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BOARD OF MAYOR, ETC., OF MORRISTOWN V. EAST TENN. TEL. CO.

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because the ordinance of September ist could not be altered or annulled by resolution; second, that the acceptance was of the ordinance and resolution together, and, the resolution being void, the acceptance goes for nothing.

The consent to the occupancy of the streets by the poles and wires of the telephone company for the purpose of maintaining a public telephone system was the grant of an easement in the streets and a conveyance of an estate or property interest, which, being in a large sense the exercise of a proprietary or contractual right rather than legislative, was irrevocable after acceptance, unless the power to alter or revoke was reserved. This principle has too many times been declared and applied by this court to require further elaboration. Detroit Citizens' St. Ry: Co. v. City of Detroit, 12 C. C. A. 365, 64 Fed. 628, 26 L. R. A. 667; Louisville Trust Co. v. City of Cincinnati, 22 C. C. A. 334, 76 Fed. 296; Iron Mountain R. Co. v. City of Memphis, 37 C. C. A. 416, 96 Fed. 113; Citizens' Ry. Co. v. Africa, 23 C. C. A. 252, 77 Fed. 501.

The telephone company in consideration of this street easement agreed to permit its poles to be used by the city for stretching the wires of a fire-alarm system, and also to furnish two telephones free for municipal uses. The amendment of this ordinance by the resolution of September 25th was ineffectual. The charter as amended having conferred the power of granting street franchises “by ordinance, no other method was admissible. When, by statute or charter, power is conferred upon a municipal council and is silent as to the mode of action, the decision may be by either ordinance or resolution, at discretion of the council. But when the charter prescribes that franchises can be granted by ordinance it is not competent to make such a grant by resolution. Board v. De Kay, 148 U. S. 591, 13 Sup. Ct. 706, 37 L. Ed. 573; Dill. Mun. Corp. (2d Ed.) § 244 et seq., and notes; Newman v. City of Emporia, 32 Kan. 456, 4 Pac. 815; Van Vorst v. Jersey City, 27 N. J. Law, 493; City of Green Bay v. Brauns, 50 Wis. 204, 6 N. W. 503; Illinois Trust & Sav. Bank v. Arkansas City, 22 C. C. A. 171, 76 Fed. 271, 34 L. R. A. 518.

The by-laws of the city required that an ordinance should be passed at two separate meetings. No such requirement exists as to the passing of a resolution. So far as the resolution sought to alter any term or condition upon which the ordinance granted an easement in the streets to the East Tennessee Telephone Company its invalidity must be conceded; for it would seem to follow that if a franchise can only be granted by an ordinance that such an ordinance can only be altered or amended, in respect to any of its terms or conditions, by another ordinance, and not by a mere resolution. This brings us to the crux of the case. The ordinance conferring the right to erect and maintain its poles and wires upon the streets was repealed by an ordinance passed November 17, 1899.

The learned counsel for the appellant concede that if there had been an “unequivocal acceptance of this consent ordinance, and substantial action under its terms, that it would have constituted an inviolable contract.” City of Knoxville v. Africa, 23 C. C. A. 252, 77 Fed. 501 ; Detroit Citizens' St. Ry. Co. v. City of Detroit, 12 C. C. A. 365, 64 Fed. 628, 26 L. R. A. 667.

The right to revoke the easement granted is based upon the fact that the telephone company, in writing, accepted the ordinance only as amended by the invalid resolution. This acceptance, it is said, was but a conditional acceptance, and that, if the resolution turn out to be ineffective as an amendment or alteration of the terms of the consent ordinance, the acceptance goes for nothing. The position is untenable. The telephone company, under the circumstances, might very well have said, upon discovery, that the modification of the terms of the ordinance had not been made in a valid manner, "that it would not avail itself of the franchise granted, and was not bound to carry out any implied agreement to construct or maintain a local telephone system, as its acceptance of the street franchise had been based upon the supposed validity of the resolution modifying the terms of the ordinance granting a street easement.” But this it has not done, and does not now say. On the contrary, it in effect says: “Although I have not so good a contract as I desired and supposed I had, yet I stand upon the rights conceded me by the valid ordinance, and upon the terms and conditions there prescribed."

An ordinance conferring street easements in excess of the power of the municipality to grant is not necessarily void. For example, ordinances conferring exclusive rights by a municipality having no power to grant exclusive rights have been held valid so far as to convey a right, subject to the right of the city to grant like privileges in same streets to others. Levis v. City of Newton (C. C.) 75 Fed. 884; City of Waterloo v. Waterloo St. Ry. Co., 71 Iowa, 193, 32 N. W. 329.

