Davis v. Gray
83 U.S. 203 (1872)

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U.S. Supreme Court

Davis v. Gray, 83 U.S. 16 Wall. 203 203 (1872)

Davis v. Gray

83 U.S. (16 Wall.) 203

Syllabus

1. In this case -- where a person who had been appointed receiver of a railroad to which a large grant of lands had been made by a state was seeking to enjoin the officers of the state which had declared the lands forfeited, from granting them to other persons -- the Court states at large what is the office and what are the duties of a receiver, giving to them a liberal interpretation in aid of the jurisdiction of the court. It says that in the progress and growth of equity jurisdiction, it has become usual to clothe them with much larger powers than were formerly conferred; that in some of the states, they are by statute charged with the duty of settling the affairs of certain corporations when insolvent, and are authorized expressly to sue in their own names, and that the Court sees no reason why a court of equity, in the exercise of its undoubted authority, may not accomplish all the best results intended to be secured by such legislation without its aid.

2. The doctrines of Osborne v. Bank of the United States affirmed, and the principles re-declared.

(a) That a circuit court of the United States, in a proper case in equity, may enjoin a state officer from executing a state law in conflict with the Constitution or a statute of the United States, when such execution will violate the rights of the complainant.

(b) That where the state is concerned, the state should be made a party, if it can be done. That it cannot be done is a sufficient reason for the omission to do it, and the case may proceed to decree against her officers in all respects as if she were a party to the record.

(c) That in deciding who are parties to the suit, the court will not look beyond the record. That making a state officer a party does not make the state a party, although her law may prompt his action, and

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she may stand behind him as the real party in interest; that a state can be made a party only by shaping the bill expressly with that view, as where individuals or corporations are intended to be put in that relation to the case.

3. The Memphis, El Paso & Pacific Railroad Company had not (on the 20th of January, 1871), in view of the existence of the rebellion, and of several statutes of Texas condoning its noncompliance with conditions of its charter, lost its franchise or its right of and to the land grant and land reservation of the company given in its charter.

4. The articles 5 and 7 of the Constitution of Texas, made in 1869, which on an assumption that the company had then lost them, disposed of the lands away from it, violated the obligations of a contract and were void.

5. Where the State of Texas had made to it railroad company a large grant of lands, defeasible if certain things were not done within a certain time by the company, the fact that the so-called secession of the state and her plunging into the war, and prosecuting it, rendered it impossible for the company to fulfill the conditions, in lad abrogated them.

6. However, as the court thought that the enforcement of the legal rule in the particular case would work injustice, it declined to apply such legal rule, and applying an equitable one held that the conditions should still be complied with; but complied with in such reasonable time, as would put the parties in the same situation, as near as might be, as if no breach of condition had occurred.

The State of Texas had at the times hereinafter named, certain public lands. A general land office was established at the capital of the state for the registration of titles and surveys, and the lands were divided when surveyed into sections of six hundred and forty acres each. One Kuechler was the chief of this office, under the title of the "Commissioner of the General Land Office." All certificates for the public lands were issued by this commissioner, and all patents were issued under the seals of the state and the General Land Office, and were required to be signed by the governor and countersigned by the said commissioner. These certificates were evidences of obligation on the part of the state to grant, and give a patent to the holder for a certain amount therein mentioned of the vacant and unreserved public lands of the state; when the certificates are located and surveyed, and the surveys returned to the commissioner

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and approved by him, a patent, conveying the fee, is executed as above mentioned.

In and about the year 1856, and for many years thereafter the State of Texas, though of great extent, was, as it still is, sparsely inhabited, while its public domain was far from markets, and without connection with the more settled parts of the country; and it was greatly to the interest of the state to attract immigration and capital. To produce this result, it became the settled policy of the state to make grants and reservations of public lands to corporations, conditioned upon the construction of certain amounts of railroad within certain times. In pursuance of this policy, the Memphis, El Paso & Pacific Railroad Company was incorporated February 4, 1856, by the State of Texas to build a railroad across the state from the eastern boundary to El Paso, with a land grant of 16 sections to the mile; certificates for 8 sections per mile to be issued on the grading of successive lengths of road, and 8 more per mile upon the complete construction of the same, and a reservation was granted of the alternate or odd sections of land for eight miles on each side of the road, within which the company should have an exclusive right to locate its certificates, while it also had the privilege to locate said certificates on any other unappropriated public lands.

