In a suit brought in one of her courts by the State of Louisiana
seeking to restrain payment on the bonds issued to the New Orleans,
Mobile, and Chattanooga Railroad Company under an Act of the
legislature approved April 20, 1871, and praying for relief upon
the ground that the act was in violation of the constitutional
amendment of 1870, which declares "that, prior to the first day of
January, 1890, the debt of the state shall not be so increased as
to exceed twenty-five millions of dollars," which limit, it was
claimed, had been attained before the passage of the act, a holder
of some of the bonds, who was permitted to intervene, set up that
they were issued in discharge and release of valid and then
subsisting obligations of the state, which, prior to the adoption
of the amendment, had been created under her legislation.
Held that this Court has jurisdiction to determine whether
the amendment, as construed by the court below and applied to the
facts of the case, impairs the obligation of a contract.
Held
further that the act is in conflict with that amendment
inasmuch as it authorized the creation of a new debt on a new
consideration in excess of the prescribed amount, and that the
bonds are void.
The facts are stated in the opinion of the Court.
Page 103 U. S. 638
MR. JUSTICE MILLER delivered the opinion of the Court.
A suit was brought by the Attorney General of Louisiana in the
name of the state, in the Superior Court of the District for the
Parish of New Orleans against Charles Clinton, State Auditor, and
Antoine Dubuclet, State Treasurer. The petition enumerated a great
number of claims against the state which it declared to be illegal
and void, and which it was feared the auditor would allow, and the
treasurer pay, against which action the petition prayed for an
injunction. Among these claims, the only one which demands our
attention was one for $2,500,000 of state bonds issued under the
Act of the legislature of April 20, 1871, entitled "An Act to
relieve the state from its obligation to guarantee the second
mortgage bonds of the New Orleans, Mobile, and Chattanooga Railroad
Company." While there were several grounds of objection stated in
the petition, the only one which concerns us is the allegation that
the issue of these bonds was an attempt to create a debt of
$2,500,000 when the limit to the state debt of $25,000,000, as
fixed by the amendment to the state Constitution of 1870, had
already been exceeded. In this suit, the New Orleans, Mobile, and
Texas Railroad Company, successors to the New Orleans, Mobile, and
Chattanooga Railroad Company intervened, and the temporary
injunction was dissolved.
On appeal to the supreme court, the order dissolving the
injunction was reversed, and when the case came back to the court
of original jurisdiction for further proceedings, Williams and
Guion were permitted to intervene for their interest as holders of
three of the bonds of $1,000 each, the payment of which was sought
to be enjoined in the suit.
The superior court decreed the bonds to be void and perpetually
enjoined the treasurer from paying them on their interest coupons,
and on appeal to the supreme court that decree was affirmed. It is
this final judgment of the supreme court
Page 103 U. S. 639
of the state that the present writ of error sued out by Williams
and Guion seeks to review.
The reason why the state court held these bonds void is that by
an amendment of the constitution of the state, adopted in 1870, no
debt should be thereafter created which, added to the debt of the
state then existing, would swell the total amount above
$25,000,000, and that amount had been reached before the issue of
the bonds in question and before the act of the legislature under
which they were issued had been passed.
Counsel for defendants in error insist that the writ of error
should be dismissed for want of jurisdiction.
They say that the suit is one in the courts of their own state,
to which the state itself is a party plaintiff, against its own
officers, and the decision rested entirely on the construction of
the constitution and laws of the state, and that no question of
federal law is involved in it. If this be strictly true, their
contention should be sustained.
In answer to this, it is said that the bonds held by the
intervenors were founded on an obligation which existed prior to
the constitutional amendment, and did not, therefore, add to the
debt which existed when that amendment was adopted. This is denied
by the counsel for the state, and upon the solution of this
question the whole case depends, both as to its merits and as to
the jurisdiction of this Court. For it is insisted by plaintiffs in
error that if their contract existed in effect before the
amendment, the amendment as construed by the state court impairs
the obligation of that contract, and this Court can review that
question, while if the bonds constitute a new and independent
contract, the constitutional provision was properly applied to
them, and the judgment is right. As this is the question we are to
decide, and as it was raised and insisted on by the plaintiffs in
error in the court below, we think this Court has jurisdiction.
The bonds in question were, as we have already said, issued
under an Act of the Louisiana Legislature approved April 20, 1871,
which was after the constitutional amendment had become come
operative. That amendment, which went into effect in December,
1870, declares "that prior to the first day of January,
Page 103 U. S. 640
1890, the state debt shall not be so increased as to exceed
twenty-five millions of dollars."
That the state debt already exceeded that sum when the bonds
were issued and, indeed, when the act was passed under which they
were so issued, is not denied. But as already stated, the effect
attributed to these facts is denied on the ground that they were
issued in lieu of and in extinguishment of an obligation of the
state existing when the constitutional amendment was adopted.
