Stevens v. Memphis & Charleston R. Co.Annotate this Case
114 U.S. 663 (1885)
U.S. Supreme Court
Stevens v. Memphis & Charleston R. Co., 114 U.S. 663 (1885)
Stevens v. Memphis and Charleston Railroad Company
Argued October 23-24, 27-30, 1884
Decided May 4, 1885
114 U.S. 663
The Legislature of the State of Tennessee, on the 11th of February, 1852, enacted a law "to establish a system of internal improvements," in which it was provided that the state should issue to certain railroad companies therein named its negotiable coupon bonds, and that when the respective roads should be completed, the state should be invested with a lien upon each road and its superstructure and equipment, "for the payment of all of said bonds issued to the company as provided in this act, and for the interest accruing on said bonds." Held, in view of other provisions in the act and of the practical construction put upon it, that the lien thereby created was created to secure payment to the amount of indebtedness it thus undertook to incur, and not payment to the holders of the state bonds thus agreed to be issued, and that the state could accept payment in other mode or modes than those pointed out by the act or acts creating the lien, and could cause the property to be released from it, either by legislation or by foreclosure under the statute, while the bonds issued to the company for the construction of the road released or foreclosed were still outstanding and unpaid.
Hand v. Savannah & Charleston Railroad Co., 13 S.C. 314, distinguished from this case.
Sinking Fund Cases,99 U. S. 700, distinguished from this case.
The relation of principal debtor and creditor at no time existed under the acts of the Legislature of Tennessee referred to in the opinion of the Court between the railroad companies and the holders of the state bonds issued under the act, nor did the state at any time under those acts hold the relation of surety toward such holders; the state was at the outset and remained the sole debtor bound on the bonds.
These are suits brought by the holders of unpaid bonds of the State of Tennessee issued to various railroad companies under the Act of February 11, 1852, "to establish a system of internal improvements," to enforce the lien which was vested in the state by that act on the property of the companies respectively as security for the payment of the bonds and the accruing interest thereon. The sections of the act on which the rights of the parties depend are 1, 2, 3, 4, 5, 6, 7, 10, 12, 13, and 14. These are as follows:
"SECTION 1. Be it enacted by the General Assembly of the State of Tennessee that whenever the East Tennessee and Virginia Railroad Company shall have procured bona fide subscriptions for the capital stock in said company to an amount sufficient to grade, bridge, and prepare for the iron rails the whole extent of the main trunk line proposed to be constructed by said company, and it shall be shown by said company to
the Governor of the state that said subscriptions are good and solvent, and whenever said company shall have graded, bridged, and shall have ready to put down the necessary timbers for the reception of rails, and fully prepared a section of thirty miles of said road at either terminus, in a good and substantial manner with good materials, for putting on the iron rails and equipments, and the Governor shall be notified of these facts, and that said section, or any part thereof, is not subject to any lien whatever other than those created in favor of the state by the acts of 1851-1852, by the written affidavit of the chief engineers and president of said company, together with the written affidavit of a competent engineer by him appointed at the cost of the company, to examine said section, then said Governor shall issue to said company coupon bonds of the State of Tennessee, to an amount not exceeding eight thousand dollars per mile on said section, and on no other condition, which bonds shall be payable at such place in the United States as the president of the company may designate, bearing an interest of six percent per annum, payable semiannually, and not having more than forty nor less than thirty years to mature."
"SEC. 2. Be it enacted that the bonds before specified shall not be used by said company for any other purpose than for procuring the iron rails, chairs, spikes, and equipments for said section of said road and for putting down said iron rails, and the Governor shall not issue the same unless upon the affidavit of said president and a resolution of a majority of the board of directors, for the time being, that said bonds shall not be used for any other purpose than for procuring the said iron rails, chairs, spikes, and equipments for said section and for putting down said iron rails, and the Governor shall have power to appoint a commissioner to act under oath in conjunction with said president in negotiating said bonds for the purposes aforesaid and to act in any other matters pertaining to said company where the interest of the state, in the opinion of the Governor, may require it."
