Provident Life & Trust Co. v. Mercer County, 170 U.S. 593 (1898)

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Provident Life and Trust Company v. Mercer County

Argued April 29, May 2, 1898
Decided May 28, 1898
170 U.S. 593

CERTIORARI TO THE CIRCUIT COURT

OF APPEALS FOR THE SIXTH CIRCUIT

Syllabus

The transactions with the County of Mercer, which resulted in the delivery of the bonds of the county to the railroad company, were had in the utmost good faith.

Barnum v. Okolona, 148 U.S. 393, reaffirmed to the point

that municipal corporations have no power to issue bonds in aid of railroads except by legislative permission; that the legislature, in granting permission to a municipality to issue its bonds in aid of a railroad, may impose such conditions as it may choose, and that such legislative permission does not carry with it authority to execute negotiable bonds except subject to the restrictions and conditions of the Enabling Act.

But when the good faith of all the parties is unquestionable, the courts will lean to that construction of the statute which will uphold the transaction as consummated.

The provision in the act authorizing the issue of Mercer County bonds to the Louisville Southern Railroad Company, when its railway should have been so completed "through such county that a train of cars shall have passed over the same" was fully complied with when the railroad was so completed, from the northern line of the county to Harrodsburg, that a train of cars passed over it; but even if this construction be incorrect, it must be held that when the trustee in whose hands the county bonds were placed in escrow adjudged that the condition prescribed for their delivery had been complied with and delivered the bonds to the railroad company, the company took such a title as, when the bond was transferred to a bona fide holder, would enable him to recover against the county even if the condition had in fact not been performed.

On May 15, 1886, the General Assembly of the Commonwealth of Kentucky passed an act entitled "An act to authorize the County of Mercer to subscribe aid to the Louisville Southern Railroad Company," the first section of which is as follows:

SEC 1. That the County of Mercer may subscribe to the capital stock of the Louisville Southern Railroad Company as hereinafter provided, and may pay therefor in the negotiable coupon bonds of said county, payable not more than thirty years after date and bearing interest at a rate not to exceed six percentum per annum, payable semi-annually, and which bonds and interest shall be payable at a place designated therein.

The second and third sections contain provisions in detail in respect to a vote of the people of the county, the subscription to the stock of the company, and the execution of the bonds. The fourth section reads:

SEC. 4. The said bonds shall not be binding or valid obligations until the railway of the said company shall have been so completed through such county that a train of cars shall have passed over the same at which time they shall be delivered to said railroad company in payment of the subscription of such county, and the county shall thereupon be entitled to receive certificates for the stock subscribed, and the county judge of such county shall order that such bonds shall be deposited with a trustee or trust company, to be held in escrow, and delivered to the said railroad company when it shall become entitled to the same by the construction of its road through such county, provided however that such trust company or trustee shall, before receiving such bonds, give bond, with good surety, approved by the county judge, for the faithful performance of his or its duty in the premises, and provided further that no such subscription shall be binding unless such railroad shall pass to or through the corporate limits of the Town of Harrodsburg.

In pursuance of this act, an election was held in the county, resulting in favor of making the subscription and issuing the bonds. The subscription was made, and the bonds executed. The bonds were, omitting a provision for repayment, in the following form:

United States of America

$1,000 No. 105

Louisville Southern Railroad Aid Bonds

County of Mercer, Kentucky

The County of Mercer, in the State of Kentucky, hereby acknowledges itself indebted and promises to pay to the Louisville Southern Railroad Company, or bearer, the sum of $1,000 on or before the tenth day of January, A.D. 1917, at the Louisville Banking Company in the City of Louisville, Kentucky, with interest thereon at the rate of five percent per annum, payable semiannually at said bank on the tenth days of July and January after date, respectively, in each year, on presentation and surrender of the annexed coupons representing such interest. This bond is one of a series of one hundred and twenty-five bonds of even date herewith, all of the same denomination and tenor, and numbered consecutively from one to one hundred and twenty-five, the same having been issued pursuant to the authority conferred upon the said county by an act of the legislature of Kentucky entitled "An act to authorize the County of Mercer to subscribe aid to the Louisville Southern Railroad Company," approved May 15, 1886, and pursuant to an order entered by the county judge of said county in conformity with said act subscribing in behalf of said county for the capital stock of the Louisville Southern Railroad Company in the sum of $125,000, which order was entered of record in said court on January 10, A.D. 1887.

* * * *

In witness whereof, the County of Mercer, by John W. Hughes, county judge thereof, has, in the name and on behalf of said county, subscribed and executed this bond, and the same has been attested by the county clerk of said county, with his official seal affixed hereto, and the interest coupons attached thereto have been signed by the said clerk.

Done on the tenth day of January, A.D. 1887.

The County of Mercer [Seal.]

By John W. Hughes, County Judge

Attest: Ben C. Allin, Clerk

On February 7, 1887, the county court appointed D. L. Moore trustee, as prescribed by section 4 of the act. Moore accepted the trust, and gave bond with good surety, as required, and on March 3, 1887, the bonds were deposited with him.

