State v. Walnut Hills, Madison & Plainville Road Co.

Fifth-That the defendant company has failed to open and maintain its road as required by law.

To this reply a demurrer was filed on the grounds: First-That each of the paragraphs thereof is insufficient in law; and, second, that the same, and each paragraph thereof, is a departure from the petition.

Should this demurrer be sustained? It is apparent, we think, from the petition and reply, that the action is brought against the defendant company under the provisions of section 6761, Revised Statutes, to oust it from certain privileges and franchises exercised by it, but which plaintiff claims it has lost. First-By offending against the provisions of the act creating it. Second-By committing an act which amounts to a surrender of its corporate rights privileges and franchises; and, Third-By its misuse of a franchise conferred upon it by law.

If these allegations had all been contained in the petition, as they now appear in the petition and reply, there could be no question but that the action was properly brought under section 6761, and if the facts were not denied, or if proved at the trial, the plaintiff would be entitled to a judgment as prayed for. And we are of the opinion, since the revision of the statutes, which substantially provides that proceedings in quo warranto are to be conducted under the provisions of the Code of Civil Proceedure, that this is the better and more logical practice. But as the pleadings stand, the question is, are the allegations of the reply a departure from those of the petition?

A departure in pleading is defined to be, "the statement of matter in a replication or subsequent pleading, as a cause of action or defense, which is not pursuant to the previous pleading of the same party, and which does not support or fortify it." Bouvier's Dic. Under this definition we do not think the matters set up in the reply constitute a departure from the petition. They only set up the particular facts which it is claimed show that the defendant company is now exercising franchises and privileges which it may once have had, but which it does not now possess ; in other words to support and fortify it.

If pleading in quo warranto proceedings, were now to be substantially as before the revision of the statutes, this question is authoritatively settled by the decisions of the supreme court in the case of Ohio v. Penn. & Ohio Canal Co.,23 O. S., 121, where it is held, that "when an information, in the nature of a quo warranto, is filed against a corporation, by its corporate name, calling upon it to show by what warrant it claims to be a corporation and to exercise corporate powers, and the defendant pleads an act of the legislature granting to it the franchises named in the information, it is competent for the relator by way of replication to aver cause of forfeiture, and to pray for a judgment of dissolution."

We are of the opinion that this rule of pleading is not affected by bringing quo warranto proceedings under the Code. That it was not thus intended substantially to change the mode of pleading in such cases.

We are also of the opinion that the paragraphs of the reply, which set up these causes for forfeiture, and which are alleged to be in violation of the duties imposed upon the company by the charter pleaded by the defendant, and which we are thus authorized to look at, are not subject to a demurrer. They allege facts which, if true, show that the company has offended against several of the provisions of its charter, and which amount to a surrender of its corporate rights, and that it has misused a franchise conferred upon it by law.

Wayne Circuit Court.

What the judgment of the circuit court should be if those allegations, or any of them, should be established by evidence, of course we do not Jay. All we decide is, that in our judgment the demurrer is not well taken.

Burch & Johnson, for Relator.

Harmon, Colston, Goldsmith & Hoadly, and Paxton & Warrington, for Defendants.

MUNICIPAL CORPORATION.

[Wayne Circuit Court, January Term, 1897.]

Pomerene, Adams and Kibler, JJ.

WILLIAM KEEHN V. THE CITY OF WOOSTER ET AL.

1. ACTION TO ENJOIN A MUNICIPAL CORPORATION FROM PAYING INTEREST ON CERTAIN BONDS.

In an action to enjoin a municipal corporation from paying interest on certain bonds issued by such corporation, a person necessarily interested in the determination of the legality of such bonds would have the right to defend in the case, to prevent, if he may, the holding that such bonds are illegal and void, without regard to the amount of his claim, which otherwise the court would have no jurisdiction in the case.

2. BONDS TO BE EXPLICIT ON THEIR FACE.

All bonds issued by a municipal corporation under the provisions of section 2701, Revised Statutes, must express on their face the purpose for which they were issued and under what ordinance.

8. BONDS ISSUED Under an ACT OF LEGISLATURE WHICH IS UNCONSTITUTIONAL. Where bonds of a municipal corporation are issued under an act of the legislature which is unconstitutional, the refunding bonds will also be invalid. Appeal from the Court of Common Pleas of Wayne county. ADAMS, J.

The case of William Keehn against the City of Wooster et al. has been submitted to the court on a demurrer to the answer and cross-peti-. tion of the defendant, T. C. Cochran.