To determine the soundness of this proposition, it is necessary
to examine the statute which authorized their issue and the nature
of the supposed obligation on which the later transaction is said
to be founded. The statute reads as follows, and is here given in
full:
"An Act to relieve the state from its obligation to guarantee
the second mortgage bonds of the New Orleans, Mobile, and
Chattanooga Railroad Company under an Act of the General Assembly
approved February 21, 1870, by subscription on the part of the
state to the capital stock of said corporation, and to regulate the
conditions of such subscription, and to secure the construction of
the road of said corporation from Vermilionville to
Shreveport."
"SEC. 1. (
a.) Be it enacted by the Senate and House of
Representatives in General Assembly convened that the governor of
this state be and is hereby authorized to subscribe for twenty-five
thousand shares of $100 each of the capital stock of said
corporation on behalf of this state, and to receive the
certificates of stock therefor as payment shall be made for the
same, which certificates shall be deposited by him in the office of
the treasurer of this state, and shall not be assignable of
transferable except by authority of the General Assembly."
"(
b.) And be it further enacted, &c., that whereas
the subscription for stock and the issue of bonds therefor herein
provided are intended to extinguish the obligation of the state to
endorse or guarantee the second mortgage bonds of said corporation,
under the Act of the General Assembly relative to said corporation
approved proved February 21, 1870, and as a discharge of either
party from all obligations for the issue, endorsement, guarantee,
and security of said mortgage bonds, as provided in the fourth
section of said act; the said corporation shall be required, at or
before the complete
Page 103 U. S. 641
issue of said bonds, to file with the secretary of state a full
release and acquittance of the obligations of the state so created
to guarantee said mortgage bonds, and for which the provisions of
this act are designed as a substitute and discharge, and the said
corporation shall, by its express agreement made and entered into
by the vote of its board of directors and attested by its seal and
the signature of its secretary, obligate itself to commence that
part of its railroad from Vermilionville to Shreveport within six
months, and to complete the same within the time limited therefor
in said act of the General Assembly,
provided that the
said corporation may purchase from this state the said shares of
stock at their par value at any time prior to the maturity of the
bonds issued therefor, and may pay for the same in lawful money or
in any of the bonds of this state at their par value."
"SEC. 2. Be it further enacted &c. that for the payment of
said subscription bonds of this state shall be issued, signed by
the governor and secretary of state, and sealed with the seal of
the state, payable not less than thirty-five, nor more than forty
years from their date, with interest at the rate of eight percent
per annum, payable semiannually in the City of New York on the
first days of January and July of each year, for which interest
coupons bearing a facsimile of the signature of the treasurer of
the state shall be attached to the bonds, and annually from and
after the issuing of the said bonds or any part thereof, there
shall be imposed for each fiscal year a state tax of one mill on
each dollar of the valuation, for each year, of the real and
personal property in the state subject to taxation, which tax shall
be assessed, levied, and collected in current moneys by the annual
assessment and collection of taxes for each year in the manner
prescribed by law for the collection of other taxes, and the moneys
derived therefrom shall immediately on collection be paid into the
treasury of this state as a distinct fund, and kept as a separate
account, and such moneys and all moneys received from said company
for dividends on said stock shall be applied in each and every year
first to the payment of the interest as it shall accrue on the said
bonds, and the balance, in each year, shall be applied to the
purchase of said bonds; such tax shall continue to be so assessed,
levied, and collected in each and every year until all the interest
and principal of said bonds which shall from time to time remain
outstanding shall be fully paid, and all bonds and coupons so
purchased and paid shall be immediately cancelled by the said
treasurer."
"SEC. 3. Be it further enacted &c. that from and after the
subscription
Page 103 U. S. 642
aforesaid and the issue of the certificates of stock, and during
the time the state shall own the same, the state shall be
represented at the corporate meetings of the stockholders and in
the board of directors to be chosen by the other stockholders under
the charter of their incorporation by the governor of the state for
the time being, or by his proxy or by another director to be
designated by the governor, whose duty it shall be to attend all
the meetings and perform all the duties incident to the office of
directors, but that the directors thus appointed shall not vote in
the elections of the board of directors provided for in the act of
incorporation."
The Act of February, 1870, here referred to is an act of many
sections and subsections for the benefit of the New Orleans,
Mobile, and Chattanooga Railroad Company, giving it increased
privileges in the City of New Orleans, authorizing extensions of
its projected road and the unlimited issue of its own bonds.
The fourth section, in addition to this grant of the unlimited
right to issue its own bonds, authorizes the company to construct
and maintain a road from any point on the main line of its road in
the Parish of St. Martin or Lafayette northwardly to Shreveport via
Alexandria, and also from Iberville on the main line to the
Mississippi at any point in the Parish of West Baton Rouge, and
declares that all the powers, privileges, grants, guaranties, and
franchises theretofore granted to said company for the
construction, maintenance, and use of its main line of railroad
within the State of Louisiana westerly from the City of New Orleans
shall be and are thereby made applicable to the said lines of
railroad to Shreveport and to said point in the Parish of West
Baton Rouge,
provided, however, that such provisions of
the Act entitled "An Act to expedite the construction of the
railroad of the New Orleans, Mobile, and Chattanooga Railroad
Company, in the State of Louisiana," approved Feb. 17, 1869, as
relates to the guaranty of the second mortgage bonds of said
company shall be applicable only to such parts or portions of the
said lines of railroads to Shreveport, and to said point in the
Parish of West Baton Rouge, as shall be surveyed, located, and
constructed within five years from and after the acceptance of this
act by said company, and the said provisions of said act shall be
applicable to such parts or portions of said
Page 103 U. S. 643
last-mentioned lines of railroad as shall be surveyed, located,
and constructed within the time last aforesaid.