Prior to June 1, 1888, the railroad was completed from Louisville, in Jefferson county, via Shelbyville, in Shelby County, and Lawrenceburg, in Anderson County, south through Mercer County to the depot of the Southwestern Railroad in Harrodsburg, the county seat. There it connected with a short line of road constructed by the Southwestern Railroad Company, and extending from Harrodsburg to Burgin, on the Cincinnati Southern Railroad. The Southern Company owned all the stock of the Southwestern Company, had possession of its road, and subsequently the two companies were consolidated, and the latter merged in the former company. On said first day of June, 1888, a train of cars, moved by an engine, passed over the road from Louisville through Harrodsburg to Burgin, and then returned to Louisville, and from that time, the railroad from Louisville to Burgin has been continually operated as the Louisville Southern Railroad. The distance from the northern line of Mercer County to Harrodsburg is fifteen miles; from Harrodsburg to Burgin, 4.72 miles. Burgin is three miles from the south line of Mercer County and 4.74 miles from the east line. The nearest point that the road runs to the south line of Mercer County is 2 miles.

On July 3, 1888, Moore resigned his position as trustee, and Isaac Pearson was appointed in his place. He gave security to the county, as required by the act, and received from the prior trustee all the bonds and coupons in his hands. About the first of June, 1888, the time of the passage of a train of cars from Louisville to Burgin and back, as hereinbefore stated, there arose a question whether the condition precedent to the delivery of the bonds had been complied with by the railroad company, and it was in view of this difference of opinion and the doubts of the trustee, Moore, that he resigned his position. This question was publicly and generally discussed, and while the discussion was going on, and before Pearson, the trustee, had determined that the condition precedent had been performed, and that he would deliver the bonds, the railroad company prepared to extend its road towards and to the Town of Danville, in Boyle County, which was 7.47 miles distant from Harrodsburg, and, with one exception, acquired all the rights of way to the southern line of Mercer County. A movement was made in the county to have the court of claims of the county instruct the trustee as to his duty in the premises, and that court, consisting of the county judge and the justices of the peace of his county, met on June 26, 1888, and the question was fully discussed before them. After argument, they declined to instruct the trustee as to his action, but, upon motion of one of the justices, passed and spread upon the records this resolution:

At a county Court of Claims for Mercer County at the courthouse in Harrodsburg, on Tuesday, the 26th day of June, 1888.

Present: John W. Hughes, J.P.M.C.C. and M. Cummins, C. B. Connor, James Yeast, Sr., A. S. Hendrew, John W. Reed, E. R. Norton, R. L. Mullins, E. I. Massie, N. Harris, G. J. Johnson, B. O. Jones, A. Johnson, J. C. McIntire, and John T. Pankey, justices of the peace of Mercer County.

G. J. Johnson, as justice of the peace of this county, offered into court the following motion, which is ordered to be noted of record, and is as follows:

The members of this Court do not believe that they have any right to enter an order directing the trustee to deliver the bonds of this county to the Louisville Southern Railroad, but as individuals they are of the opinion that such delivery should be made, and the construction of the railroad not forced to the Boyle County line.

And, said motion being seconded, the ayes and nays were taken, and resulted as follows:

Ayes, 12, as follows: M. Cummins, C. B. Connor, James Yeast, Sr., A. S. Hendrew, John W. Reed, E. R. Norton, R. L. Mullins, n. Harris, G. J. Johnson, B. O. Jones, J. C. McIntire, and John T. Pankey.

Nays, none. Not voting, two, as follows: E. I. Massie and A. Johnson.

After this, Pearson, the trustee, decided that the conditions had been performed, and on the _____ day of August, 1888, in the presence of the county judge of the county, delivered the bonds, first cutting off and burning the past-due coupons. At the same time the Louisville Southern Railroad Company delivered to the county its certificate for an equal amount of its capital stock. The stock was accepted by the county, and voted by the county judge at a stockholders’ meeting on at least two occasions -- one on December 18, 1888, and another on May 26, 1890 -- and the stock certificate is still held by the County of Mercer, and has never been tendered to the railroad company, or any one representing it. At these two meetings, Mercer County voted its shares in support of certain resolutions materially affecting the business affairs of the railroad company, and also accepting a legislative amendment to its charter, as well as in the election of directors. The county regularly levied an annual tax to meet the semiannual interest on the bonds, and paid such interest for the years 1889, 1890, 1891, and January 1, 1892. Since then, it has paid no interest. The Provident Life and Trust Company is a bona fide purchaser of $100,000 of the bonds, and on default in payment of the coupons, it commenced this action on November 3, 1892, in the Circuit Court of the United States for the District of Kentucky. The pleadings having been perfected, the case was tried before the court without a jury. Special findings of facts were made, and upon them judgment was on April 30, 1895, rendered in favor of the plaintiff. From this judgment the county took the case on error to the court of appeals for that circuit. That court, on March 3, 1896, filed an opinion holding the bonds void, 72 F. 623, and entered a judgment reversing the judgment of the circuit court and remanding the case with instructions to enter a judgment in accordance with the opinion. Thereupon, on October 20, 1896, the case was brought to this Court on certiorari.