"SEC. 3. Be it enacted that so soon as the bonds of the state shall have been issued for the first section of the road as
aforesaid, they shall constitute a lien upon said section so prepared as aforesaid, including the roadbed, right of way, grading, bridges, and masonry, upon all the stock subscribed for in said company and upon said iron rails, chairs, spikes, and equipments when purchased and delivered, and the State of Tennessee, upon the issuance of said bonds and by virtue of the same, shall be invested with said lien or mortgage without a deed from the company for the payment by said company of said bonds, with the interest thereon as the same becomes due."
"SEC. 4. Be it enacted that when said company shall have prepared as aforesaid a second section or any additional number of sections of twenty miles each of said road connecting with a section already completed for the iron rails, chairs, spikes, and equipments, as provided in the first section of this act, and the Governor shall be notified of the facts, as before provided, he shall, in like manner, issue to said company like bonds of the State of Tennessee to an equal amount with that before issued under the first section of this act for each and every section of twenty miles of said road so prepared as aforesaid, but upon the terms and conditions hereinbefore provided, and upon the issuance of the said bonds, the State of Tennessee shall be invested with a like mortgage or lien without a deed from said company upon said stock and upon said first and additional section or sections of said road so prepared, upon the rails and equipments put or to be put upon the same for the payment of said bonds and the accruing interest thereon, provided that if the last section of said road shall be less than twenty miles or if the railroad proposed to be constructed by any company hereinafter specified shall be less than thirty miles in extent, bonds of the state shall be issued for such section or such railroad as may be less than thirty miles in extent for an amount in proportion to the distance as provided in this act, but upon the same terms and conditions in all respects as required in regard to the bonds to be issued for the other sections of said road. And when the whole of said road shall be completed, the State of Tennessee shall be invested with a lien, without a deed from the company, upon the entire road, including the stock, right of way, grading, bridging, masonry, iron
rails, spikes, chairs, and the whole superstructure and equipments, and all the property owned by the company as incident to or necessary for its business, and all depots and depot stations, for the payment of all of said bonds issued to the company as provided in this act and for the interest accruing on said bonds. And after the Governor shall have issued bonds for the first section of the road, it shall not be lawful for the said company to give, create, or convey to any person or persons or body corporate whatever any lien, encumbrance, or mortgage of any kind which shall have priority over or come in conflict with the lien of the state herein secured, and any such lien, encumbrance, or mortgage shall be null and void as against said lien or mortgage of the state, and the said lien or mortgage of the state shall have priority over all other claims existing or to exist against said company."
"SEC. 5. Be it enacted that it shall be the duty of said company to deposit in the Bank of Tennessee at Nashville at least fifteen days before the interest becomes due, from time to time, upon said bonds issued as aforesaid an amount sufficient to pay such interest, including exchange and necessary commissions, or satisfactory evidence that said interest has been paid or provided for, and if said company fail to deposit said interest as aforesaid or furnish the evidence aforesaid, it shall be the duty of the Comptroller to report that fact to the Governor, and the Governor shall immediately appoint some suitable person or persons, at the expense of the company, to take possession and control of said railroad and all the assets thereof and manage the same and receive the rents, issues, profits, and dividends thereof, whose duty it shall be to give bond and security to the State of Tennessee, in such penalty as the Governor may require, for the faithful discharge of his or their duty as receiver or receivers to receive said rents, issues, profits, and dividends and pay over the same under the direction of the Governor toward the liquidation of such unpaid interest. And if said company fail or refuse to deliver up said road to the person or persons so appointed by the Governor, the person so appointed shall report that fact to the Governor, who shall forthwith issue his warrant, directed to the sheriffs of the counties
through which said road shall run, commanding them to take possession of said road, fixtures, and equipments and everything pertaining thereto and place the said receiver in full and complete possession of the same, and said receiver so appointed shall continue in the possession of said road, fixtures, and equipments and run the same and manage the entire road until a sufficient sum shall be realized, exclusive of the costs and expenses incident to said proceedings, to pay off and discharge the interest as aforesaid due on said bonds, which being done, the receiver shall surrender said road and fixtures and equipments to said company. The Comptroller shall from time to time settle the accounts with the receiver, and the balance shall be deposited in the Treasury of the state. The Comptroller is authorized, and it is made his duty, upon his warrant to draw from the Treasury any sum of money necessary to meet the interest on such bonds as may not be provided for by the company as provided for in this act, and the Comptroller shall report thereof to the General Assembly from time to time."
