Houston & Texas Central R. Co. v. Texas
177 U.S. 66 (1900)

Annotate this Case

U.S. Supreme Court

Houston & Texas Central R. Co. v. Texas, 177 U.S. 66 (1900)

Houston and Texas Central Railroad Company v. Texas

No. 81

Argued December 13-15, 1899

Decided March 26, 1900

177 U.S. 66

Syllabus

The federal character of a suit must appear in the plaintiff's own statement of his claim, and where a defense has been interposed the reply to which brings out matters of a federal nature, those matters thus brought out by the plaintiff do not form a part of his cause of action.

The treasury warrants in question in this case cannot be said upon the evidence to have violated the Constitution of the United States, or of the State of Texas.

A warrant, drawn by the authorities of a state in payment of an appropriation made by the legislature, payable upon presentation if there be funds in the treasury and issued to an individual in payment of a debt of the state to him, cannot be properly called a bill of credit or a treasury warrant intended to circulate as money.

A deliberate intention on the part of a legislative body to violate the organic law of the state under which it exists, and to which the members have sworn obedience, is not to be lightly indulged, and it cannot properly

Page 177 U. S. 67

be held that the receipt of the warrants issued in pursuance of legislative authority in Texas, and in payment of an indebtedness due the state from the individual paying them, is an illegal transaction, and amounts in law to no payment whatever.

When a municipality contracts for a municipal improvement which it is within its power to agree for, and engages to pay for the same in bonds which it is beyond its power to issue, and the work so contracted for is done, the municipality is responsible for it in money, as it cannot pay in bonds.

Where the validity of a contract is attacked on the ground of its illegal purpose, that purpose must clearly appear, and it will not be inferred simply because the performance of the contract might result in an aid to an illegal transaction.

On the principles laid down in Baldy v. Hunter,171 U. S. 388, the contract in this case cannot be held to be unlawful.

When the officers of the state, pursuant to its statutes, received warrants as payment, they acted for the state in carrying out an offer on its part which the state had legal capacity to make and to carry out, and the contract having been fully executed by the company and the state, neither party having chosen to refuse to perform its terms, neither party, as between themselves, can thereafter act as if the contract had not been performed.

This proceeding was commenced by the State of Texas against the defendant, the Houston & Texas Central Railroad Company (hereafter called the company), to recover the amount due on certain bonds issued to the state, and to foreclose the lien which existed upon its property as security for the payment of such bonds. The company is the legal successor of the two companies which received the loans and gave their bonds, and no question of liability arises on that ground. Judgment was given in the trial court for the amount found due, and a lien was declared and a sale of the property of the company ordered. From this judgment the company appealed to the court of civil appeals for the state, where it was modified and then affirmed. The company brings the case here on writ of error.

The petition of the state by which the proceeding was commenced showed that the predecessors of the plaintiff in error borrowed money from the school fund of the state, and gave their bonds therefor. These bonds were not paid according to their tenor and effect, and the legislature therefore, on August 13, 1870, passed a general act for the relief of railroad

Page 177 U. S. 68

companies indebted to the state, by which it was provided that, if any company should on the first day of November, 1870, pay six months' interest on the aggregate amount of the loan which, on the first day of May, 1870, was due from it to the state, and one percentum of the principal, and thereafter should make similar semiannual payments, the state would not exact any other payments.

(What was the aggregate amount of the loans due on the first of May, 1870, from the two companies of which the present company is the successor, is the question in controversy, and its answer depends upon the validity of certain payments made by the companies to the state in treasury warrants during the war. Part of the discussion rests upon the meaning and effect of this act, and it is therefore given in full in the margin.) *

Page 177 U. S. 69

Subsequently semiannual payments of interest and sinking fund were made by or on account of the Washington County Railroad Company (one of the predecessors of the plaintiff in error) up to and including the first of May, 1879, but no payment was made on November 1, 1879, or at any time thereafter. Similar payments were made by or on account of the Houston and Texas Central Railway Company (the other of such predecessors) up to and including the first day of May, 1893, but a portion only of the semiannual interest claimed to be due in November, 1893, was paid, and nothing has been paid since November 1, 1893. Judgment was prayed for the sums of money stated to be due, with interest, for the foreclosure of the lien, and for a sale of the property under execution, the proceeds to be applied to the payment of the sum due with interest, and for such other relief as might be necessary.

To this petition the defendant filed an answer, and therein, among other things, alleged that after the commencement of the civil war, the various railroad companies were unable to fulfill their obligations to the state, and therefore the Legislature of Texas, on the eleventh day of January, 1862, passed an act for their relief, extending the time of payment of interest and sinking fund amounts until the first of January, 1864.

Page 177 U. S. 70

The state legislature, on December 16, 1863, passed the first act in relation to receiving treasury warrants from railroad companies, which reads as follows:

"SEC. 1. Be it enacted by the Legislature of the State of Texas that the comptroller of the state be, and he is hereby, authorized to receive from the railroad companies in this state who are indebted to the special school fund all interest on their bonds that may now be or hereafter become due, provided the same is tendered in state bonds or in state treasury warrants, previous to the meeting of the next regular session of the state legislature."

"SEC. 2. That for all sums so paid in, the comptroller and treasurer shall issue to the special school fund the bonds of the state bearing six percent interest."

The legislature also passed another act on May 28, 1864, which reads as follows:

"SEC. 1. Be it enacted by the Legislature of the State of Texas that the provisions of the act of which it is amendatory shall not apply to railroad companies that fail or refuse to receive state bonds or state treasury warrants at par for freight or passage at the prices or rates established by law."