This reservation, of course, was of the greatest value, as it enabled the company to reap the advantage of the enhancement of price which the construction of the road by them would cause in the lands along the line.

In the same year of 1856, the company was organized in reliance on the grants, and especially on the reservation, and duly accepted the same.

There were certain conditions precedent to the vesting of the charter, land grant, and reservation, but they were all complied with, and at a cost to the company for surveys of over $100,000. These and subsequent surveys resulted, for the company, in the official designation of the road line and the center line of the reservation for some 800 miles, and the "sectionizing" and numbering of the odd sections of

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land in said reservation in a belt of country some 250 miles in length and 16 in width; and for the state in the surveying and mapping of the same belt of country and the "sectionizing" and numbering of the alternate or even sections for the benefit of the state. The company also graded some 65 miles of road westerly from Moore's Landing, in Bowie County, and was interrupted in the work of construction by the rebellion and so-called "secession" of Texas, but resumed work after the war, and graded between 20 and 30 miles further, from Jefferson in Marion County, in the direction of Moore's Landing.

There were certain conditions subsequent annexed to the charter, viz., that if the company should not have completely graded not less than 50 miles of their road by the 1st of March, 1861, and at least 50 miles additional thereto within two years thereafter, then the charter of said company should be null and void. The first 50 miles were graded within the required time; the second 50 miles have never been graded. Within two years after the performance of the first condition, however, the Legislature of Texas, by act "for the relief of railroad companies," approved February 11, 1862, enacted, that the failure of any chartered railroad company to complete any section, or fraction of a section, of its road as required by existing laws, should not operate as a forfeiture of its charter, or of the lands to which the said company would be entitled under the provisions of an act entitled "An act to encourage the construction of railroads in Texas by donation of land," approved January 30, 1854; provided that the said company should complete such section, or fraction of a section, as would entitle it to donations of land, under existing laws, within two years after the close of the war between the Confederate States and the United States of America. Within the two years after the close of the war, the provisional legislature, by Act of November 13, 1866, enacted,

"that the grant of 16 sections of land to the mile to railroad companies heretofore or hereafter constructing railroads in Texas shall be extended, under the same restrictions and limitations

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heretofore provided by law, for 10 years after the passage of this act,"

and by article 12, section 33 of the present Constitution of Texas, while declaring that the legislatures which sat from March 18, 1861, to August 6, 1866, were without constitutional authority, yet enacted that such declaration should not affect prejudicially private rights which had grown up under such acts, and that though the legislature of 1866 was only provisional, its acts were to be respected, so far as they were not in violation of the Constitution and laws of the United States.

By Act of July 27, 1870, the Southern Transcontinental Railroad Company was incorporated, and it was enacted, in terms, that it might "purchase the rights, franchises, and property of the Memphis, El Paso & Pacific Railroad Company, heretofore incorporated by the state."

The land grant was limited to fifteen years from the 4th of February, 1856, but this time had not yet expired, and by an act of November 13, 1866, for the benefit of railroad companies, it was enacted, that this grant of 16 sections of land to the mile to railroads theretofore or thereafter constructing railroads in Texas, should be extended under the same restrictions and limitations theretofore provided by law, for ten years after the passage of this act.

The land reservation was conditioned upon certain surveys:

1. It was to be surveyed from the eastern boundary of Texas, as far as the Brazos River, within four years from March 1st, 1856.

2. The center line of the reserve was to be run and plainly designated from the Brazos to the Colorado within fifteen months from February 10, 1858.

3. The whole reservation was to be surveyed within ten years from February 10, 1858.

4. The company was to have a connection with some road leading to the Mississippi River or the Gulf of Mexico, within ten years from February 10, 1858.

The first and second of these conditions were fulfilled within the times limited. The legislature, by Act approved January 11, 1862, enacted that

"the time of the continuance of the present war between the Confederate States and the United States of America shall not be computed

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against any internal improvement company in reckoning the period allowed them in their charters, by any law, general or special, for the completion of any work contracted by them to do."