"SEC. 6. Be it enacted that if said company shall fail or refuse to pay any of said bonds when they fall due, it shall be the duty of the Governor to notify the Attorney General of the district in which is situated the place of business of said company of the fact, and thereupon said Attorney General shall forthwith file a bill against said company, in the name of the State of Tennessee, in the chancery or circuit court of the county in which is situated said place of business, setting forth the facts, and thereupon said court shall make all such orders and decrees in said cause as may be deemed necessary by the court to secure the payment of said bonds, with the interest thereon, and to indemnify the State of Tennessee against any loss on account of the issuance of said bonds by ordering the said railroad to be placed in the hands of a receiver, ordering the sale of said road and all the property and assets attached thereto or belonging to said company, or in such other manner as the court may deem best for the interest of the state."
"SEC. 7. Be it enacted that at the end of five years after the completion of said road, said company shall set apart one
percent per annum upon the amount of bonds issued to the company, and shall use the same in the purchase of bonds of the State of Tennessee, which bonds the company shall pay into the Treasury of the state, after assigning them to the Governor, and for which the Governor shall give said company a receipt, and, as between the state and said company, the bonds so paid in shall be a credit on the bonds issued to the company, and bonds so paid in, and the interest accruing thereon from time to time, shall be held and used by the state as a sinking fund for the payment of the bonds issued to the company, and should said company repurchase any of the bonds issued to it under the provisions of this act, they shall be a credit as aforesaid and cancelled. And should said company fail to comply with the provisions of this section, it shall be proceeded against as provided in the fifth section of this act."
"SEC. 10. Be it enacted that the provisions of this act shall extend to and embrace the Chattanooga, Harrison, Georgetown and Charlestown Railroad Company, the Nashville and Northwestern Railroad Company, the Louisville and Nashville Railroad Company, the Southwestern Railroad Company, the McMinnville and Manchester Railroad Company, the Memphis and Charleston Railroad Company, the Nashville and Southern Railroad Company, the Mobile and Ohio Railroad Company, the Nashville and Memphis Railroad Company, the Nashville and Cincinnati Railroad Company, the East Tennessee and Georgia Railroad Company, the Memphis, Clarksville, and Louisville Railroad Company, and the Winchester and Alabama Railroad Company, so far as the main trunk roads to be constructed by said companies lie with the limits of this state, and not otherwise, and said companies shall have all the powers and privileges and be subject to all the restrictions and liabilities contained in this act. . . ."
"SEC. 12. Be it enacted that the State of Tennessee expressly reserves the right to enact by the legislature thereof, hereafter, all such laws as may be deemed necessary to protect the interest of the state, and to secure the state against any loss in consequence of the issuance of bonds under the provisions
of this act, but in such manner as not to impair the vested rights of the stockholders of the companies."
"SEC. 13. Be it enacted that it shall be the duty of the Governor from time to time, when there shall be reliable information given to him that any railroad company shall have fraudulently obtained the issuance of bonds of the state or shall have obtained any of said bonds contrary to the provisions of this act, he shall notify the Attorney General of this state, whose duty it shall be forthwith to institute, in the name of the state, a suit in the circuit or chancery court of the county of the place of business of the company setting forth the facts. And when the fact shall satisfactorily appear to the court that any of said bonds shall have been fraudulently obtained or obtained contrary to the true intent, meaning, and provisions of this act, then and in such case the court shall order, adjudge, and decree that said road, lying in the state, with all the property and assets of said company or a sufficiency thereof, shall be sold and the proceeds shall be paid into the Treasury, and it shall be the duty of the Comptroller immediately to vest the same in stocks, creating a sinking fund, as provided for in the seventh section of this act. And said company shall forfeit all rights and privileges under the provisions of this act, and the stockholders thereof shall be individually liable for the payment of the bonds so fraudulently obtained by such company, and for all other losses that may fall upon the state in consequence of the commission of any other fraud by such company, excepting such stockholders as may show to the said court that they were ignorant of or opposed to the perpetration of such frauds by the company."
