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proceeds, and return the balance to her. bar. In that case the corporation obtained Thereafter the company sold the land to certain bonds in trust. One of the directors Rockhill, one of its directors, for less than subsequently purchased the bonds from the it was worth, in violation of the terms of corporation, and in an action against him its trust. Whereupon she sued to enforce set up the claim that he knew nothing about the trust and to

an accounting the trust agreement; that he purchased the against them both. Rockhill claimed he had property in good faith for value and withbought the property in good faith and without notice. The court, however, brushes his out notice of the trust. But the trial court claim aside, and holds that, as a director found that he, as a director of the corpora-, of the corporation, he must be held as havtion, was chargeable with knowledge of the ing had knowledge of the trust agreement, agreement between the respondent and the although he was absent from the board company, and hence of the trust, and there. meeting and had no actual knowledge that fore was not a bona fide purchaser of the the board of directors entered into the land. After holding that the company acted agreement." as trustee in the premises, and as such was In the fifth Nebraska case, supra, it was liable to account under the terms of the held that if a cashier, on inquiry by a suretrust, the court, in answering the question ty, not an officer of the bank, stated that whether Rockhill took the land subject the note upon which he was surety had thereto, said: "The answer to this ques. been paid by the principal, the bank was tion depends upon two things, namely, Rock- estopped to deny the truth of such statehill's relation to the corporation, and the ment, when to do so would entail loss on character of the transaction by which it the surety which he could have avoided had obtained title to the land in question. Rock- the statement not been made, but that such hill's relation to the corporation was that rule had no application where the surety of director and vice president. Whenever a was one of the directors of the bank, for corporation in this state exercises its pow. the reason that he had means of knowing ers, it must do so through the board of di- the true condition of its affairs, and was rectors, since, under our statute (Comp. conclusively presumed to know whether Laws 1907, § 324), all corporate powers are payment was made or not. vested in and shall be exercised by the Nelson v. Wellington, 5 Bosw. 178, was board of directors.' No doubt, the majority a suit to recover on a promissory note for of the board, when regularly convened, may $351.25 payable to the Atlas Insurance Comexercise any of the corporate powers in the pany, which prior to maturity, the company absence of the minority, and bind such had turned over as collateral to plaintiff's minority if the acts of the majority are not as trustees of an express trust. The faets ultra vires, or in violation of some positive were that the company, in order to raise statute or of some general law, or are void money for business purposes, borrowed a or voidable as against public policy. The number of notes from its friends, which it minority is not only bound by the acts of discounted, and so used the money. To se. the majority, but the minority members cure its payment, the company deposited are charged with knowledge of all the legal with plaintiff's, who were also meinbers of corporate acts that are exercised as afore- its board of trustees, the note in suit. The said. If, therefore, the majority acquires note was executed by defendants for adany property in trust, every director is vanced premiums on merchandise to be charged with knowledge of the trust rela- shipped, and, when shipped and reported to tion, and, as against the claims of those the company, the risk was to be indorsed for whom the corporation became trustee, on an open policy of insurance, or othersuch member has and can acquire no better wise accepted. The question was whether right to the trust property than the corpo. this collateral note could be recovered by ration has. In this regard, it can make no the trustees in full or only for the amount difference whether the majority of the board of the premiums for risks so indorsed. In of directors directly exercise the corporate passing the court said that the note was power or authorized some agent to do so. binding in the hands of the insurance comThe act is still the exercise of a corporate pany, and that the plaintiff's took no better power of which every director, as against title than the company itself had, as they strangers to the corporation, is assumed to were officials or trustees of the company, have notice.”

and must be deemed to have knowledge of And after quoting as indicated, further the title of the company to the note.

Or said: “This text is sustained by the au- in other words, as we understand the case, thorities. Merchants' Bank v. Rudolf, 5 that it would not do for the plaintiff's to Neb. 527; Greenville Gas Co. v. Reis, 54 say that they took the note other than subOhio St. 549, 44 N. E. 271. The last case,ject to all the equities existing between the in principle, is precisely like the case at' original parties. And so we say it makes

V.

