certain bonds in trust. One of the directors subsequently purchased the bonds from the corporation, and in an action against him set up the claim that he knew nothing about the trust agreement; that he purchased the property in good faith for value and without notice. The court, however, brushes his claim aside, and holds that, as a director of the corporation, he must be held as having had knowledge of the trust agreement, although he was absent from the board meeting and had no actual knowledge that the board of directors entered into the agreement." In the fifth Nebraska case, supra, it was held that if a cashier, on inquiry by a surety, not an officer of the bank, stated that the note upon which he was surety had been paid by the principal, the bank was estopped to deny the truth of such statement, when to do so would entail loss on the surety which he could have avoided had the statement not been made, but that such rule had no application where the surety was one of the directors of the bank, for the reason that he had means of knowing the true condition of its affairs, and was conclusively presumed to know whether payment was made or not. proceeds, and return the balance to her. bar. In that case the corporation obtained Thereafter the company sold the land to Rockhill, one of its directors, for less than it was worth, in violation of the terms of its trust. Whereupon she sued to enforce the trust and to secure an accounting against them both. Rockhill claimed he had bought the property in good faith and without notice of the trust. But the trial court found that he, as a director of the corporation, was chargeable with knowledge of the agreement between the respondent and the company, and hence of the trust, and therefore was not a bona fide purchaser of the land. After holding that the company acted as trustee in the premises, and as such was liable to account under the terms of the trust, the court, in answering the question whether Rockhill took the land subject thereto, said: "The answer to this question depends upon two things, namely, Rockhill's relation to the corporation, and the character of the transaction by which it obtained title to the land in question. Rockhill's relation to the corporation was that of director and vice president. Whenever a corporation in this state exercises its powers, it must do so through the board of directors, since, under our statute (Comp. Laws 1907, § 324), all corporate powers are vested in and shall be exercised by the board of directors.' No doubt, the majority of the board, when regularly convened, may exercise any of the corporate powers in the absence of the minority, and bind such minority if the acts of the majority are not ultra vires, or in violation of some positive statute or of some general law, or are void or voidable as against public policy. The minority is not only bound by the acts of the majority, but the minority members are charged with knowledge of all the legal corporate acts that are exercised as aforesaid. If, therefore, the majority acquires any property in trust, every director is charged with knowledge of the trust relation, and, as against the claims of those for whom the corporation became trustee, such member has and can acquire no better right to the trust property than the corporation has. In this regard, it can make no difference whether the majority of the board of directors directly exercise the corporate power or authorized some agent to do so. The act is still the exercise of a corporate power of which every director, as against strangers to the corporation, is assumed to have notice." And after quoting as indicated, further said: "This text is sustained by the authorities. Merchants' Bank v. Rudolf, 5 Neb. 527; Greenville Gas Co. v. Reis, 54 Ohio St. 549, 44 N. E. 271. The last case, in principle, is precisely like the case at Nelson v. Wellington, 5 Bosw. 178, was a suit to recover on a promissory note for $351.25 payable to the Atlas Insurance Company, which prior to maturity, the company had turned over as collateral to plaintiffs as trustees of an express trust. The facts were that the company, in order to raise money for business purposes, borrowed a number of notes from its friends, which it discounted, and so used the money. To secure its payment, the company deposited with plaintiffs, who were also members of its board of trustees, the note in suit. The note was executed by defendants for advanced premiums on merchandise to be shipped, and, when shipped and reported to the company, the risk was to be indorsed on an open policy of insurance, or otherwise accepted. The question was whether this collateral note could be recovered by the trustees in full or only for the amount of the premiums for risks so indorsed. In passing the court said that the note was binding in the hands of the insurance company, and that the plaintiffs took no better title than the company itself had, as they were