"SEC. 2. That whenever satisfactory evidence is produced or furnished to the comptroller of the state that any railroad company has failed or refused to receive the state bonds or state treasury warrants at par for freight or passage at the rates established by law, he is required to refuse to receive the state bonds or treasury warrants for the interest due by said railroad upon its bond."

"SEC. 3. That the president of any railroad in this state be, and is hereby, required to post in a conspicuous place in the railroad offices and in the passenger cars the provisions and terms of this act, under a penalty of $100, to be recovered for the benefit of the state by suit before any court of competent jurisdiction, upon information of any party."

On November 16, 1864, still another act was passed by the legislature which reads as follows:

"Be it enacted by the Legislature of the State of Texas that the railroad companies of this state that are indebted

Page 177 U. S. 71

to the special school fund shall continue to be allowed the privilege of paying the interest due said fund in the treasury warrants and bonds and coupons of the state, and may also discharge the whole or any part of the principal of their indebtedness to that fund (in the same manner), provided such railroad companies shall satisfy the comptroller that the treasury warrants and bonds and coupons of the state are received by them at par with specie for freight and passenger travel."

"That all treasury warrants and bonds and coupons of the state so received into the state treasury shall be cancelled, and the comptroller shall issue the bonds of the state, bearing six percent interest, to the special school fund for the amount so paid in, and this act take effect from its passage."

Upon the passage of these various acts and in reliance upon the agreement and obligation of the state as evidenced thereby, the two companies acquired treasury warrants upon good consideration, and after the passage of the Act of May, 1864, they received treasury warrants at par in payment of freight and passenger services rendered by them to the various people who demanded the same, and they subsequently paid treasury warrants to the comptroller of the state in payment of interest due on their indebtedness (the amounts of such payments are set forth in the answer), and upon such payment and receipt of the warrants by the comptroller and treasurer, they were cancelled as authorized and required by the above-mentioned act, and thereupon the comptroller and treasurer issued the bonds of the state bearing six percentum interest to the special school fund for the amount so paid by the railroad companies in treasury warrants. By reason of all which, it was alleged that a valid and binding contract between the state and the railroad companies was made, that the payments in treasury warrants should be valid payments at their par value, upon the various loans made by the state to the companies, and it was further alleged that the payments by treasury warrants had been received by the authorities of the state and cancelled, and a credit for the amount thereof as payment given to the companies on the books of the state, and that the transaction thereby became fully executed, and

Page 177 U. S. 72

the state could not thereafter dispute or question the validity of such payments or the right of the company to the credits given it by the state.

It is also alleged that, after the passage of the Act of August 13, 1870, and about the first of November, 1870, the comptroller of the state, with the concurrence and approval of the governor, wrongfully and without authority of law recharged each of the railroad companies respectively upon the books of the comptroller's office with the several amounts theretofore paid by them respectively in treasury warrants, and there was demanded from the respective companies on the first day of November, 1870, six months' interest and one percent for the sinking fund on the aggregate amount of the loan, as made up by the comptroller, after striking out the payments made by the company with the treasury warrants. These amounts were paid under protest as being illegally demanded and resulting in a violation of the contract existing between the companies and the state. Payments on the same basis were continued semiannually from that time, accompanied by a protest similar to the one first mentioned, until, as the company contends, the full amount due by it to the state had been paid, provided the payments in treasury warrants were credited as valid payments. Since that time, the company has refused to make further payments. It claimed that the Act of August 13, 1870, as construed by the state authorities, impaired the obligation of the contract existing between the state and itself, and thereupon it prayed for judgment.

To this pleading the plaintiff filed its first supplemental petition, and therein specially set up that the three several acts of the legislature of the state mentioned in the defendant's answer as the authority for the payment upon the bonds of the company in treasury warrants were unconstitutional and void because (1) the warrants in which payments were authorized to be were issued for the purpose of being circulated as money, and were in violation of the state constitution; (2) also because they were bills of credit emitted by the state, and therefore in violation of Section 10 of Article I of the Constitution of the United States, and (3) because the acts under which the

Page 177 U. S. 73

warrants were authorized to be paid, together with other acts passed at or about the same time, plainly indicated that the treasury warrants and other obligations in which payments were authorized to be made, and which were made by the defendant, were issued in aid of the rebellion against the United States of America, and were therefore void.

Upon these pleadings, a motion was made by the company to remove the case to the United States circuit court on the ground that, by the filing of the plaintiff's last above-mentioned pleading, it became apparent for the first time, from plaintiff's statement of its own claim, that the case was one arising under the Constitution or laws of the United States, and defendant was therefore entitled to a removal. The motion was denied, and although further pleadings were thereafter served on each side, they are not material to the matters discussed in the opinion.

The case was tried without a jury, there being no dispute as to the facts. The trial court held that the payments in treasury warrants were illegal because they were issued to circulate as money, in violation of the Constitution of the state. It also held that they were issued, or at least some of them were issued, in direct aid of the rebellion, and were therefore void; that the burden rested with the defendant to show, if it could, which, if any, of the warrants were valid. Judgment was given in favor of the state.

The company then appealed to the Court of Civil Appeals for the Third Supreme Judicial District of the state, where the judgment was modified so as to render no personal judgment against the company and to foreclose the lien of the state only upon that part of the road which the findings showed was in existence on August 13, 1870, and as thus modified, it was affirmed solely on the ground that the warrants were issued in violation of the state constitution, as paper intended to circulate as money. A writ of error was applied for to the Supreme Court of Texas, and by that court refused. The company then brought the case here by writ of error to the court of civil appeals. The defendant in error has made a motion to dismiss the writ on the ground that this Court has no jurisdiction, for reasons stated in the opinion.

Page 177 U. S. 74

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