The same rule would apply to an ordinance valid in part and invalid in part which is applicable to a statute. If the grants are so distinctly separable that each can stand alone, and the court is able to see that there is no such interdependence as to make the validity of a part depend upon the validity of every part, the ordinance will be upheld so far as valid. But here nothing has failed but an effort to amend an ordinance confessedly valid. The amendment was one proposed by the telephone company, and wholly in its interest. If it chooses to go on, although the modifying resolution has failed to accomplish its purpose, it is not for the city to escape responsibility upon the assumption that everything done by the telephone company in acceptance of the easements granted was made dependent upon the validity of this amending resolution. The plain purpose of the telephone company, by its written acceptance and by the subsequent prosecution of the work of putting in its local lines, was to avail itself of the grant made by the ordinance. Undoubtedly it acted upon the theory that the resolution had worked a valid modification of the ordinance, and this it has maintained to the end of this litigation. This contention it has now lost, and it is now confronted with the novel claim that the easement remained revocable, because its acceptance included a supposed modification which turns out to have been irregularly granted, and therefore invalid. The acceptance of the grant by writing and by acts prior to the repealing ordinance was, in our judgment, such as to give the ordinance, so far as valid, effect as a contractual ordinance, and render it irrevocable.

Street rights so vested cannot be devested without the consent of both parties or by clear acts of abandonment indicating an intention not to accept. Louisville Trust Co. v. City of Cincinnati, 22 C. C. A. 334, 76 Fed. 296. The street rights thus granted are, of course, subject to the provisions of the ordinance itself, as well as the police power of the city, which can never be contracted away.

Whether the Morristown Telephone Company had any street easement, and whether the appellees, as purchasers of its property, acquired such street rights as it had, we do not decide. That it acquired the physical property of that company is not denied. What we do decide is that the East Tennessee Telephone Company acquired a valid and irrevocable right to erect its poles and string its wires on and over the streets and alleys of Morristown, under and subject to the terms and provisions of the ordinance of September 1, 1899. We also hold that the resolution of September 25, 1899, was ineffective as an amendment of the prior ordinance, and that the East Tennessee Telephone Company, by its acts and deeds, has accepted the terms of the ordinance of September 1, 1899.

We also decide that the ordinance repealing the ordinance of September 1, 1899, was ineffective to deprive the telephone company of the easement granted under the ordinance of September 1, 1899. The street rights thus acquired must be held subject to the provisions of the ordinance under which they were granted, and also subject to the reasonable regulations of the municipality by virtue of its police power. City of Baltimore v. Baltimore Trust & Guarantee Co., 166 U. S. 673, 17 Sup. Ct. 696, 41 L. Ed. 1160.

The general result below was sound, and is affirmed, but the appellant is entitled to have the injunction modified as indicated by this opinion. Remand, with directions to modify the decree. Costs of this court will be divided

(115 Fed. 309.)

DEITCH et al. v. STAUB.
(Circuit Court of Appeals, Sixth Circuit. April 8, 1902.)

No. 963. 1. BUILDING AND LOAN AssociationS-LEGALITY AND POWERS-TENNESSEE

STATUTES.

A building and loan association chartered by a chancery court of Tennessee, purporting to act under Acts Tenn. Jan. 30, 1871, authorizing the organization of corporations by such courts, although its charter was invalid for lack of power in the court to create a corporation for such purpose and with such powers, was authorized to become a valid corporation, with all the powers prescribed for such associations, by Acts 1875, c. 142, by virtue of Act: March 23, 1883, which provided “that any persons organized as a corporation under a charter granted by a chancery court” might obtain any power granted by the act of 1875, by making an application for amendment of its charter in accordance with its provisions, “provided bowever that this act shall in no way apply or affect corporations where suits have already been brought to declare their charter void"; and the fact that such association, in its application made under the latter act, designated some of the powers it desired to obtain by a general reference to the section of the act of 1875 relating to building associations, which it described sufficiently to identify the same, instead of enumerating such powers, was a mere irregularity, not affecting the validity of the amendments to its charter thus obtained by

reference. 2. STATUTORY CONSTRUCTION-PROVISO-OFFICE OF.

The primary and usual office of a proviso is to except something out

of a statute which would otherwise be within it. 3. BUILDING AND LOAN AssociATIONS-BORROWING MEMBERS—ESTOPPEL TO

DENY LEGAL ORGANIZATION.

A member of a building and loan association who obtains a loan from it, and executes his note and mortgage therefor, waives the right to deny the power of the association to make such loan or to carry on the business of such an association, and is estopped to set up an irregularity

in its organization in defense to an action to enforce the contract.1 4. CURATIVE STATUTE.

