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Statement of the Case.
instruments because they were never executed in compliance with the peremptory requirements of the statute;
(6) That if the railroad company had any cause of action against the township by reason of these facts, it was barred at law by the statute of limitations of the State of Michigan;
(7) That by reason of laches in pursuing the remedy, the bar at law could be set up and maintained in equity.
The constitutionality of the act of the legislature of Michigan of March 22, 1869, which is considered in this case, was fully settled in the case of Taylor v. Ypsilanti, 105 U. S. 60, to which the court adheres.
On the 24th of February, 1885, the appellant exhibited, in the Circuit Court of the United States for the Eastern District of Michigan, his bill, in the nature of a creditor's bill, against the appellees.
The bill averred that, on the 12th of November, 1884, the appellant obtained a judgment against the railroad company for the sum of $355,865.24; that an execution upon the judg ment was issued, and was returned "nulla bona;" that the judgment was still unpaid; and that the railroad company was a corporation, organized on the 28th of August, 1868, by a consolidation of two companies - one organized under the laws of Michigan, and the other under those of Indiana, which consolidated company was itself, on October 8, 1880, again consolidated with the St. Joseph Valley Railroad Company, retaining, however, its name of the Michigan Air Line Railroad Company.
The bill also alleged that after the first consolidation as aforesaid, and on the 22d of March, 1869, the legislature of Michigan passed "An act to enable any township, city or village to pledge its aid, by loan or donation, to any railroad company now chartered or organized, or that may hereafter be organized, under and by virtue of the laws of the State of Michigan, in the construction of its road." Said act authorized the issue of aid bonds. In its fifth and sixth sections it provided as follows:
"SEC. 5. Whenever any such bonds as provided by provisions of this act shall have been issued as therein specified, the same shall be delivered by the person, persons or officers having charge of the same to the treasurer of this State, who
Statement of the Case.
shall give a receipt therefor and hold the same as trustee for the municipality issuing the same and for the railroad company for which they were issued, and to be disposed of by said treasurer in discharge of his trust, as hereinafter provided.
"SEC. 6. Such bonds shall be safely kept by such treasurer for the benefit of the parties interested, and be disposed of by him in the following manner- that is to say, whenever any railroad company, in aid of which any of such bonds may have issued, shall present to said treasurer a certificate from the governor of this State that such railroad company has in all respects complied with the provisions of this act, and is thereby entitled to any of such bonds, the same, or such of said bonds as said company shall be entitled to receive, shall be delivered to said company, the treasurer first cutting therefrom, cancelling and returning to the municipality the past-due coupons. The treasurer shall endorse upon each of said bonds the date of such delivery and to whom the same were delivered, and the same shall draw interest only from the time when so delivered; and the treasurer shall notify the clerk of the township or recorder or clerk of the city issuing the same of the date of the delivery of its bonds to such railroad company.
And in case any bonds so delivered to said treasurer by any such township or city shall not, within three years from the time when the same were received by him, be demanded in compliance with the terms of this act, the same shall be cancelled by said treasurer and returned to the proper officers of the township or city issuing the same."
The bill further averred that, in conformity with the provisions of this act, the electors of the township, on the 21st day of June, 1869, voted to pledge the aid of the township by the loan of $10,000, to be paid by its 10 per cent bonds at par, upon certain terms and conditions in said vote stated, among which were, that the road should be located and constructed through said township; that the time of payment of each of those bonds was to be postponed a year in the event of the non-completion of the road-bed and the ironing before the 1st of November, 1869; and that the company would pay yearly
Statement of the Case.
to the township a sum equal pro rata to the dividends paid stockholders; and said sums were to be in extinguishment of the interest on the bonds, and the excess over 10 per cent, if any, to be applied on the principal. The bonds, thus voted, were issued in pursuance of said act, and were delivered to the state treasurer, to be by him held as trustee for both the township and the company on the terms and conditions of the act, as aforesaid.