no difference whether plaintiff was absent Messrs. Shields & Cates, for appellant:
from the board meeting or not at the time The plant and property of complainant
of the sale and indorsement of the note in lying within the territorial limits of defend-
question, or whether he participated in or ant city are not being used by complainant
actually knew the “particulars” of this for a public or corporate purpose, because,
transaction or not. His duty under his as a corporation, it is without power and
trust, as director, being to know the value authority to furnish water to a separate,
of this note, and necessarily its infirmities, independent, and distinct municipality; and
he was chargeable with knowing, and can that part of said plant so used is in effect
not be held to be a purchaser in good faith, independent of, and not necessary to, the
or to have acquired thereto a better title remainder of complainant's property, which
than the payee had. See also Lyman v. is used for corporate purposes.
Bank of United States, 12 How. 225, 13 L. Smith v. Nashville, 88 Tenn. 474, 7
ed. 965; United Society of Shakers v. Under- L.R.A. 469, 12 S. W. 924; West Hartford
wood, 9 Bush, 609, 15 Am. Rep. 731; Nelson v. Water Comrs. 44 Conn. 361; Dyer v.
v. Wellington, supra; Thomp. Corp. 2d ed. Newport, 123 Ky. 203, 94 S. W. 25; Far-
§ 1672; Martin v. Webb, 110 U. S. 7, 28 L. well v. Seattle, 43 Wash. 141, 86 Pac.
ed. 49, 3 Sup. Ct. Rep. 428.

217, 10 Ann. Cas. 130; Stauffer v. East Let the cause be reversed, with directions Stroudsburg, 215 Pa. 143, 64 Atl. 411; Bly to let it go to the jury on the equities ex- v. White Deer Mountain Water Co. 197 Pa. isting between the original parties.

80, 46 Atl. 929; Haupt’s Appeal, 125 Pa.

211, 3 L.R.A. 536, 17 Atl. 436; Paris v. All the Justices concur.

Sturgeon, 50 Tex. Civ. App. 519, 110 S. W.
459.

The plant and property of complainant

lying and being within the territorial limits TENNESSEE SUPREME COURT. of defendant, not being used by complainant

for its legitimate public or corporate purMAYOR AND ALDERMEN OF KNOX- | poses, are subject to taxation under the VILLE

laws of this state.

Smith v. Nashville, 88 Tenn. 474, 7 L.R.A.
PARK CITY, Appe.

469, 12 S. W. 924; West Hartford v. Water

Comrs. 44 Conn. 361; Newport v. Unity, (130 Tenn. 626, 172 S. W. 286.)

68 N. H. 587, 73 Am. St. Rep. 626, 44 Atl.

704; South Carolina v. United States, 199 Tax municipal water plant property used for supplying neighboring

U. S. 437, 461-463, 50 L. ed. 261, 269, 270, town.

26 Sup. Ct. Rep. 110, 4 Ann. Cas. 737. A municipal corporation which supplies

Defendant had the right to tax plaintiff's at a profit water from its plant to a neigh property and thus lessen the fixed charges boring town is not exempt from an ad which the former agreed to pay, and is valorem tax by the latter on the mains still paying, for its fire protection, and for and hydrants within its limits, nor from a the other water used for municipal purprivilege tax there, by a provision exempt

poses. ing municipal property used exclusively for public or municipal corporation purposes 1, 2; Desty, Taxn. p. 48; Newport v. Com.

1 Cooley, Taxn. 3d ed. p. 266, and notes from taxation.

106 Ky. 434, 45 L.R.A. 518, 50 S. W. 845, (December 19, 1914.)

51 S. W. 433; Clark v. Louisville Water

Co. 90 Ky. 522, 14 S. W. 502; Louisville PPEAL by defendant from a decree of v. Louisville Water Co. 1 L.R.A. (N.S.) 766, A

the Court of Civil Appeals aflirming and note, 26 Ky. L. Rep. 425, 81 S. W. a decree of the Chancery Court for Knox 698; Smith v. Nashville, 88 Tenn. 473, 7 County in plaintiff's favor in a suit to en- L.R.A, 469, 12 S. W. 924. join defendant from collecting ad

Mr. W. E. Drummond also for appelvalorem tax assessed against certain of lant. plaintiff's property, and to enjoin the col- Messrs. W. T. Kennerly and Noble lection of a privilege tax alleged to be Smithson, for appellee: due for the operation of a waterworks

Complainant is exempt from this tax beplant in the defendant city. Reversed. cause using the property in question for The facts are stated in the opinion. public or municipal corporation purposes.