"SEC. 14. Be it enacted that in the event any of the roads, fixtures, or property belonging to any of said roads shall be sold under the provisions of this act, it shall be the duty of the Governor to appoint an agent for the state who shall attend said sale and protect the interest of the state and shall, if necessary to protect said interest, buy in said road or property in the name of the state, and in case said agent shall purchase said road for the state, the Governor shall appoint a receiver, who shall take possession of said road and property
and use the same as provided for in the fifth section of this act, and said receiver shall settle with the Comptroller semiannually until the next meeting of the General Assembly."
On the 21st of February, 1852, an act was passed providing for the identification of the bonds to be issued to the several companies under the Act of February 11, the material parts of which are §§ 7, 8, and 9, as follows:
"SEC. 7. Be it further enacted that the different internal improvement companies to whom the bonds of the state may be lent under the different acts of the present legislature shall pay the expenses of engraving and preparing the same."
"SEC. 8. Be it enacted that the Governor of the state shall cause to be engraved and printed the bonds which may be issued under the acts of the present General Assembly as a loan made to internal improvement companies, and the said bonds shall bear date on the first day of January prior to their issuance, and the coupons thereto shall be payable on the first days of January and July of each year."
"SEC. 9. Be it enacted that the coupons shall be signed and numbered by the Comptroller, and the bonds shall be countersigned, sealed, and numbered by the Secretary of State, and upon delivering said bonds to the company authorized to receive the same, the Secretary of State shall take a receipt, reciting the number, date, and amount of said bonds, in a well bound book to be deposited in his office, and the Comptroller and Secretary of State shall each be entitled to receive twenty-five cents for each bond so prepared, to be paid by the party receiving the said bond."
By §§ 5 and 6 of an Act of February 21, 1856, the sinking fund provisions of the act of 1852 were changed as follows:
"SEC. 5. Be it further enacted that it shall be the duty of the several railroad companies in this state who have received or may hereafter receive bonds of the state or the endorsement of their bonds by the state to aid in the construction of their said several roads, under the provisions of the act of 1851-1852 and the acts amendatory thereto at the expiration of five years from the issuance or endorsement of their several bonds, annually to set apart and pay over to the Treasurer of the
state two percent per annum upon all bonds which have been or may hereafter be issued or endorsed as aforesaid as a sinking fund for the ultimate redemption of the bonds issued or endorsed as aforesaid, which sinking fund, when paid over, the Governor, Comptroller of the Treasury, and president of the Bank of Tennessee shall invest in the bonds of the state, and reinvest all accruing interest in like securities, and they are hereby constituted a Board of Commissioners for the management, government, and control of said sinking fund."
"SEC. 6. Be it further enacted that should any of said railroad companies fail or refuse to comply with the provisions of the fifth section of this act, it shall be the duty of the Governor forthwith to notify the Attorney General of the district in which is situated the place of business of said company failing or refusing as aforesaid, of the fact, and thereupon the Attorney General shall immediately proceed against said company to collect said sinking fund in the manner prescribed in the sixth section of an act entitled 'An act to establish a system of internal improvements in this state,' passed February 11, 1852."
By another act, passed March 20, 1860, the same provisions were further amended as follows:
"SEC. 1. Be it enacted by the General Assembly of Tennessee that the money or bonds that have heretofore or may be paid by the cities or railroad companies in this state to the sinking fund commissioners by the first of January, 1860, together with the accruing interest thereon to that date, shall be passed directly to the credit of the party having so paid the same, and be a release to said party for that amount on the debt due by them to the State of Tennessee."