officials or trustees of the company, and must be deemed to have knowledge of the title of the company to the note. Or in other words, as we understand the case, that it would not do for the plaintiffs to say that they took the note other than subject to all the equities existing between the original parties. And so we say it makes no difference whether plaintiff was absent from the board meeting or not at the time of the sale and indorsement of the note in question, or whether he participated in or actually knew the "particulars" of this transaction or not. His duty under his trust, as director, being to know the value of this note, and necessarily its infirmities, he was chargeable with knowing, and cannot be held to be a purchaser in good faith, or to have acquired thereto a better title than the payee had. See also Lyman v. Bank of United States, 12 How. 225, 13 L. ed. 965; United Society of Shakers v. Underwood, Bush, 609, 15 Am. Rep. 731; Nelson v. Wellington, supra; Thomp. Corp. 2d ed. § 1672; Martin v. Webb, 110 U. S. 7, 28 L. ed. 49, 3 Sup. Ct. Rep. 428. Let the cause be reversed, with directions to let it go to the jury on the equities existing between the original parties. All the Justices concur. TENNESSEE SUPREME COURT. Messrs. Shields & Cates, for appellant: The plant and property of complainant lying within the territorial limits of defendant city are not being used by complainant for a public or corporate purpose, because, as a corporation, it is without power and authority to furnish water to a separate, independent, and distinct municipality; and that part of said plant so used is in effect independent of, and not necessary to, the remainder of complainant's property, which is used for corporate purposes. Smith v. Nashville, 88 Tenn. 474, 7 L.R.A. 469, 12 S. W. 924; West Hartford v. Water Comrs. 44 Conn. 361; Dyer v. Newport, 123 Ky. 203, 94 S. W. 25; Farwell v. Seattle, 43 Wash. 141, 86 Pac. 217, 10 Ann. Cas. 130; Stauffer v. East Stroudsburg, 215 Pa. 143, 64 Atl. 411; Bly v. White Deer Mountain Water Co. 197 Pa. 80, 46 Atl. 929; Haupt's Appeal, 125 Pa. 211, 3 L.R.A. 536, 17 Atl. 436; Paris v. Sturgeon, 50 Tex. Civ. App. 519, 110 S. W. 459. The plant and property of complainant lying and being within the territorial limits of defendant, not being used by complainant for its legitimate public or corporate pur MAYOR AND ALDERMEN OF KNOX- poses, are subject to taxation under the A (December 19, 1914.) PPEAL by defendant from a decree of the Court of Civil Appeals affirming a decree of the Chancery Court for Knox County in plaintiff's favor in a suit to enJoin defendant from collecting an ad valorem tax assessed against certain of plaintiff's property, and to enjoin the collection of a privilege tax alleged to be due for the operation of a waterworks plant in the defendant city. Reversed. The facts are stated in the opinion. Note. -As to liability to taxation of property located in one state or municipality, but belonging to another, see note to State ex rel. Taggart v. Holcomb, 50 L.R.A. (N.S.) 243. laws of this state. Smith v. Nashville, 88 Tenn. 474, 7 L.R.A. 469, 12 S. W. 924; West Hartford v. Water Comrs. 44 Conn. 361; Newport v. Unity, 68 N. H. 587, 73 Am. St. Rep. 626, 44 Atl. 704; South Carolina v. United States, 199 U. S. 437, 461-463, 50 L. ed. 261, 269, 270, 26 Sup. Ct. Rep. 110, 4 Ann. Cas. 737. Defendant had the right to tax plaintiff's property and thus lessen the fixed charges which the former agreed to pay, and is still paying, for its fire protection, and for the other water used for municipal purposes. 1, 2; Desty, Taxn. p. 48; Newport v. Com. 1 Cooley, Taxn. 3d ed. p. 266, and notes 106 Ky. 434, 45 L.R.A. 518, 50 S. W. 845, 51 S. W. 433; Clark v. Louisville Water Co. 90 Ky. 522, 14 S. W. 502; Louisville v. Louisville Water Co. 1 L.R.A. (N.S.) 766, and note, 26 Ky. L. Rep. 425, 81 S. W. 698; Smith v. Nashville, 88 Tenn. 473, 7 L.R.A. 469, 12 S. W. 924. Mr. W. E. Drummond also for appellant. Messrs. W. T. Kennerly and Noble Smithson, for appellee: Complainant is exempt from this tax because using the property in question for public or municipal corporation purposes. 3 Dill. Mun. Corp. 5th ed. § 1297; People ex rel. Detroit & H. R. Co. v. Salem, 20 Mich. 452, 4 Am. Rep. 400; Walker v. Cincinnati, 21 Ohio St. 42, 8 Am. Rep. 24; Cooley, Const. Lim. pp. 128, 129; Mitch ell v. Burlington, 4 Wall. 273, 18 L. ed. | noted, the city of Knoxville in 1909 ac 352; Larned v. Burlington, 4 Wall. 275, 18 L. ed. 353; Rogers v. Burlington, 3 Wall. 654, 18 L. ed. 79; Jarrott v. Moberly, 5 Dill. 253, Fed. Cas. No. 7,223; Maydwell v. Louisville, 116 Ky. 885, 63 L.R.A. 655, 105 Am. St. Rep. 245, 76 S. W. 1091; Shelby County v. Tennessee Centennial Exposition Co. 96 Tenn. 653, 33 L.R.A. 717, 36 S. W. 694; McCallie v. Chattanooga, 3 Head, 318; Adams v. Memphis & L. R. R. Co. 2 Coldw. 