The original action between the plaintiff Keehn and the City of Wooster, was a suit to enjoin the payment by the City of Wooster of interest on certain bonds to the amount of $76,000, issued by the city of Wooster, and at a former term the defendant Cochran was given leave to come in as a defendant, he claiming to be the holder of one of the coupons on this issue of bonds.

It is to his answer and cross-petition that this demurrer has been filed.

The demurrer was filed on two grounds: (1.) Want of Jurisdiction, and (2), that the facts stated are insufficient to constitute a defense, or a cause of action in favor of the defendant Cochran.

It is conceded in the argument here that the original bonds, of which the bonds now in controversy are refunding bonds, were issued under an act of the legislature which was unconstitutional, because in contravention of section one (1), of article thirteen (13), and section six (6), of article eight (8), of the constitution. That is admitted in the argument;

Keehn v. The City of Wooster, et al.

but it is claimed, and the facts.are alleged in this answer and cross-petition, that Cochran was a purchaser in the open market of a single coupon from one of these refunding bonds, and that he stands in the position of an innocent purchaser, and that the city of Wooster is estopped by the recitals of the ordinance authorizing the issue of these refunding bonds, and by the recitals of the bonds themselves, from asserting the illegality or unconstitutionality of these or of the original bonds.

The first ground of demurrer, that of want of jurisdiction, is based on the fact that Cochran claims to own one coupon only, of the amount of $30.00, and it is claimed that this is below the jurisdiction of the court of common pleas

As to that, it the answer is otherwise good, we think that Cochran being a proper party, and necessarily interested in the determination of the legality of these bonds, would have the right to defend in this case, to prevent, if he may, the holding that these bonds are illegal and void, without regard to the amount that he claimed or owned. It is true that he might not be entitled to the relief he prays in this answer and crosspetition; that is, the affirmative relief; but so far as the amount is concerned, he would have the right to defend against a holding by this court declaring the bonds in which he is interested to be illegal.

These refunding bonds were issued under section 2701, Revised Statutes. It is claimed, in support of the demurrer, among other things, that the city council of Wooster, in the passage of the ordinance under which these refunding bonds were issued, and in the terms of the bonds themselves, did not comply with the terms of section 2703, Revised Statutes, which provides that all bonds issued under authority of that chapter (which includes section 2701), shall express on their face the purpose for which they were issued, and under what ordinance.

It is claimed on the other hand, on behalf of Cochran, that the ordinance having recited that these bonds were issued for the purpose of refunding and extending the time of payment of certain indebtedness of the city of Wooster, and the bonds reciting that that indebtedness was a legal and subsisting indebtedness, the city of Wooster was estopped by these recitals from asserting the illegal purpose for which the bonds were issued.

Counsel for Cochran rely upon two cases, one found in 62 Fed. Rep. 778, the case of The National Insurance Co. of Montpelier v. The Board of Education of the City of Huron; but that case is distinguishable from the case at bar in this: there the bonds were issued under a statute which authorized the board of education to issue bonds and apply the money to the purchase of a school site or sites, and the bonds recited that they were issued for that purpose. After they were issued and the money obtained the money was used for an entirely different and an illegal purpose, and we think the court very properly held that the holder of the bonds was not required to see that the money, the proceeds of the sale of the bonds, was properly and legally applied.

The other case that counsel relies on, is found in 58 Fed. Rep., 935, The City of Cadillac v. Woonsocket Institute for Savings. The difference between that case and this is the difference between the statute of Michigan and our statute.

The statute of Michigan simply requires that the bonds shall show the class of indebtedness to which they belong.

Our statute requires that the bonds shall express on their face the purpose for which they were issued. On page 939, the court dis

Wayne Circuit Court.

tinguishes that case from the case of Barnett v. Dennison, 145 U. S., 135, as follows:

"That act conferring authority to issue the bonds in question in that case required that the bonds should show the purpose for which they were issued. This was held a reasonable requirement of the law. If the purpose stated was an authorized one, it gave him notice; if none was stated, then the purchaser took the risk of their being issued for an unauthorized purpose.

"Here there has been a substantial compliance, whether the requirement be regarded as mandatory or directory. The act should not be construed as requiring refunded bonds to show more than that they are refunded bonds."

In the case at bar these bonds recite that they are issued for the purpose of refunding a legal and subsisting indebtedness of the city of Wooster.

The very natural inquiry, it seems to me, for any prudent man, would be what indebtedness of the city of Wooster?

Now, it is apparent to this court that it these bonds had recited the purpose for which they were issued, the bonds would be illegal. They would be illegal and void on their face if they recited that they were bonds issued to refund these Wooster railroad bonds, or referred to the ordinance under which the Wooster railroad bonds were issued.