Whether a corporate organization be invalid, because of failure to comply with the terms of a valid law, or because the organization was under an invalid law, there is no impairment of the obligation of any contract by subsequent legislation permitting such corporation to be

come a corporation de jure. 5. BUILDING AND LOAN ASSOCIATIONS-SUIT TO FORECLOSE MORTGAGE-DE

FENSE OF USURY.

Under the statute of Tennessee which permits building and loan associations to charge and collect a premium on loans, in addition to legal interest, where the same is bid in open competition, but not otherwise, an averment in a bill to foreclose a mortgage securing such a loan to a shareholder that the premium contracted for was so bid is supported by the presumption that the law was complied with; and the burden rests upon the defendant to disprove such allegation, and to establish his de

fense of usury. 6. SAME-PROCEDURE FOR MODIFICATION OF INTERLOCUTORY DECREE.

Where the defense of usury pleaded by a defendant in a suit to foreclose a mortgage was adjudged against him by an interlocutory decree, and no application was made to reopen the case to admit newly discovered evidence on the issue, in accordance with the recognized practice in equity, a master to whom the cause was referred to state the account was justified in ignoring testimony introduced before him tending to support the claim of usury, and it was not error for the court to overrule

exceptions to his report based on that ground. 7. SAME-RIGHTS OF PURCHASER ASSUMING MORTGAGE-USURY.

A purchaser of property upon which there was a mortgage to secure a loan from a building and loan association, upon which the contract required monthly payments of interest and premiums, and the payment of the principal at a fixed time, who assumed payment of the same as a part of the purchase price, and who has had the benefit of the loan until its maturity by its terms, paying the interest and premiums thereon in accordance with the contract, cannot set up the defense of usury to an action to recover the principal on account of the premiums so paid; ner is he entitled to have the premiums paid credited as payments on the principal because the association has become insolvent.

Appeal from the Circuit Court of the United States for the Eastern District of Tennessee.

Creditors of the Knoxville Building & Loan Association filed a bill in the court below for the purpose of winding the association up as an insolvent

1 See Building and Loan Associations, vol. 8, Cent. Dig. $ 76 [b, b, p]; Corporations, vol. 12, Cent. Dig. 88 84, 85.

corporation. Under that bill the appellee, Peter Staub, was appointed receiver, and directed to collect in all of its assets of every kind. By virtue of this authority the receiver filed this bill against the appellants for the purpose of foreclosing two mortgages made to the association to secure money advanced to members of th association. One of the mortgages was made by Bloom and Goodfriend to secure a note for $2,000, of December 20, 1889. The mortgaged property was subsequently conveyed to the appellant Morris Deitch; he assuming to pay off the note and debt of Bloom and Goodfriend, and taking an assignment of the shares of stock in the association held by them, which had been also pledged to secure said loan. The other mortgage was made in 1896 by Deitch and wife, and was to secure a loan to Deitch of $4,400, evidenced by a note. Deitch also pledged 22 shares of the stock of said association as collateral security for same loan. There was a decree for the complainant, from which the defendants appealed.

H. M. Ingersoll, for appellants.
Leon Jourolnion, for appellee.
Before LURTON, DAY, and SEVERENS, Circuit Judges.

LURTON, Circuit Judge, after making the foregoing statement of the case, delivered the opinion of the court.

The enforcement of the mortgages made to secure loans by the association to its stockholders and members is resisted by the appellants upon the grounds: First. That the association was not, when the mortgages were made, a building and loan corporation, either de jure or de facto, and was therefore unable to exercise the powers granted by law to such corporations only, -of making premium loans to their members; that, not being a lawful building and loan corporation, the loans secured by mortgage, and herein sought to be enforced, were usurious, as both were upon contracts requiring the borrower to pay both legal interest and a monthly sum in addition, called a "premium." Second. That if the said association is held to be a building and loan corporation, de jure or de facto, the loans here involved were made upon and for a level premium fixed by the association, and not as a result of competitive biddings, as required by the Tennessee law regulating the loans of Tennessee building and loan corporations.

1. The Knoxville Building & Loan Association was organized under a decree of the chancery court of Knox county, Tenn., pronounced February 24, 1872. In addition to the ordinary powers incident to every corporation, it was given power to "purchase, hold and convey real estate,” and to lend money "thereon for building and other pur

None of the usual powers of a building and loan association, such as the advancing of money to shareholders upon competitive premium biddings, are undertaken to be conferred by this court charter. This organization purported to be under and in pursuance of the Tennessee act of January 30, 1871; being an act authorizing the organization of corporations by the chancery courts of the state. So far as that act specifically provided what kind of corporations might be organized by the chancery court, and defined what their powers should be, the act has been held valid. But so far as it undertook to authorize the creation of corporations with powers subject to the discretion of the court, it has been held void. Ex parte Chad

poses.”

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