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BRENHAM v. GERMAN AMERICAN BANK.

decided: March 28, 1892.

BRENHAM
v.
GERMAN AMERICAN BANK.



ERROR TO THE CIRCUIT COURT OF THE UNITED STATES FOR THE WESTERN DISTRICT OF TEXAS.

Author: Blatchford

 MR. JUSTICE BLATCHFORD delivered the opinion of the court.

This is an action at law, brought November 8, 1886, in the Circuit Court of the United States for the Western District of Texas, by the German-American Bank, a New York corporation, against the city of Brenham, a municipal corporation of the State of Texas, to recover $4175 and interest, on 504 coupons, amounting to $4175, being 280 coupons for $2.50 each, 125 coupons for $5 each, 84 coupons for $25 each, and 15 coupons for $50 each, cut from 50 bonds for $50 each, 25 bonds for $100 each, 14 bonds for $500 each, and 3 bonds for $1000 each, being all the bonds of the issue, $15,000 in amount. The bonds read as follows, except as to number and amount, and had the proper coupons annexed:

"UNITED STATES OF AMERICA.

"STATE OF TEXAS.

CITY OF BRENHAM.

"CITY OF BRENHAM BONDS.

"No. .

$100.

"Bonds for General Purposes, $15,000.

"Twenty years after date, for value received, the city of Brenham promises to pay to bearer one hundred dollars, with interest at the rate of ten per cent per annum from date, payable semi-annually, on the first days of September and March of each year, upon presentation of the proper coupon hereto annexed, both principal and interest payable at the office of the treasurer of the city of Brenham. This bond is redeemable by the city of Brenham after the expiration of ten years from date hereof. This bond is authorized by an ordinance of the city of Brenham, approved June 7, A.D. 1879.

[L.S.]

"In witness whereof, the mayor and secretary of the city of Brenham hereunto set their hands and affix the seal of the city of Brenham, this 31st day of July, A.D. 1879.

"M. P. KERR, Mayor.

"C. H. CARLISLE, City Secretary."

The ordinance referred to in the bonds is set forth in the margin.*fn1 The original petition of the plaintiff alleged that the bonds and coupons were issued, executed, sold and delivered, and put in circulation under authority of the ordinance referred to.

The defendant, by its original answer, protested against the jurisdiction of the court, and raised the question of the bona fide ownership by the plaintiff of the coupons sued on, alleging that they were owned by one Mensing, a citizen of Texas, and that the transfer of them by him to the plaintiff was colorable only, and for the purpose of giving the court jurisdiction. The defendant at the same time demurred to the petition, specifying grounds of demurrer, and put in an answer to the merits, setting forth that the city had a population of less than 10,000 inhabitants, and was incorporated February 4, 1873, with powers limited by its charter and the constitution of the State; that it had no power, on June 7, 1879, to pass ordinances repugnant to the constitution and laws of the State; that, under the constitution of the State of 1876, and prior to the passage of the ordinance of June 7, 1879, cities and towns with a population of 10,000 inhabitants or less had authority to collect an annual tax to defray only the current expenses of local government, and were without power to borrow money, issue negotiable bonds therefor and collect taxes for the payment of the same; that the city council had no power, on June 7, 1879, to pass the ordinance of that date; that no bonds or coupons issued in pursuance thereof constituted any legal liability against the city; that the bonds were issued in violation of the ordinance, in that the ordinance authorized the issuing of the bonds payable twenty years after the date thereof, and to be redeemable, at the option of the defendant, at any time after five years from their date; that ยง 4 of article 11 of the constitution provided that no municipal corporation should become a subscriber to the capital stock of any private corporation or association, or make any appropriation or donation to the same, or in anywise loan its credit; that $3000 of the $15,000 of the bonds were for the benefit of the fire department of the city, and the remaining $12,000 were in aid of the Gulf, Colorado and Santa Fe Railroad Company, in providing for the purchase of the right of way over the streets of the city and the purchase of depot ground, to secure the construction of said railroad through the city; that $12,000 of the bonds were sold by the city, $5000 to one Mensing, and $7000 to two other persons, and Mensing also became the owner of those $7000 of bonds, and he and the other two purchasers bought the bonds with actual knowledge of the purpose for which they were issued, as well as record notice of such illegal purpose, as disclosed by the public records and minutes of the city council; and that the plaintiff, if it became the owner of the bonds and coupons, purchased the coupons after their maturity and with knowledge of all the facts attending their issue, well knowing that they were issued to raise money to enable the defendant to purchase the said right of way and depot ground for the said railroad company.

Afterwards, the defendant put in an amended answer, amending its former demurrers and answer, but not varying the material allegations of fact contained in its former answer.

The plaintiff then filed a supplemental petition, demurring to the answers and excepting thereto by special allegations, and also alleging matters of fact in response to the answers, and averring that the defendant was authorized to issue the bonds in question, and that, if their proceeds were misappropriated by the city council or the agents of the city, such misappropriation ought not to affect the rights of the plaintiff; that the bonds were sold by the lawfully authorized agents of the city, and it received full value for them; that the parties from whom the plaintiff received the bonds were bona fide purchasers of them before maturity, having paid a valuable consideration therefor; and that the defendant was estopped by the fact that it paid interest on the bonds without objection for three years after they were issued, and in 1884 published a statement of its financial condition, in which it included said $15,000 of bonds as part of its legal liabilities, all of which was made known to the plaintiff before it became the owner of the bonds.

The defendant then filed a supplemental answer, demurring to the supplemental petition and specially excepting to parts of it, and raising an issue of fact as to its allegations.

The plea in abatement, or to the jurisdiction of the court, was tried by a jury, which found for the plaintiff; and afterwards the issues of fact on the pleadings were tried by a jury, which found a verdict for the plaintiff for $5510.10, and the court entered a judgment overruling the general and special demurrers and exceptions of the defendant, and the general demurrer and exceptions of the plaintiff, and the special exceptions and demurrers of the defendant to the plaintiff's supplemental petition; and a judgment ...


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