This act the company considered extended the time for the performance of the third and fourth conditions till the 10th of June, 1873.

In the years 1867 and 1868 the company executed two series of bonds, known as land grant bonds, amounting in the aggregate to the par value of $10,000,000 in gold, and also executed and delivered to one Forbes and others, trustees as aforesaid, two mortgages to secure said bonds, by one of which they mortgaged all lands actually acquired or thereafter to be acquired by said company by grading, construction, and equipping the first 150 miles of the road of said company, from Jefferson in Marion County to Paris in Lamar County, and by the other of which they mortgaged the like property for the second 150 miles, from Paris to Palo Pinto in Palo Pinto County. These bonds were put on the bourse in Paris, France, and sold for value to the extent of $5,343,700 of their par value, mostly in small lots, and to persons of limited means. The grants, guarantees, and assurances by the State of Texas to said company of the said franchises, and especially of said land grant and land reservation, were recited in said mortgages, and were also announced and repeated to the purchasers personally, and by advertisement and prospectus, and the purchasers took the bonds relying on said grants, and upon the exclusive right of the company to locate certificates within the territory so reserved.

The bonds not being paid the circuit court for the Western District of Texas, on motion of Forbes, trustee under the mortgage, on the 6th of July, 1870, enjoined the railroad company from disposing of any of its effects, and put the road into the hands of one John A. C. Gray as receiver:

"To take possession of the moneys and assets, real and personal; roadbed, road, and all property, whatsoever, of the said Memphis, El Paso & Pacific Railroad Company, wheresoever

Page 83 U. S. 209

the same may be found, with power under the special order of the court, from time to time to be made, to manage, control, and exercise all the franchises, whatsoever, of said company, and, if need be, under the direction of the court, to sell, transfer, and convey the road, roadbed, and other property of said company, as an entire thing,"

&c.

On the 20th of January, 1871, it was further ordered by the court:

"That the said John A. C. Gray receiver, as aforesaid, be and he is hereby, authorized and empowered to defend and continue all suits brought by or against the said Memphis, El Paso & Pacific Railroad Company, whether before or after the appointment of said receiver, and whether in the name of said company or otherwise; defend all suits brought against him as such receiver or affecting his receivership, and to bring such suits in the name of said company, or in the name of said receiver, as he may be advised by counsel to be necessary and proper in the discharge of the duties of his office, and for acquiring, securing, and protecting the assets, franchises, and rights of the said company and of the said receiver, and for securing and protecting the land grant and land reservation of the said company."

In November, 1869, the present Constitution of Texas was adopted, and was approved by Congress. The fifth and sixth sections of this constitution are as follows:

"SECTION 5. All public lands heretofore reserved for the benefit of railroads or railway companies shall hereafter be subject to location and survey by any genuine land certificates."

"SECTION 7. All lands granted to railway companies which have not been alienated by said companies in conformity with the terms of their charter respectively and the laws of the state under which the grants were made, are hereby declared forfeited to the state for the benefit of the school fund."

The constitutional convention which framed this constitution passed an ordinance to the effect that all heads of families actually settled on vacant lands lying within the Memphis & El Paso railroad reserve shall be entitled to and receive from the State of Texas 80 acres of land, including

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the place occupied, on payment of all expenses of survey and patent; and that all vacant lands lying within said reserve are declared open and subject to sale to heads of families actually settled on or who may actually settle on said reserve, at the price of one dollar per acre; and that said vacant lands within said reserve shall be open to preemption settlers, and subject to the location of all genuine land certificates.

There were in 1869, and were on the 20th of January, 1871, when Gray was ordered by the court to bring such suits in the name of the company as he might be advised by counsel were necessary and proper in the discharge of the duties of his office, a great number of land certificates outstanding and unlocated in Texas. Since the passing of the said ordinance, and the adoption of the said constitution, many hundreds of the holders of certificates other than those issued to the company had located their certificates on the sections reserved to the company, had returned their surveys and locations to the Commissioner of the General Land Office, and had applied for patents on the same. Before the 19th day of September, 1870, Commissioner Kuechler and Governor Davis, professing to act under the said constitutional provisions, issued 2 of such patents. On the 19th of September, 1870, to receiver filed a protest with the commissioner against issuing any further patents for lands reserved to the company, but the commissioner and governor disregarded the protest and issued 32 additional patents within the reserve; the whole of the land thus patented amounting to nearly 20,000 acres.