In the case of Barnett v. Dennison, 145 U. S., 135, above referred to, it is said, (Mr. Justice Brown announcing the opinion of the court)

"It is the settled doctrine of this court that municipal corporations are merely agents of the state government for local purposes, and possess only such powers as are expressly given, or implied, because essential to carry into effect such as are expressly granted; 1 Dill. Mun. Corp., section 89; Ottawa v. Carey, 108 U. S., 110; that the bonds of such corporations are void unless there be express or implied authority to issue them; Wells v. Supervisors, 102 U. S., 625; Clairborn County v. Brooks, 111 U. S., 400; Concord v. Robinson, 121 U. S., 165; Kelley v. Milan, 127 U. S., 139; that the provisions of the statute authorizing them must be strictly pursued; and that the purchaser or holder of such bonds is chargeable with notice of the requirements of the law under which they are issued. Ogden v. County of Davies, 102 U. S., 634; Marsh v. Fulton County, 10 Wall., 676; South Ottawa v. Perkins, 94 U S., 260; Northern Bank v. Porter Township, 110 U. S., 608; Hayes v. Holly Springs, 114 U. S., 120; Merchants' Bank v. Bergen County, 115 U. S., 384; Harshman v. Knox County, 122 U. S., 306; Coler v. Cleburne, 131 U. S., 162; Lake County v. Graham, 130 U. S., 674.

"It is certainly a reasonable requirement that the bouds issued shall express upon their face the purpose for which they were issued. In any event, it was the requirement of which the purchaser was bound to take notice, and if it appeared upon their face that they were issued for an illegal purpose, they would be void. If they were issued without any purpose appearing at all upon their face, the purchaser took the risk of their being issued for an illegal purpose; and, if that proved to be the case, they are as void in his hands as if he had received them with express notice of their illegality."

From the statement of the case, pp. 136-137, it appears that the bonds were issued under an ordinance dated August 9, 1873, "for the purpose of redeeming the outstanding city scrip or any other indebtedness, and the improvement of the streets, as may be directed by the city coun

In re Assignment of Wilson's Sons & Co.

cil," as stated in the ordinance, but the bonds contained no other statement of the purpose of their issue than that they were issued by virtue of the ordinance of August 9, 1873.

We think the reasoning and authority of that case justifies and requires the holding that these bonds do not comply with the provisions of section 2703, and that this answer and cross-petition is insufficient on the facts, and it is so held.

The demurrer is sustained, not as to the matter of want of jurisdiction, but on the other ground.

Alfred J. Thomas and William F. Kean, for Plaintiff.
M. L. Smyser and Wm. C. Yost, for City of Wooster.
Frederick A. Henry, for Defendant, T. C. Cochran.

CHATTEL MORTGAGES.

[Hamilton Circuit Court, January Term, 1896.]
Swing, Cox and Smith, JJ.

*IN RE ASSIgnment of WILSON's Sons & Co.

MORTGAGEES TO COME IN WITH GENERAL CREDITORS, WHEN.

When a person receives a chattei mortgage with full knowledge of a prior mortgage, and such mortgages are duly filed with the county recorder, but are afterwards rendered void as to the assignee and creditors for failure of renewal: Held, that neither of the mortgagees took anything whatever from the estate by virtue of their mortgage. But each of them, as a general creditor, had a vested claim against the assignors, and as such, was entitled to a dividend on his claim.

APPEAL from the Court of Common Pleas of Hamilton county.

Edward Besuden held two chattel mortgages, aggregating $30,000, on the assigned plant. A subsequent chattel mortgage for $25,000, upon the same property, was executed to Henry Besuden, he having full knowledge of the prior mortgages. These several mortgages were all duly filed with the county recorder, but were all rendered void by failure to file them in Millcreek township where one of the partners of P. Wilson's Sons & Company resided. The order of the common pleas was, that Henry Besuden be paid part of the fund arising from the sale of the plant, as a general creditor.

SMITH, J.

We are of the opinion that the judgment of the court of common pleas in this case should be affirmed. If the chattel mortgage of Henry Besuden, which was taken out after those of Edward Besuden, and with actual knowledge and notice thereof, had been a valid one against the assignee and creditors of Wilson's Sons & Company, and he had therefore a valid lien on the property assigned, and was entitled to have it paid in whole or in part from the estate, then Edward Besuden, whose mortgages as against Henry Besuden were good, under the adjudications of our court, would have been entitled to receive from the amount payable to Henry Besuden a sum sufficient to pay his mortgage claim, is there was enough to do this, though as to the assignee and the creditorf the mortgages of Edward Besuden were utterly invalid. But in this case, not only were the mortgages of Edward Besuden void as to the as