3 Dill. Mun. Corp. 5th ed. $ 1297; People Note. - As to liability to taxation of

ex rel. Detroit & H. R. Co. v. Salem, 20 property located in one state or municipality, but belonging to another, see note to Mich. 452, 4 Am. Rep. 400; Walker y. State ex rel. Taggart v. Holcomb, 50 L.R.A. Cincinnati, 21 Ohio St. 42. 8. Am. Rep. (N.S.) 243.

24 ; Cooley, Const. Lim. pp. 128, 129; Mitch

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ell v. Burlington, 4 Wall. 273, 18 L. ed. / noted, the city of Knoxville in 1909 ac352; Larned v. Burlington, 4 Wall. 275, 18 quired the plant of this company, including L. ed. 353; Rogers v. Burlington, 3 Wall. ( that part situated in Park City, and as654, 18 L. ed. 79; Jarrott v. Moberly, 5 sumed the contract then in existence be. Dill. 253, Fed. Cas. No. 7,223; Maydwell|tween the company and Park City, and has v. Louisville, 116 Ky. 885, 63 L.R.A. 655, since operated its plant there. 105 Am. St. Rep. 245, 76 S. W. 1091 ; The proof establishes that the plant of Shelby County v. Tennessee Centennial Ex. complainant city lying within the terriposition Co. 96 Tenn. 653, 33 L.R.A. 717, torial limits of Park City is, as to use, 36 S. W. 694; McCallie v. Chattanooga, 3 | independent of, and not necessary to, that Head, 318; Adams v. Memphis & L. R. R. part of the system which is in Knoxville Co. 2 Coldw. 645; Nashville v. Smith, 86 and there in use for that city and its inTenn. 213, 6 S. W. 273; University of the habitants. No mains for the Knoxville South v. Skidmore, 87 Tenn. 155, 9 S. W. supply are laid in Park City. 892; State v. Fisk University, 87 Tenn. 234, Since its purchase of the plant of the 10 S. W. 284; Book Agents of M. E. Church, Knoxville Water Company, the city of South v. Hinton, 92 Tenn. 188, 19 L.R.A. Knoxville has charged the inhabitants of 289, 21 S. W. 321; West Hartford v. Water Park City for water at rates which are Comrs. 44 Conn. 360; State, Hackettstown, 20 per cent higher than its rates to its own Prosecutor, v. Conover, 63 N. J. L. 191, inhabitants; and a profit is made from the 42 Atl. 838; State, Camden County, Pros- Park City plant. A portion of these profits ecutor, v. Collins, 60 N. J. L. 367, 37 Atl. has been used to extend water lines into 623; 2 Dill. Mun. Corp. 4th ed. § 773; and to serve a third incorporated town, People ex rel. New York v. Board of As. Lonsdale, which is not adjacent to the city sessors, 111 N. Y. 505, 2 L.R.A. 148, 19 of Knoxville. N. E. 90.

Section 28 of article 2 of the Constitution Mr. J. Pike Powers, Jr., also for ap- of this state provides: “All property real, pellee.

personal or mixed, shall be taxed, but the

legislature may except such as may be held Williams, J., delivered the opinion of the by the state, by counties, cities, or towns, court:

and used exclusively for public or corpoThe mayor and aldermen of Knoxville ration purposes." filed its bill of complaint against Park Section 1 of chapter 602 of the Acts of City, another municipal corporation, seek 1907 provides : ing an injunction against the latter to in- "That all property-real, personal and hibit the collection of an ad valorem tax mixed-shall be assessed for taxation for for the year 1910, assessed against that por- state, county and municipal purposes, extion of the water plant of complainant city cept such as is declared exempt in the next located within the corporate limits of the section. defendant city, and also to enjoin the col- “Sec. 2. That the property herein enumlection of a privilege tax claimed to be due erated and none other shall be exempt from for the exercise of the privilege of operating taxation : All property of

any a waterworks system in Park City. incorporated city, town, or taxing district

The bill of complaint proceeds upon the in the state that is used exclusively for theory that the property attempted to be public or municipal corporation purposes." taxed is exempt because owned by a munici- Complainant city was incorporated under ipal corporation; while it is the contention Acts of 1907, chap. 207, which was subof defendant city that such portion of the stantially a re-enactment of its former plant of complainant which is situated with charter. By its present charter it is auin the boundaries of Park City is not used | thorized to provide the city of Knoxville exclusively for public or corporation pur with water by a system of waterworks to poses of the complainant municipality, but be established within or beyond the boundis used in serving Park City for profit. aries of the city.