"SEC. 2. Said bonds shall be all cancelled by said commissioners, and if endorsed bonds of any railroad company shall be cancelled as hereinafter provided for the cancellation of state bonds, and shall be delivered over to said company or corporation, taking the president's of said company or the officer's of said company receipt for the same, which receipt shall be filed an the copy of the same placed upon a book, which the said commissioners shall keep for that purpose. If
state bonds, they shall be cancelled and filed in the office of the Secretary of State as hereinafter provided."
"SEC. 3. That after the first day of January, 1860, all railroad companies or city corporations who have or may hereafter receive the bonds of the state or its endorsement of their own under the general internal improvement law of this state or any other law, shall be required to pay two and one-half percent per annum as a sinking fund on the amount of the bonds so issued or endorsed by the state for said company or corporation, to be paid in equal installments on the first days of April and October, five years after the date of said bonds, and annually thereafter."
"SEC. 4. All bonds issued during any one year shall be dated on the first day of January of that year."
"SEC. 5. Said companies or corporations may pay said sinking fund in cash or in the like character of bonds that may have been issued or endorsed by the state for said company at their face or par value."
"SEC. 6. If paid in money, the commissioners shall invest it immediately in the bonds of the state, and shall have the same cancelled and filed as heretofore provided. Such bonds are to be of the same character as those issued to such company or corporation."
"SEC. 7. The sinking fund, when paid, in all cases shall be passed directly to the credit of said company or corporation and be a release to said company or corporation from that amount due by them to the state. The commissioners shall issue a receipt to each company or corporation for such payment, retaining a duplicate in a well bound book kept for that purpose."
"SEC. 8. Each and every railroad company or city corporation shall provide the interest semiannually, as now provided by law, on the amount of bonds unpaid at the time said interest falls due, and not on the original amount issued to or endorsed by the state for said company as heretofore provided."
"SEC. 9. The Comptroller of the state shall keep a regular account against each company or corporation, charging them with the amount of bonds originally issued to or endorsed for
said company or corporation by the state and crediting them by the amount of sinking fund paid, and shall furnish the Treasurer of state a statement of the amount due by each company or corporation on the first of June and December of each year, that he may know how much interest each company or corporation has to pay."
"SEC. 10. The Commissioners of the Sinking Fund shall cancel all bonds of the state as soon as paid in or purchased by cutting out the Governor's and Secretary of State's names, and so defacing each coupon that it cannot by possibility be used or circulated, and shall file the same in the Secretary of State's office."
"SEC. 11. This law shall be in full force from and after its passage, and shall repeal all laws in conflict with it, but shall not be so construed as otherwise to affect any law on the subject of the sinking fund or the payment of interest due on state or endorsed bonds."
Under these statutes, state bonds were from time to time issued to the several enumerated railroad companies in the following form:
"No. ___ UNITED STATES OF AMERICA No. ___"
"Know all men by these presents that the State of Tennessee acknowledges to owe to , or order, one thousand dollars of the lawful money of the United States of America, which the said state promises to pay in the City of New York, on the ___ day of _____, 18__, with interest thereon at the rate of six percent per annum, according to the tenor, and upon the presentation, of the coupons hereunto attached. For the payments of said sums of money, and the interest thereon at the times and places, and in the manner aforesaid, the faith of the said State of Tennessee is irrevocably pledged, this bond being issued in pursuance and by authority of an Act of the General Assembly of said state passed February 11, 1852, to establish a system of internal improvements in said state."
"In testimony whereof and in pursuance of the acts aforesaid,
I, _____ _____, Governor of the State of Tennessee, have hereunto subscribed my name officially and caused the same to be countersigned by the Secretary of State, with the great seal of the state affixed."
"[ ] Done at the Executive Department in the City of Nashville this __ day of _____, 18__."
To which was attached the following form of coupon:
"30 THE TREASURER OF THE STATE OF TENNESSEE 30"
"Will pay the bearer THIRTY DOLLARS, in the City of New York, on the __ day of ______, 1877, being the semiannual interest then falling due on bond No. _____."
"J. C. SUTTRELL 30"
Upon the issue of the bonds, receipts were executed by the companies, respectively, in the form required by the statute, in a well bound book deposited in the office of the Secretary of State. The bonds, after their delivery, were sold in the market by the respective companies in conjunction with the state commissioner, and the proceeds used in the way contemplated by the statute.
