First Nat. Bank of Portsmouth, 105 U.S. 342, where it was held, in substance, that, as there was legislative authority to issue bonds for municipal purposes, and it was recited in the bonds then sued on that they were issued for such purposes, the city was estopped from proving, as against bona fide holders, that the recitals were untrue. Neither Hackett nor the bank had any knowledge of the precise purposes for which the bonds were issued, and it was adjudged that they had the right to rely on what was recited. The facts on which this case rests are, in brief, these:

The city of Ottawa was incorporated as a city in Illinois on the tenth of February, 1853, and given the ordinary powers of municipal corporations of that class for local government. It was specially authorized 'to provide the city with water, to erect hydrants and pumps in the streets for the convenience of its inhabitants,' and, upon a vote of the people, 'to borrow money on the credit of the city, and to issue bonds therefor, and pledge the revenue of the city for the payment thereof.' Our attention has not been called to any other provision of the charter as having a bearing on the questions to be considered.

In February, 1851, the Ottawa Manufacturing Company was incorporated by the general assembly of Illinois to build a dam across the Fox river for the purpose of creating a water-power to be leased and used. On the sixteenth of February, 1865, the charter of this company was amended so as to authorize the building of a dam across the Illinois river, and a race to bring the water from that river into the pool of the dam across the Fox.

On the nineteenth of February, 1867, the general assembly passed an act purporting to constitute a board of commissioners to subscribe $100,000 to the capital stock of the manufacturing company for and on behalf of the city, and to pay the subscription by an issue of the bonds of the city. No subscription was ever made under this authority, and we understand the counsel for the defendant in error to concede that the act itself was unconstitutional.

On the fifteenth of June, 1869, an ordinance was passed by the city submitting to the voters, at an election to be held on the twentieth of the same month, the question whether the council should borrow $60,000 on the bonds of the city to be 'expended in developing the natural advantages of the city for manufacturing purposes.' This election was held, and resulted in a vote by a majority of the legal voters in favor of the project. Thereupon, the city, on the thirtieth of July, 1869, passed another ordinance, directing the mayor to issue the bonds and deliver them to William H. W. Cushman, 'to be used by him in developing the natural resources and surroundings of the city,' and authorizing and directing him 'to expand the same in the improvement of the water-power upon the Illinois and Fox rivers, within the city and in the immediate vicinity thereof, under the franchises and powers which have been granted for that purpose by the legislature of the state, or which may hereafter be granted for that purpose, in the manner which, in his judgment, shall best secure the practical and permanent use of said power in the city and its immediate vicinity.'

Under this ordinance the bonds were issued and delivered to Cushman on the second of August, 1869, as a donation to aid the city in securing the contemplated water-power, he agreeing in writing to cause the necessary works to be completed in the two rivers within a reasonable time, and, if not, to return the bonds, or a part thereof, according to the special provisions of the contract. No arrangements were made or contemplated for providing the city with water.

Cushman was one of the original corporators of the manufacturing company, and a director at the time the bonds were issued to him, and he, on the eleventh of March, 1871, delivered them to the company 'to be used by said company for the purpose of making the improvement hereinbefore mentioned, without further consideration.' During the month of June, 1871, the company sold and delivered the bonds involved in this suit to Lester H. Eames, a citizen of Ottawa, for their face value and part of the interest which had accrued after August, 1870. When Eames made his purchase and paid for the bonds he knew they had been issued as a donation to aid in the completion of the improvement contemplated in the contract with Cushman, and was cognizant of all the proceedings of the council in reference thereto. He also knew of the contract with Cushman. In November, 1879, after the bonds fell due, Eames sold them to William H. Carey, the plaintiff below, who paid value for them, with full knowledge of all that was known by Eames about their issue.

Upon these facts, found by the court and set forth in the record, judgment was rendered against the city and in favor of Carey for $72,814.76. To reverse that judgment this writ of error has been brought.

This case differs from those of Hackett and the First Nat. Bank of Portsmouth, supra, in that Carey cannot claim protection as a bona fide holder, while Hackett and the bank could. Neither Carey, nor Eames, nor the manufacturing company, nor Cushman were purchasers without notice. Carey and Eames both paid value, but Carey bought after maturity, and it is expressly found that both he and Eames had actual knowledge of the purposes for which the bonds were issued and of the contract with Cushman. Under the circumstances of this case the manufacturing company is chargeable with knowledge of all the facts known to Cushman, one of its directors and the original contractor with the city. The questions then to be considered are such as may arise between the city and a purchaser for value from Cushman with full knowledge of all the facts affecting the validity of the bonds at their inception.

In Illinois, under the constitution of the state, the corporate authorities of cities cannot be invested with power to levy and collect taxes except for corporate purposes. This has long been settled. Weightman v. Clark, 103 U.S. 259, and numerous Illinois cases there cited. What may be made a corporate purpose is not always easy to decide, but it has never been supposed that if legislative authority had not been granted to a municipal corporation to do a particular thing, that thing could be a purpose of that corporation.

Municipal corporations are created to aid the state government in the regulation and administration of local affairs. They have only such powers of government as are expressly granted them, or such as are necessary to carry into effect those that are granted. No powers can be implied except such as are essential to the objects and purposes of the corporation as created and established. 1 Dill. Mun. Corp. § 89, (3d Ed.) and cases there cited. To the extent of their authority they can bind the people and the property subject to their regulation and governmental control by what they do, but beyond their corporate powers their acts are of no effect.