It appears that the west boundary line of Was the city of Knoxville, under the Park City is almost contiguous to the east constitutional and accordant statutory test, boundary line of the city of Knoxville for a employing its plant in Park City "exclusive· distance of about 1 mile. There intervenes ly for public or corporation purposes ?” what is described as a neutral strip, about The true test to be applied is whether the 300 feet wide, on which factories are located. municipality sought to be subjected to taxa

Prior to 1909 both of the cities were tion is engaged in the administration of the served by a private water corporation, the property in question for a public purpose; Knoxville Water Company, the plant of that is, for governmental purposes. It is which was located partially in the territory the character of the use to which the propof each of them. Under legislation later lerty 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 New. the property may be situate, that is de- port. Nor could Newport acquire a franterminative of this question of exemption chise by purchase, or otherwise, in the abfrom taxation.

sence of express legislative authority, to We may resort for ascertainment of the operate a waterworks system in and for the meaning of the phrase "public purpose" to benefit of another municipality." See also the law of eminent domain, which furnishes Jackson County v. State, 155 Ind. 604, 58 an analogy not complete, yet fairly apt. 1 N. E. 1037. Cooley, Tax. 3d ed. 192; Wayland v. Middle- The court of appeals of Kentucky, in the sex County, 4 Gray, 500. It cannot be later case of Com. v. Covington, 128 Ky. 36, contended that the city of Knoxville would 14 L.R.A. (N.S.) 1214, 107 S. W. 231, held have power, under the law of eminent do- that the fact that water was furnished for main, at least in the absence of express compensation to inhabitants of its suburbs, and specific grant, to condemn property, without its or any corporate limits, does not for the laying of a waterworks system in alter the public purpose or use of its water Park City for the service of the latter, system so as to make it subject to taxation. since it would not be a public purpose to be But the court took care to distinguish the served by the former municipality to sup- case it had in hand from the one we have ply the latter with a water supply. We under investigation, saying: “We do not doubt whether any reported case can be mean that a city may enter upon the busicited which shows even an attempt at the ness of maintaining a waterworks system assertion of such power, not to mention for other cities or towns, but only that the its being sustained.

fact that it incidentally furnishes water to If we resort for further analogy to the a considerable number of persons in proxpower to tax for a “public purpose,” we

imity to the city, without injury to the find authority denying that the city of rights of the inhabitants of the city, does

not alter the public character or use of the Knoxville could validly levy taxes on its

property, or make it subject to taxation.” own inhabitants and property holders for

The ruling in Com. v. Covington, supra, the immediate purpose of erecting a water is in harmony with the decision of many distribution plant in another municipality courts to the effect that the fact that water to serve the latter. 3 Dill. Mun. Corp. is furnished to inhabitants of unincorporat5th ed. & 1300.

ed suburbs is a mere incident to, and not In Dyer v. Newport, 123 Ky. 203, 94 S. destructive of, the public use. W. 25, it appeared that the city of New- It was held in Farwell v. Seattle, 43 port had taken the franchise to install a Wash. 141, 86 Pac. 217, 10 Ann. Cas. 130, water system in, and to furnish for a period that, in the absence of express authority of twenty years a water supply to, Clifton, conferred by statute in clear terms, a city a municipality lying alongside Newport. A has no power to extend its water system citizen and taxpayer of Newport brought into another municipality for the purpose of suit to enjoin the execution of the contract furnishing the latter with a water supply, on the ground that it was ultra rires. The and that such power could not be drawn court sustained this contention, saying: from a statute giving the city of Seattle “There is no express and implied grant of power to furnish “such city or town and the power to Newport to engage in such enter inhabitants thereof and any other persons prise beyond its corporate limits; nor has with an ample supply of water.” The exit the right, therefore, to levy and collect penditure of municipal funds in such extentaxes for such purpose. The contract in sion was enjoined at the instance of a citizen this suit, if valid, would impose the obliga and taxpayer. See also Rehill v. East tion on the city to put in all necessary water Newark, 73.N. J. L. 220, 63 Atl. 81. mains and fire hydrants in Clifton at the In the pending case we need not decide expense of the city of Newport. To raise whether the language of the charter of the money to do this, it would have to Knoxville is broad enough to support the impose a tax on the people and property power claimed for that municipality in this liable to city taxes, or appropriate money respect. out of the city treasury put there by taxa- It may be, however, that the city of Knoxtion. In either event, it is equivalent to ville has the power under Acts 1903, chap. the imposition of a tax on the people and 153, and Acts 1909, chap. 344, to acquire, property of Newport to install and maintain hold, and operate the water system in Park water facilities in the municipality of Clif City; the first being an enabling act by ton. Ard if the contract with Clifton which complainant city was authorized to should prove unprofitable to Newport, and issue $750,000 of bonds for the purpose of the latter should lose money in the enter. / “acquiring, owning, and operating a system prise, the loss would have to be made up of waterworks, for said city and adjacent by the latter by collecting funds to defray · territory, either by purchase or construc