No complaint is now made of any default on the part of the several companies whose roads are involved in these suits prior to the late civil war. After the beginning of the war, however, but few payments were made, and various expedients were resorted to from time to time for relieving the companies from their embarrassments. In 1866, another act was passed authorizing a further issue of state bonds under which some of the bonds embraced in these suits were put out. In this act, the provisions as to the lien for the security of the payment of the bonds was substantially the same as in the act of 1852. None of these devices, however, accomplished the purpose the state had in view, and on the 25th of February, 1869, "An act to liquidate the state debt contracted in aid of railroad companies in the State of Tennessee" was passed. That act is as follows:
"Whereas under the general internal improvement laws of the state passed from time to time, aid has been granted to various railroad companies by the loaning of the six percent bonds of the state to enable said companies to iron, equip, build, and bridge, and for other purposes, which is now secured to the state by a first mortgage or lien on the franchise, property, and fixtures of respective railroad companies, and"
"Whereas it is desirable for the general welfare of the state that the state shall be reimbursed such amounts as have been advanced to the different railroad companies as fast as may be practicable, therefore,"
"SECTION 1. Be it enacted by the General Assembly of the State of Tennessee that the respective railroad companies, or either of them that have created indebtedness to the state, are hereby authorized to repay any amount of the principal of such indebtedness as they have respectively created in the bonds of the state in such amount and at such times as may be practicable, provided however that nothing in this act shall be so construed as to release said railroad companies from any lien which the state may have on the same for any unpaid interest now due on said bonds of the state, authorized to be surrendered by this act."
"SEC. 2. Be it further enacted that any railroad company or companies repaying any indebtedness due the state under the provision of this act are authorized to issue bonds of equal amount and denomination with the bonds of the state paid and delivered up for cancellation, as hereinafter provided, which said railroad bonds, so issued in lieu of any equal amount of state bonds, shall be certified to by the Comptroller and entered in a book to be kept for that purpose, with date, number, and amount, and shall be a lien, pro rata in amount and of equal validity and effect with the unretired part of the state indebtedness, upon such railroad, and all its property, franchises, fixtures, and material."
"SEC. 3. Be it further enacted that, in order to facilitate the railroad companies that may wish to avail themselves of the provisions of this act in repaying the indebtedness due to the state respectively, they or any of them are hereby authorized
to consolidate their property, in whole or in part, with other railroad companies and issue bonds and stock as provided for in the second section of this act, and may adopt the corporate franchise of either of the roads as the stockholders may elect, and each railroad company paying its indebtedness, and such railroad companies as may consolidate under the provisions of this act are hereby authorized to determine by a vote of the stockholders of said company or consolidated companies the number of directors of such company and elect the same under the new organization, and that the said directors, so elected, shall, according to the bylaws and rules of said corporation, elect one of their number president of said company."
"SEC. 4. Be it further enacted that the Comptroller of the state shall receive from the railroad companies, or any of them, bonds of the state in such amounts as may be presented, and cancel the same in the presence of the officer or agent of the railroad company paying them in, and execute to the said railroad company or companies duplicate receipts for the amount and number of said bonds so paid in, and it shall further be the duty of the Comptroller to certify on the bonds of any railroad company or companies, repaying indebtedness due to the state, that the same has been paid, and that the so certified [bonds] are secured by first mortgage, provided that said railroad companies shall liquidate their indebtedness prior to the maturity of the bonds that have caused said indebtedness; and be it further provided that said bonds, when executed by the respective railroad companies or either of them, shall be deposited with the Comptroller of the state, whose duty it shall be to deliver said bonds, or any number of them, to the president and directors of the company on the deposit by said president and directors or authorized agent of an equal amount of the six percent bonds of the State of Tennessee with unpaid coupons attached, and the company's first mortgage bonds, authorized to be issued by this act, shall have no validity or value except the Comptroller's certificate is affixed on the face of each bond that said bond is executed, and issued, and by virtue of law takes the place of a bond of the state, and is the first mortgage bond. "
"SEC. 5. Be it further enacted that the Comptroller shall be entitled to a fee of one dollar on each thousand dollars of the bonds certified as aforesaid to be paid by the railroad company for which the same is done, and it shall be lawful for the Comptroller to discharge the duties imposed by this act by and through an agent in the City of New York, and all the provisions of this act shall attach to and become a part of the charter of any railroad company or companies acting under it."