Hereupon on the same 20th of January, 1871, Gray who was a citizen of New York, filed a bill in the court below against one Davis, Governor of the State of Texas, and Keuchler, already mentioned as commissioner of the land office of the state. The bill -- averring that "the Memphis, El Paso & Pacific Railroad Company" is "a corporation created by and existing under certain statutes of Texas," already referred to, and that it had done "all acts and things necessary to the full and complete vesting, securing,

Page 83 U. S. 211

and preserving of the franchises, rights, and privileges granted thereby" -- set forth a history much as above given. It averred that the company was insolvent, and could not continue the construction of the road, and that the holders of said bonds would necessarily be remitted to the security of the mortgages; that the said security was worthless unless the receiver, under order of court, should be able to sell the franchises and property of said company to some party or parties who, by constructing the road, should acquire the lands referred to in the mortgages, and hold the same subject to the lien of them. It set forth that the general laws of Texas authorized to the fullest extent the conveyance of the franchises of a railway company by sale under execution or foreclosure; and that by Act of July 27, 1870, the Southern Transcontinental Railroad Company was created, and, as before mentioned, was expressly authorized by its charter to "purchase the rights, franchises, and property of the Memphis, El Paso & Pacific Railroad Company, heretofore incorporated by the state;" that the Southern Transcontinental Company stood ready to do this, and to devote the lands to be acquired by the exercise of said Memphis & El Paso franchises to the settlement of the land grant mortgage debt, provided the receiver could convey the charter, the land grant, and the grant of the land reservation unimpaired and in full force.

It set forth further that the receiver, on negotiating for a transfer of the franchises of the company, found that the market for them was peculiar in the following respects: it was limited, as the franchises are only of use or value to those who desired and were able to construct the road; it depended in great measure upon the reputation of and confidence in the enterprise, and a belief among capitalists, outside of the State of Texas, that the state could and would have to abide by the grants contained in the charter; that it depended peculiarly and essentially upon the preservation of the land grant and land reservation, inasmuch as the country through which the road was to be built was sparsely inhabited, without cities or towns to furnish local traffic;

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that Texas lands at a distance from railroads, were of but nominal value compared with lands along the line of the roads, and that the Southern Transcontinental Railroad Company, to whom the receiver chiefly looked as a purchaser, already had the right of way across the state and parallel with the route of the Memphis & El Paso charter, following "as near as might be practicable the old survey of the Memphis & El Paso road," making the mere right of way of the latter of comparatively little value without the lands and the reservation.

It asserted that the acts of the governor and commissioner of the land office, in executing and causing to issue patents for the reserve, were, and their continuance would be, irretrievable destruction of that portion of the franchise of the company which consisted of the right to have the odd sections of the reservation devoted exclusively to the location and patenting of the company's certificates, would destroy all confidence in the other grants of the company, as well as in the grant of the reservation, and render the franchise of the company valueless in the hands of the receiver, doing irreparable injury to the interests committed to his charge.

It set forth further that the Southern Transcontinental Company asserted and insisted to the receiver, that unless the said acts were judicially declared unlawful, and perpetually restrained, the said franchises would be valueless to them, and that they would not carry out the purchase of the same.

[It was an admitted fact in the case, that the Memphis, El Paso & Pacific Railroad Company had never sectionized or numbered the land reservation of the same west of Brazos River, or any portion of said reservation west of said river, and that no work had been done on the road of the said company before or since the year 1861, either by granting or otherwise, except those as already affirmatively stated and set forth.]

The bill further asserted that the charter of the company was a contract between the state and the company, which contract was now in the hands of the complainant as receiver,

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and under direction of a court of equity, to be used for the benefit of the creditors of the company; that the said provisions of the Constitution of Texas and the said ordinance of convention impaired the obligation and value of the said contract, and also of the said contracts of mortgage, and were insofar contrary to Article I, Section 10, of the Constitution of the United States, which declares that "no state shall pass any law impairing the obligation of contracts," and were insofar null and void, and that the acts of the governor of the state and commissioner of the land office, in issuing such patents, were without authority of law and illegal, and that any repetition of the same should be perpetually restrained. The bill prayed an injunction accordingly.