645; Nashville v. Smith, 86 Tenn. 213, 6 S. W. 273; University of the South v. Skidmore, 87 Tenn. 155, 9 S. W. 892; State v. Fisk University, 87 Tenn. 234, 10 S. W. 284; Book Agents of M. E. Church, South v. Hinton, 92 Tenn. 188, 19 L.R.A. 289, 21 S. W. 321; West Hartford v. Water Comrs. 44 Conn. 360; State, Hackettstown, Prosecutor, v. Conover, 63 N. J. L. 191, 42 Atl. 838; State, Camden County, Prosecutor, v. Collins, 60 N. J. L. 367, 37 Atl. 623; 2 Dill. Mun. Corp. 4th ed. § 773; People ex rel. New York v. Board of Assessors, 111 N. Y. 505, 2 L.R.A. 148, 19 N. E. 90. quired the plant of this company, including that part situated in Park City, and assumed the contract then in existence between the company and Park City, and has since operated its plant there. The proof establishes that the plant of complainant city lying within the territorial limits of Park City is, as to use, independent of, and not necessary to, that part of the system which is in Knoxville and there in use for that city and its inhabitants. No mains for the Knoxville supply are laid in Park City. Since its purchase of the plant of the Knoxville Water Company, the city of Knoxville has charged the inhabitants of Park City for water at rates which are 20 per cent higher than its rates to its own inhabitants; and a profit is made from the Park City plant. A portion of these profits has been used to extend water lines into and to serve a third incorporated town, Lonsdale, which is not adjacent to the city of Knoxville. Section 28 of article 2 of the Constitution Mr. J. Pike Powers, Jr., also for ap- of this state provides: "All property real, pellee. Williams, J., delivered the opinion of the court: The mayor and aldermen of Knoxville filed its bill of complaint against Park City, another municipal corporation, seeking an injunction against the latter to inhibit the collection of an ad valorem tax for the year 1910, assessed against that portion of the water plant of complainant city located within the corporate limits of the defendant city, and also to enjoin the collection of a privilege tax claimed to be due for the exercise of the privilege of operating a waterworks system in Park City. The bill of complaint proceeds upon the theory that the property attempted to be taxed is exempt because owned by a municiipal corporation; while it is the contention of defendant city that such portion of the plant of complainant which is situated with in the boundaries of Park City is not used exclusively for public or corporation purposes of the complainant municipality, but is used in serving Park City for profit. It appears that the west boundary line of Park City is almost contiguous to the east boundary line of the city of Knoxville for a distance of about 1 mile. There intervenes what is described as a neutral strip, about 300 feet wide, on which factories are located. Prior to 1909 both of the cities were served by a private water corporation, the Knoxville Water Company, the plant of which was located partially in the territory of each of them. Under legislation later personal or mixed, shall be taxed, but the legislature may except such as may be held by the state, by counties, cities, or towns, and used exclusively for public or corporation purposes." Section 1 of chapter 602 of the Acts of 1907 provides: "That all property-real, personal and mixed-shall be assessed for taxation for state, county and municipal purposes, except such as is declared exempt in the next section. "Sec. 2. That the property herein enumerated and none other shall be exempt from taxation: All property of any incorporated city, town, or taxing district in the state that is used exclusively for public or municipal corporation purposes." Complainant city was incorporated under Acts of 1907, chap. 207, which was substantially a re-enactment of its former charter. By its present charter it is authorized to provide the city of Knoxville with water by a system of waterworks to be established within or beyond the boundaries of the city. Was the city of Knoxville, under the constitutional and accordant statutory test, employing its plant in Park City "exclusively for public or corporation purposes?" The true test to be applied is whether the municipality sought to be subjected to taxation is engaged in the administration of the property in question for a public purpose; that is, for governmental purposes. It is the character of the use to which the property is put, and not so much the person who owns or administers it, or the place where it by taxes levied on the property in Newthe property may be situate, that is determinative of this question of exemption from taxation. We may resort for ascertainment of the meaning of the phrase "public purpose" to the law of eminent domain, which furnishes an analogy not complete, yet fairly apt. 1 Cooley, Tax. 3d ed. 192; Wayland v. Middlesex County, 4 Gray, 500. It cannot be contended that the city of Knoxville would have power, under the law of eminent domain, at least in the absence of express and specific grant, to condemn property for the laying of a waterworks system in Park City for the service of the latter, since it would not be a public purpose to be served by the former municipality to supply the latter with a water supply. We doubt whether any reported case can be cited which shows even an attempt at the assertion of such power, not to mention its being sustained. If we resort for further analogy to the power to tax for a "public purpose," we find authority denying that the city of Knoxville could validly levy taxes on its own inhabitants and property holders for the immediate purpose of erecting a water distribution plant in another municipality to serve the latter. 