It is not claimed that express authority was given the city of Ottawa to develop, or aid in developing, the natural advantages of its rivers for manufacturing purposes, and what we are now called on to decide is not whether, if such a power had been given, it would be within the general scope of the purposes of a city government, and thus a corporate purpose, within the meaning of that term as used in the constitution, but whether it has been granted by the legislature. Much is said by the supreme court of Illinois in Taylor v. Thompson, 42 Ill. 11; Chicago, D. & V. R. Co. v. Smith, 62 Ill. 268; People v. Depuyt, 71 Ill. 655; Burr v. City of Carbondale, 76 Ill. 455; People v. Trustees of Schools, 78 Ill. 137; Quincy, M. & P. R. Co. v. Morris, 84 Ill. 410; Hensley v. People, Id. 544, and other cases of like character, as to what may be made a corporate purpose, but these were all cases in which the legislative department of the government had undertaken to grant a power, and the question was whether the power was one that could rightfully be made a purpose of a municipal corporation. No matter how much authority there may be in the legislature to grant a particular power, if the grant has not been made the city cannot act under it.

As power in a municipal corporation to borrow money and issue bonds therefor implies power to levy a tax for the payment of the obligation that is incurred, unless the contrary clearly appears, (Ralls Co. v. U.S. 105 U.S. 733,) it follows that the power contained in the charter to borrow money did not authorize the issue of the bonds in this case, unless they were issued for a corporate purpose, there being a constitutional prohibition against taxation by the city, except for corporate purposes. The question, then, is whether the city has been invested with power to raise money by public taxation to be donated to private persons or private corporations as a bonus for developing the water-power in the city or its vicinity for manufacturing purposes.

The charter confers all the powers usually granted to a city for the purposes of local government, but that has never been supposed of itself to authorize taxes for everything which, in the opinion of the city authorities, would 'promote the general prosperity and welfare of the municipality.' Undoubtedly, the development of the water-power in the rivers that traverse the city would add to the commerce and wealth of the citizens, but certainly power to govern the city does not imply power to expend the public money to make the water in the rivers available for manufacturing purposes. It is because railroads are supposed to add to the general prosperity that municipalities are given power to aid in their construction by subscriptions to capital stock or donations to the corporation engaged in their construction, but in all the vast numbers of cases involving such subscriptions and donations that have come before this court for adjudication since Com'rs of Knox Co. v. Aspinwall, decided 25 years ago, and reported in 21 How. 539, it has never been supposed that the power to govern of itself implied power to make such subscriptions or such donations. On the contrary, it has been over and over again held, and as often as the question was presented, that unless the specific power was granted, all such subscriptions and all such donations, as well as the corporate bonds issued for their payment, were absolutely void, even as against bona fide holders of the bonds. Thompson v. Lee Co. 3 Wall. 330; Marsh v. Fulton Co. 10 Wall. 676; St. Joseph's Township v. Rogers, 16 Wall. 659; McClure v. Township of Osgood, 94 U.S. 432; Wells v. Sup'rs, 102 U.S. 630; Allen v. Louisiana, 103 U.S. 86.

In the present case there is nothing whatever to indicate any special authority in this city to pay a bonus for the work that was to be done. It did have power to provide the city with water, but there is nowhere anything looking to such a purpose in this transaction. The object here was to bring the water into use as power, to be leased or sold at reasonable rates. An attempt was made by the legislature to authorize a subscription to the stock of the manufacturing company, but that was of no avail, because in the form adopted the legislation was confessedly unconstitutional. The charter, therefore, stands the same as though no such attempt had been made, and what was done did not create a corporate purpose to effect an improvement of the power. But even if there had been power to subscribe to the stock, it would not follow there was power to make a donation by way of a bonus to the company to aid in the improvement. In Chicago, D. & V. R. Co. v. Smith, supra, it was indeed said that the distinction between a donation to aid a company and a subscription to its stock 'was more apparent than real,' but that was said in reference to the question of making subscriptions and donations for corporate purposes, and not with reference to the effect of a power to subscribe as conferring a power to donate. In no case to which our attention has been called has it been held that a power to subscribe stock would of itself authorize a donation.

The case of Hickling v. Wilson, decided by the supreme court of Illinois in June of last year, and reported in 104 Ill. 54, is relied upon in support of this judgment. That was a suit by a creditor of the manufacturing company against the stockholders to collect his debt. The city was not a party, and its liability was in no way involved. In the opinion, as published in the official report of the case, it was not even assumed that there was corporate power to issue the bonds.

The present case was submitted at the last term, and at a former day in this term a decision was announced reversing the judgment, but in the opinion reasons were assigned for the reversal different from those now given.** That judgment was afterwards, upon application for a rehearing, set aside and a reargument ordered. Upon further consideration of the whole case, we prefer to rest the decision on the ground that as between Cushman and the city the bonds in question were illegal and void, and as the present holder occupies no better position than Cushman, he and all those under whom he claims having bought with full knowledge of all the facts, the judgment should have been in favor of the city.

The judgment of the circuit court is consequently again reversed and the cause remanded, with instructions to enter another judgment in favor of the city on the facts found.

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