As a reason for confining the bill to the two defendants named, and amendment to the bill alleged that the complainant had applied at the General Land Office of Texas, to have the number and names of the parties who had located land certificates other than those issued to the Memphis, El Paso & Pacific Railroad Company, on lands within and forming a part of the land reservation of the said company, and to obtain a list of the same; that he had been informed, on making such application, and by the defendant, Kuechler, the Commissioner of the General Land Office, that the number of the same was very great, to-wit, many hundreds, and that a list could not be furnished without great time and labor. The amendment further alleged that parties were constantly making locations and surveys of land certificates as aforesaid on the lands of said reservation; and that parties who had made such locations and surveys had __ months allowed them by law, after making the same, before they were required to make returns thereof to the Commissioner of the General Land Office, and that the complainant was consequently unable, and never would be able, to obtain a correct list of such parties.

To this bill the defendants demurred:

1st. Because it did not appear from it that the defendants, or either of them, had any direct or personal interest in the

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lands which were the subject matters of this suit; but, on the contrary, that they were sued in their official capacities only, and that the lands were a part of the public domain of the State of Texas, which was not and could not be made a party to this suit.

2d. Because it did not appear that while under the Amendment 11 to the Constitution of the United States [which declares that "the judicial power of the United States shall not be construed to extend to any suit in law or equity commenced or prosecuted against one of the United States by citizens of another state, or by citizens or subjects of a foreign state"], the court could have no jurisdiction as between the complainant and the State of Texas, jurisdiction existed in a suit against two of the officers of said state in their official capacity alone, to decree portions of the Constitution of the state, which had been accepted by the Congress of the United States, and which the defendants were sworn to obey, void.

3d. Because it did not appear that the bill was founded on fraud, accident, mistake, trust, specific performance, or any ground of equity jurisdiction; or that the same set out any equity against the defendants whatever; on the contrary, it appeared that the bill was brought to have Sections 5 and 7 of Article Ten of the Constitution of the State of Texas decreed void.

4th. Because it did not appear that the complainant, being an officer of the court, had a right to sue the defendants therein, nor that the court could have jurisdiction as between the complainant, though a citizen of the State of New York, and the defendants, as citizens of the State of Texas, in either their respective official or individual capacities.

5th. Because the "act incorporating the Memphis, El Paso & Pacific Railroad Company," and the other acts referred to in the bill, did not amount to a contract between the State of Texas and the company.

6th. Because it did not appear that any designated third person or persons was or were about to have a patent granted him or them by the defendants, and that such third person

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or persons was or were sought to be made a party or parties, nor that said bill was not too vague and indefinite.

7th. Because it did not appear that the creditors not specified of the company were made parties thereto, nor that the persons not specified applying for patents on locations of certificates, within the limits of the lands that were reserved, were made parties thereto; all of whom, according to the bill, had equities that ought to be determined in this suit, and hence were necessary and proper parties to this suit.

8th. Because it did not appear that the complainant had any equities that he was not bound to have litigated against such third persons not specified, and also against those not specified who had located certificates within the limits of the lands that were reserved, before he would have a right (which was not conceded) to invoke any action by means of a bill in a court of equity, in case such a court might have jurisdiction.

The demurrer was overruled, and, no answer being field, a decree pro confesso was taken for the complainant, and on the 16th of February, 1871, a final decree was granted in accordance with the prayer of the bill, to the following effect:

"That in July, 1870, and at the time of the appointment of Gray as receiver, and at the date of the decree, the company was duly possessed of the franchise and right of, and to the land grant and land reservation of the company; that the said right and the franchise of the company were unimpaired, and in full force and virtue; that the provisions of the Constitution of Texas, and of said ordinance of convention, so far as they impaired, or purported to impair the said charter, land grant, or land reservation, were contrary to the provisions of Article I, Section 10, of the Constitution of the United States, and were insofar, null and void; and that the defendants should be perpetually enjoined from issuing, or causing or permitting to issue, any patent of the lands of the odd sections of said reservation, except on the certificates granted to the company, or its assigns."

From this decree appeal was taken by the defendants to this Court.

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