3 Dill. Mun. Corp. 5th ed. § 1300. In Dyer v. Newport, 123 Ky. 203, 94 S. W. 25, it appeared that the city of Newport had taken the franchise to install a water system in, and to furnish for a period of twenty years a water supply to, Clifton, a municipality lying alongside Newport. A citizen and taxpayer of Newport brought suit to enjoin the execution of the contract on the ground that it was ultra vires. The court sustained this contention, saying: "There is no express and implied grant of power to Newport to engage in such enterprise beyond its corporate limits; nor has it the right, therefore, to levy and collect taxes for such purpose. The contract in this suit, if valid, would impose the obligation on the city to put in all necessary water mains and fire hydrants in Clifton at the expense of the city of Newport. To raise the money to do this, it would have to impose a tax on the people and property liable to city taxes, or appropriate money out of the city treasury put there by taxation. In either event, it is equivalent to the imposition of a tax on the people and property of Newport to install and maintain water facilities in the municipality of Clifton. And if the contract with Clifton should prove unprofitable to Newport, and the latter should lose money in the enter prise, the loss would have to be made up by the latter by collecting funds to defray port. Nor could Newport acquire a franchise by purchase, or otherwise, in the absence of express legislative authority, to operate a waterworks system in and for the benefit of another municipality." See also Jackson County v. State, 155 Ind. 604, 58 N. E. 1037. The court of appeals of Kentucky, in the later case of Com. v. Covington, 128 Ky. 36, | 14 L.R.A. (N.S.) 1214, 107 S. W. 231, held that the fact that water was furnished for compensation to inhabitants of its suburbs, without its or any corporate limits, does not alter the public purpose or use of its water system so as to make it subject to taxation. But the court took care to distinguish the case it had in hand from the one we have under investigation, saying: "We do not mean that a city may enter upon the business of maintaining a waterworks system for other cities or towns, but only that the fact that it incidentally furnishes water to & considerable number of persons in proximity to the city, without injury to the rights of the inhabitants of the city, does not alter the public character or use of the property, or make it subject to taxation." The ruling in Com. v. Covington, supra, is in harmony with the decision of many courts to the effect that the fact that water is furnished to inhabitants of unincorporated suburbs is a mere incident to, and not destructive of, the public use. It was held in Farwell v. Seattle, 43 Wash. 141, 86 Pac. 217, 10 Ann. Cas. 130, that, in the absence of express authority conferred by statute in clear terms, a city has no power to extend its water system into another municipality for the purpose of furnishing the latter with a water supply, and that such power could not be drawn from a statute giving the city of Seattle power to furnish "such city or town and the inhabitants thereof and any other persons with an ample supply of water." The expenditure of municipal funds in such extension was enjoined at the instance of a citizen and taxpayer. See also Rehill v. East Newark, 73 N. J. L. 220, 63 Atl. 81. In the pending case we need not decide whether the language of the charter of Knoxville is broad enough to support the power claimed for that municipality in this respect. It may be, however, that the city of Knoxville has the power under Acts 1903, chap. 153, and Acts 1909, chap. 344, to acquire, hold, and operate the water system in Park City; the first being an enabling act by which complainant city was authorized to issue $750,000 of bonds for the purpose of "acquiring, owning, and operating a system of waterworks, for said city and adjacent territory, either by purchase or construc tion," and the later act (Acts 1909, chap. ing taken over the whole system subject to the burden of supplying a part of the water to inhabitants of South Pasadena, the city of Pasadena will have no greater rights or powers, respecting that part of the service, that