The act of 1869 authorized the company to issue its bonds
payable to the State of Louisiana at the rate of $12,500 for every
mile of railroad actually constructed and accepted by commissioners
to be appointed by the governor. The payment of these bonds was to
be secured by a mortgage on the road subject to a prior mortgage of
the same amount, and the bonds are therefore designated in the
statute as second mortgage bonds. It was declared also that the
failure to pay the coupons for interest on these bonds, or if any
of the sinking refund required by the act should be in arrears for
sixty days, the whole of the principal of the bonds should become
due and the mortgage should contain a provision for the sale of the
road by the trustee in that case.
These conditions being complied with, and the construction of
forty miles of the road being completed to the satisfaction of the
governor, he was directed to endorse on the bonds of the company,
to the amount of $12,500 per mile for such forty miles, the
guaranty of the State of Louisiana of the payment of these bonds,
and deliver them to the company. This act also required the company
to survey and locate the whole of the main line within eight months
after acceptance of the act, a section of forty miles to be
completed within twelve months after such survey, and the whole of
the line within the state to be completed within three years after
such survey and location, and a failure to comply with these
requirements as to any part of said road released the state from
the obligation to guarantee as to that part of the line. It is
argued that the proviso to sec. 4 of the act of 1870, making the
provisions of the act of 1869 applicable to the new lines, if
constructed within five years instead of three, as in that act,
does away with the provisions for requiring specific acts as to
location and construction of forty miles, to be performed within
shorter periods, and that the obligation of the state to guarantee
the bonds continued for five years, though nothing had been done in
the mean time.
We do not think this is a sound construction of the proviso, but
that the period of five years is there mentioned instead of
Page 103 U. S. 644
three in the former act for the final completion of the road, a
failure to comply with which released the state from its promise of
any further guaranty of the bonds.
This, however, is not very material, as it only adds to the
force of the argument, that when the state bought $2,500,000 of the
stock of the company, and gave its own bonds for that sum, it was
incurring a new debt, and was not discharging an old one of equal
amount.
What was the obligation of the state in this matter prior to the
act of 1871, and at the time the constitutional limitation of its
debt became effectual? and what obligations are assumed by the
issue of these bonds?
The state, by the former law, was to become surety for the bonds
of the company without any other consideration than a desire for
the construction of the road.
By the new amendment, she became absolute debtor and gave her
own bonds.
By the former law, she had a very stringent provision to secure
her from loss for the use of her name as endorser of the bonds of
the company.
By the new amendment, she agrees unconditionally to pay
$2,500,000 of money, with no security for its repayment and no
indemnity against loss.
Under the former act, she might never have been called on to
endorse the bonds, as the conditions might never have been complied
with, and if so called on would perhaps have been held secure
against loss by the provision for mortgage and sinking fund on a
road to be constructed before the guaranty was endorsed on the
bonds. And in fact it now appears very improbable that she would
ever have been called on to endorse any bonds not already endorsed
when the present bonds were issued.
Instead of a mere promise to endorse them, with a fair security
against loss, with a reasonable ground of belief that the right to
call for this guaranty would never arise, the state, by the new
statute, subscribes for and purchases $2,500,000 of the stock of
the company, gives her bonds for it, and becomes the debtor of the
company for that amount.
By the new arrangement, the state became transformed from
Page 103 U. S. 645
a possible creditor of the company, with security for her debt,
into a debtor of the company with nothing to show for it but some
worthless stock.
It seems impossible to hold that this is in any just sense a
redemption of a former obligation. It is equally impossible to hold
that the issue of these bonds, if valid, did not for the first time
create a debt in regard to this transaction. There was no debt
before this. There was no fixed obligation; no certain liability;
no strong reason to believe that her promise would ripen into any
absolute debt on her part.
The new arrangement was the creation of an unconditional debt of
$2,500,000.
We are unable to discern the force of the reasoning by which
validity is supposed to be imparted to these bonds by the act of
the legislature.
The constitutional provision against an increase of the state
debt was mainly, if not solely, intended to operate as a limitation
on the power of the legislature. We do not know of any increase of
the debt which could be lawfully made without its authority, unless
it was by the nonpayment of interest on what already existed.
Certainly no new debt beyond the $25,000,000 could be made and be
valid without such authority. It is therefore vain to say the
legislature did it. It is equally vain to say that the legislature
professed to be satisfying an old obligation, while on the face of
the transaction it is quite apparent that it was a new debt, based
on a new consideration, with only an incidental reference to an old
contract liability to make it colorable.
We concur therefore with the supreme court of the state in
holding that these bonds constituted a new debt issued on a new
consideration under a new act of the legislature, which was itself
void because in conflict with the provision of the constitution of
the state, and the bonds are equally void as being in excess of the
amount of debt which the state could constitutionally create.
Judgment affirmed.