tion,” and the later act (Acts 1909, chap. / ing taken over the whole system subject to 344) providing for an increase of the bond the burden of supplying a part of the issue for the specific purpose of buying the water to inhabitants of South Pasadena, existing plant of the Knoxville Water Com the city of Pasadena will have no greater pany. This, under the doctrine of the rights or powers, respecting that part of cases of Omaha Water Co. v. Omaha, $9 the service, that its grantor previously had. C. C. 'A. 205, 162 Fed. 225, 15 Ann. Cas.

The powers of the two cities in re498, and South Pasadena v. Pasadena Land gard to this water service will be separate & Water Co. 152 Cal. 579, 93 Pac. 490. If and distinct; one will be subordinate to this be conceded, it remains for inquiry the other, and hence there will not be two whether that power was one that mani- cities exercising the same powers in the fested a public corporate purpose, or one same territory at the same time; South that was a demonstration of a mere pro- Pasadena, within its own limits, will be prietary right,-a business power inhering the sole representative of sovereignty in in the city of Knoxville as a body corporate, the fixing of rates and in the supervision

In the case last cited, the supreme court of the streets; and Pasadena will be subof California clearly defined the nature of ject thereto, as a private person.” 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 It is difficult to conceive how the city of to enjoin it from selling its plant to the Knoxville has any public or corporate purcity of Pasadena. The court had to deal pose to serve within the corporate limits of with the relations that would exist between Park City. All municipal purposes therein the two municipalities in event the injunc. are those of Park City, created by legisla. tion were denied. After referring to the tive act to exercise them. The furnishing power of South Pasadena over the private of a water supply for itself and its inhabitwater company, the court said: "Neces- ants is its municipal purpose, and cannot sarily it has this power (of regulation] as be Knoxville's. 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 sug- ly its own corporate public purpose by gested that the two cities each represent means of the Park City system. What is the sovereign power, and would have equal the primary “public purpose” of Park City authority in all municipal affairs; that a may not be an incidental "public purpose" conflict would ensue, and that such conse of Knoxville. The legislature will be taken quences cannot be considered as intended, to have intentionally lodged the full power unless the intention is expressly and unmis- and duty in that regard in its local governtakably declared. In this connection the mental representative, Park City. rule is invoked that there cannot be two In Stiles v. Newport, 76 Vt. 154, 171, municipalities exercising the same powers 56 Atl. 662, followed by Swanton v. Highat the same time within the same territory. gate, 81 Vt. 152, 16 L.R.A.(N.S.) 867, But the two cities would not be of equal au- 69 Atl. 667, it was held that where the thority with respect to the use of water in municipal corporation of Newport had conSouth Pasadena, in such case. South Pasa-structed a branch line in another municidena would have the power above stated, pality, West Derby, which was devoted under the Constitution, and Pasadena, so wholly to the needs of the latter, and far as that service is concerned, would be furnished its water supply, that system subject to those powers, to the same extent was taxable by West Derby. The court in as the Pasadena Land & Water Company a comprehensive opinion said: is now subject thereto. In the carrying on "The municipal duty of the village of of the water service to the people of South Newport as regards the maintenance of Pasadena, the city of Pasadena will not mains and hydrants is confined to its ter. be acting in its political, public, or govern- ritorial limits. The municipal relation mental capacity as an agent of the sover- which enters into the question of domestic eign power equal in all respects to the supply is confined to its own inhabitants. city within which it operates. Hav- 1 The furnishing of water to the inhabitants

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