its grantor previously had. . . The powers of the two cities in regard to this water service will be separate and distinct; one will be subordinate to the other, and hence there will not be two cities exercising the same powers in the same territory at the same time; South Pasadena, within its own limits, will be the sole representative of sovereignty in the fixing of rates and in the supervision of the streets; and Pasadena will be subject thereto, as a private person." It is difficult to conceive how the city of Knoxville has any public or corporate purpose to serve within the corporate limits of Park City. All municipal purposes therein are those of Park City, created by legislative act to exercise them. The furnishing of a water supply for itself and its inhabitants is its municipal purpose, and cannot be Knoxville's. 344) providing for an increase of the bond issue for the specific purpose of buying the existing plant of the Knoxville Water Com pany. This, under the doctrine of the cases of Omaha Water Co. v. Omaha, 89 C. C. A. 205, 162 Fed. 225, 15 Ann. Cas. 498, and South Pasadena v. Pasadena Land & Water Co. 152 Cal. 579, 93 Pac. 490. If this be conceded, it remains for inquiry whether that power was one that manifested a public corporate purpose, or one that was a demonstration of a mere proprietary right,-a business power inhering in the city of Knoxville as a body corporate. In the case last cited, the supreme court of California clearly defined the nature of the power thus exercised by the municipali- By parity of reasoning the city of Knoxty owning and operating such a plant. The ville is not exercising a public or political city of Pasadena under its charter had pow-power in Park City, and is subject to the er to construct and maintain waterworks paramountcy of Park City, as the sole rep"for supplying the city and its inhabitants resentative of sovereignty in respect of the with water, and the right to supply water taxing power. As the successor of the to persons who live out of the city." The Knoxville Water Company, the first-named defendant company was a private corpora city will be deemed to stand in the plight tion engaged in supplying under contracts of that private corporation as to exemption Pasadena and South Pasadena, distinct mu- from taxation. nicipalities, with water, and the suit was to enjoin it from selling its plant to the city of Pasadena. The court had to deal with the relations that would exist between the two municipalities in event the injunction were denied. After referring to the power of South Pasadena over the private water company, the court said: "Necessarily it has this power [of regulation] as against another city engaged in supplying Nor may it logically be conceived that such water, as well as when an individual the city of Knoxville serves even incidentalor water corporation does so. It is sugly its own corporate public purpose by gested that the two cities each represent the sovereign power, and would have equal authority in all municipal affairs; that a conflict would ensue, and that such consequences cannot be considered as intended, unless the intention is expressly and unmistakably declared. In this connection the rule is invoked that there cannot be two municipalities exercising the same powers at the same time within the same territory. But the two cities would not be of equal authority with respect to the use of water in South Pasadena, in such case. South Pasadena would have the power above stated, under the Constitution, and Pasadena, so far as that service is concerned, would be subject to those powers, to the same extent as the Pasadena Land & Water Company is now subject thereto. In the carrying on of the water service to the people of South Pasadena, the city of Pasadena will not be acting in its political, public, or governmental capacity as an agent of the sovereign power equal in all respects to the city within which it operates. Hav means of the Park City system. What is the primary "public purpose" of Park City may not be an incidental "public purpose" of Knoxville. The legislature will be taken to have intentionally lodged the full power and duty in that regard in its local governmental representative, Park City. In Stiles v. Newport, 76 Vt. 154, 171, 56 Atl. 662, followed by Swanton v. Highgate, 81 Vt. 152, 16 L.R.A. (N.S.) 867, 69 Atl. 667, it was held that where the municipal corporation of Newport had constructed a branch line in another municipality, West Derby, which was devoted wholly to the needs of the latter, and furnished its water supply, that system was taxable by West Derby. The court in a comprehensive opinion said: "The municipal duty of the village of Newport as regards the maintenance of mains and hydrants is confined to its territorial limits. The municipal relation which enters into the question of domestic supply is confined to its own inhabitants. The furnishing of water to the inhabitants |