"SEC. 6. Be it further enacted that by and with the consent of the board of directors of any railroad company in this state under the general improvement law passed the 11th of February, 1852, and all the amendments thereto, that any person or corporation may, by paying the indebtedness of such railroad company to the state in the bonds of the state, as provided for by law, be, and they are hereby, substituted and entitled to all the liens against said company for the payment of said debt that the state had or has by law, and the Governor and Secretary of State shall give such party or parties paying such indebtedness a certificate showing the facts, which shall be evidence against said company of such indebtedness to said individuals or corporations."
"SEC. 7. Be it further enacted that any person or persons may, with the consent and approbation of any railroad company which is indebted to, and for which the State of Tennessee holds a lien, pay the said debt, so far as the state is concerned, in the bonds of the state or any coupons of bonds at par, and the person or persons so paying the debt of any railroad company with the consent of such railroad company shall, upon filing with the Treasurer of this state the written assent of said railroad company under the corporate seal of said railroad company, be entitled to have and hold all the lien or liens which the State of Tennessee had or has upon said railroad or its property, and shall have the same right to enforce the same which the State of Tennessee had, the object and intent being to place the person or persons so paying with the consent of said railroad company in the same position and with the same rights which the State of Tennessee had
previous to and before the said payment, and with full power to enforce the same."
"SEC. 8. Be it further enacted that any person or persons who may, with the consent and approbation of any railroad company, pay any part or portion of the indebtedness of such company, as provided in sec. ___, shall have, hold, and [be] subrogated in all the rights, privileges, and lien or liens of the state to the extent of and in proportion to the amount of such indebtedness, with the same rights and privileges the state now has, to the extent of such payment or payments, provided the passage of this act shall not decrease the lien of the state upon any railroad of the state until the entire claim of the state is fully liquidated, or affect the interest of the present bondholders of the state, provided that railroad companies which have issued second mortgage bonds availing themselves of the provisions of this act shall file with the Comptroller bonds of the same series as those loaned to such company, for which the state holds a first mortgage lien, provided the bonds to be issued by the company under the provisions of this act shall not have a longer time to run than the bonds of the state thus released and cancelled."
"SEC. 9. Be it further enacted that this act shall take effect from and after its passage."
At the next session of the General Assembly, January 20, 1870, this act was amended as follows:
"AN ACT FOR THE PAYMENT OF THE STATE DEBT"
"SEC. 1. Be it enacted by the General Assembly of the State of Tennessee that an act entitled 'An act to liquidate the state debt, contracted in aid of railroad companies in the State of Tennessee,' passed February 25, 1869, be, and the same is hereby, amended so as to allow any railroad company which may be indebted to the state by reason of the bonds of the state loaned to said railroad company to pay into the state, in liquidation of the principal of said indebtedness, any of the legally issued six percent bonds of the State of Tennessee outstanding, without regard to series or number, and such
payment shall, to the extent made, be a full and perfect discharge of the lien which the state holds upon the property of such railroad company, held by virtue of the bonds of the state issued to such railroad company, whether they be the same bonds or the same series of bonds issued to said company under the act passed February 11, 1852, and acts amendatory thereof, or not."
"SEC. 2. Be it further enacted that railroad companies issuing their own mortgage bonds under the provisions of the act which this is intended to amend be allowed to fix the rate of interest which the said bonds of the railroad company are to bear, and all laws in conflict are hereby repealed, provided that when said railroad companies owe interest already due, coupons past due shall be taken by the Comptroller or Treasurer in discharge of such indebtedness for interest."