The bill then averred that the railroad company, in consideration of the township's action, and relying thereon, entered upon the construction of said railroad, and, previous to the 1st of February, 1871, had fully constructed and ironed said road through the township; and, at the time of the delivery of the bonds to the state treasurer, as aforesaid, had duly executed and delivered to the township the agreement specified in the terms on which the aid was voted, and had performed every condition precedent to the earning of said bonds, and had become fully entitled to have the same delivered by the treasurer, except that it had not secured the certificate of the governor as required by said act. While the road, however, was in the process of construction, the Supreme Court of the State of Michigan, on the 26th of May, 1870, declared the act in question to be unconstitutional; but as the railroad company had already expended the sum of a million of dollars, and upwards, in construction, it could not stop, but went on and completed the road in full compliance with all the conditions of the vote. The company then applied to the governor for his certificate under the statute, exhibiting to him proofs of its title to receive the bonds; but he refused to give the same, giving as his sole reason for such refusal the judgment of the Supreme Court aforesaid.
The bill then averred that on May 28th, 1872, the township, knowing the premises, and without the knowledge or consent of the company, and in violation of the law and of the trust aforesaid, and in fraud of the company's rights, induced the state treasurer, who had full knowledge of the foregoing facts, to surrender to the township the said bonds and the coupons thereunto attached; that the township had since retained the
Opinion of the Court.
same, and withheld them from the company; that said bonds and coupons, by reason of all the premises, became in justice and equity the property of said railroad company and the township became bound thereon according to their tenor and effect; that the said township was therefore equitably indebted to said company, to the whole amount of said bonds and coupons, with the interest thereon to the present time; and that the appellant was entitled to the said amount, towards the satisfaction of his judgment against the company.
To this end an account was prayed to be stated between the company and the township, the appellee, and a final decree against the township for the sum shown to be due, in favor of the appellant, was asked.
The bill was dismissed by the Circuit Court on demurrer (26 Fed. Rep., 805); and the cause came here on appeal by the complainant.
Mr. John D. Conely for appellant. Mr. Alfred Lucking was with him on the brief.
Mr. W. K. Gibson and Mr. Isaac Marston, for The Township of Clarendon, appellee.
MR. JUSTICE LAMAR, after stating the facts in the foregoing language, delivered the opinion of the court.
We consider the decisive question in this case to be that of the laches in pursuit of the railroad company's right against the township. In this view the controversy must be narrowed to a single issue. The township, which is the defendant below, and which defends separately, claims that the cause of action accrued either 13 or 14 years before this bill was filed -13 years if the conversion of the bonds by the township and the treasurer be considered the gravamen, and 14 years if it be the governor's refusal to issue his official certificate; that since the statutes of limitation in Michigan, touching these questions, vary from 6 to 10 years, the cause of action is long since barred at law as to the railroad company; that it is, therefore, barred also in equity and lost by laches in its
Opinion of the Court.
assertion; and that since the appellant by this bill is prosecuting a demand in the nature of a garnishment, and the railroad company's right is barred both at law and in equity, therefore that of the appellant is also barred. The appellant seeks to avoid the force of this position by claiming that the bonds had been so far perfected by the dealings between the parties that the railroad company was entitled to have them from the state treasurer; that such being the case, the tort of the township and of the treasurer in converting them could not impair the rights of the company; that, therefore, the company was and is entitled to waive the tort and sue directly on the bonds, as in the case of lost or stolen bonds; that only a few of such bonds, if delivered, would have been barred at the time of the filing of the bill, since most of them were so drawn as to mature within 10 years of that time; and, finally, that as the company was thus still in possession of an enforcible demand, the appellant could avail himself of it by this bill.
The controlling question presented, therefore, is this: Were the bonds in question so dealt with by the parties as at any time to vest in the railroad company a right to sue directly on the bonds themselves, as distinguished from a right to sue for their non-delivery or because of their cancellation? That question cannot be satisfactorily or properly answered without constant reference to the exceptional character of the circumstances by which these bonds were deprived of their value. It is not the case of a common negotiable instrument put forth by a natural person as obligor; but it is that of a railroad aid bond sought to be put forth by the municipality. In such case the nature of the bonds, their force and effect, their value and character while in the hands of the state treasurer, the rightfulness and sufficiency of their issue, and all kindred questions, must be referred to the statute authorizing them. In this case the statute is the act of 1869. It is the touch-stone. Whatever might be the rule in ordinary cases, so far as the act goes, it controls here, being the enabling act; outside of it there was no power, whatever, to issue these bonds. By an unbroken current of decisions by this court and by all other courts, too numerous to mention, it is settled law that a municipality has