"SEC. 3. Be it further enacted that when any company, under the provisions of this act, shall pay into the Treasury of the state bonds which have been issued by the state to said company, the said bonds shall be cancelled; but should any company, in discharge of its own debts, pay into the Treasury any bonds that were issued to other companies that may still be indebted to the state, such bonds so paid in shall not be cancelled, but shall be held by the state as purchased bonds, retaining a lien for the state upon the road to which said bonds were originally issued until the debt of said road to the state shall be fully discharged when the bonds so held shall be cancelled, provided that the provisions of this act shall not be so construed as to allow the payment and satisfaction of debts created by bonds issued by the state, and upon which the state is secondarily liable, nor to the payment of the sinking fund, now required by law, of the railroad companies of this state."
"SEC. 4. Be it further enacted that this act shall take effect from and after its passage."
Under these statutes, the companies whose roads are involved in the present suits against the Memphis and Charleston Railroad Company, the Louisville, Nashville and Great Southern Railroad Company, the Nashville and Decatur Railroad Company,
the Nashville, Chattanooga and St. Louis Railroad Company, the East Tennessee, Virginia and Georgia Railroad Company, the Chicago, St. Louis and New Orleans Railroad Company, the Memphis and Tennessee Railroad Company, and the Mobile and Ohio Railroad Company, by the use of substitution bonds or otherwise, obtained from the state a discharge of the liens upon their property under the Act of February 11, 1852, and the acts amendatory thereof, so far as the state had the right to execute such a discharge. In doing so, however they used to some extent, other state bonds than those which were issued to them originally under the provisions of the act. The bonds so issued and not returned to the state constitute the causes of action on which these suits are brought against the companies above named.
To provide for cases where the companies failed to meet their obligations to the state under the act of 1852 and did not comply with the provisions of the acts of 1869 and 1870, an Act of December 21, 1870, was passed, in which, after reciting as follows:
"Whereas, in the recent attempt to sell the state's interest in said roads, various legal questions arose, presenting serious obstacles to a sale under the act of 1870, which it is deemed expedient and necessary to obviate before the interest of the state in said roads shall be again offered for sale, and whereas, by the act of 1852, c. 151, section 12, the right is expressly reserved to the state to enact all such laws in the future as should be deemed necessary to protect the interest of the state, and to secure the state against any loss in consequence of the issuance of bonds under the provisions of said act, in such manner as not to impair the vested rights of stockholders of the companies,"
provision was made for a summary proceeding to foreclose the lien vested in the state, under the act of 1852, and the several amendatory acts, by filing a bill in equity in the Court of Chancery at Nashville against the delinquent companies to obtain a decree for the sale of the interest of the state in their property. In this act it was provided that the purchase money might "be discharged in any of the outstanding legal bonds of the state," and that upon the sale of any of the franchises of either of the companies,
rights, privileges, and immunities appertaining to the franchises so sold under its act of incorporation and the amendments thereto, and the general improvement law of the state and acts amendatory thereof, shall be transferred to and vest in such purchaser, and the purchaser shall hold said franchise subject to all liens and liabilities in favor of the state, as now provided by law, against the railroad companies."
Under the provisions of this act, the liens on the roads involved in the suits against the Memphis, Clarksville, and Louisville Railroad Company, the Nashville and Northwestern Railroad Company, the McMinnville and Manchester Railroad Company, the Winchester and Alabama Railroad Company, the Cincinnati, Cumberland Gap, and Charleston Railroad Company, and the Knoxville and Kentucky Railroad Company were all foreclosed and the property sold under decrees which reserved the lien of the state referred to in the statute
"as far as may be necessary to secure the purchase money as aforesaid, and the other rights of the state under the decree in this cause and the said acts of the legislature."
Payments of the purchase money were made in bonds of the State of Tennessee without distinction. Bonds of the state, issued to the companies that constructed the foreclosed roads, not taken up at these sales or otherwise by the state, are the causes of action embraced in the suits against the last-named companies, and the defendants in those suits now claim the property under the purchases at the foreclosure sales, free of all liens in favor of the state or its bondholders.
The circuit courts dismissed the bills in all the suits, and these appeals were taken from the several decrees to that effect.
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