The statute of the State pf Arkansas of July 21, 1868, to aid in
the construction of railroads, and the statute of that state of
April 10, 1869, to provide for payment of interest upon the bonds
of the state issued in aid of such construction, created no lien
upon the property of a railroad company for whose benefit such
state bonds were issued in favor of the holder of the bonds, which,
after a sale under foreclosure of a mortgage upon the property
remained a lien upon it in the hands of the purchaser at the
foreclosure sale.
In equity. The case is stated in the opinion of the Court.
MR. CHIEF JUSTICE WAITE delivered the opinion of the Court.
These cases may properly be considered together. The material
facts are these:
The Little Rock and Fort Smith Railroad Company was incorporated
by the State of Arkansas January 22, 1855, to build and operate a
railroad in that state from Little Rock by the way of Van Buren to
Fort Smith. The Mississippi, Ouachita and Red River Railroad
Company was also incorporated by the state on the same day to build
and operate a railroad from the Mississippi River, near Gaines'
Landing,
Page 125 U. S. 110
through or near Camden, to some point on the Red River at or
near Fulton, and thence to the boundary line between Arkansas and
Texas. The Little Rock, Pine Bluff and New Orleans Railroad Company
was organized November 23, 1868, under the general railroad law of
Arkansas, passed July 23, 1868, to build and operate another
railroad from Little Rock through or near Pine Bluff and
Monticello, to the state line, with a branch from Pine Bluff to
Eunice.
On the 21st of July, 1868, the General Assembly passed "An act
to aid in the construction of railroads." By this act, the state,
"for the purpose of securing such lines of railroad in this state
as the interests of the people may from time to time require,"
pledged itself
"to issue to each railroad company or corporation, which shall
become entitled thereto, the bonds of this state, in the sum of one
thousand dollars each, payable in thirty years from the date
thereof at the rate of seven percent per annum, the payment of
interest on the same in the City of New York, semiannually at the
rate of seven percent per annum, in the sum of fifteen thousand
dollars in bonds for each mile of railroad which has not received a
land grant from the United States, and ten thousand dollars in bond
for each mile of railroad which has received a land grant from the
United States, on account of which such bonds shall be due and
issuable, as provided."
To get the aid, application was required to be made to the board
of railroad commissioners for "the loan of state credit herein
provided for," and its approval by that board obtained.
The bonds were to be under the seal of the state and attested by
the Secretary of State, and they or the avails thereof were to be
used "solely for the purpose of providing for the ironing,
equipping, building, and completing said road." They were to be
issued only as each ten miles or more of the road was prepared for
the iron rails.
Sections 7 and 8, which are principally relied on as the ground
of recovery, are as follows:
"SEC. 7. Be it further enacted that the legislature shall from
time to time impose upon each railroad company to which bonds shall
have been issued a tax equal to the amount
Page 125 U. S. 111
of the annual interest upon such bonds then outstanding and
unpaid, which tax may be paid in money or in the past due coupons
of the state at par, and after the expiration of five years from
the completion of said road, the legislature shall impose an
additional special tax of two and one-half percent per annum upon
the whole amount of state aid granted to such company, payable in
money or in the bonds and coupons of the state at par, and if in
money, the same shall be invested by the treasurer of the state in
the bonds of the state at their current market value. The taxation
in this section provided to continue until the amount of bonds
issued to such company, with the interest thereon, shall have been
paid by said company as herein specified, in which case the said
road shall be entitled to a discharge from all claims or liens on
the part of the state,
provided that nothing herein
contained shall be so construed as to deprive any company, securing
the loan of the bonds of the state herein provided for, from paying
the whole amount due from such company to the state at any time in
the bonds of the state loaned in aid of railroads or the coupons
thereon, or in money."
"SEC. 8. Be it further enacted that in the case said company
shall fail to pay the taxes imposed by the preceding section at the
time the same become due and for sixty days thereafter, it shall be
the duty of the treasurer of the state, by writ of sequestration,
to seize and take possession of the income and revenues of said
company until the amount of said defaults shall be fully paid up
and satisfied, with costs of sequestration, after which said
treasurer shall release the further revenues of said company to its
proper officers."
In this statute, the tax provided for in § 7 was to be imposed
by the legislature from time to time; but on the 10th of April,
1869, another act was passed, "to provide for paying the interest
of the bonds to aid in the construction of railroads," by which it
was enacted that the interest on all bonds issued under the act of
1868 should be made payable on the 1st day of April and the 1st day
of October in each year, and it was made the duty of "the auditor
of public accounts," on or before the 1st day of June in each year,
to
"certify
Page 125 U. S. 112
to the treasurer the amount of bonds issued to each railroad
company, the amount of semiannual interest that will accrue thereon
-- that is to say, the amount of interest the state will have to
pay on the 1st day of October of that year, on the bonds issued to
each of said railroad companies -- and the amount of tax required
from each of said railroad companies to pay the same, which tax
shall be deemed due and payable on the 30th day of June of that
year."
Similar provision was also made for the interest falling due in
April. Upon the receipt of a certificate from the auditor, it was
made the duty of the treasurer to "cause notice to be served upon
each railroad company, on or before the 20th day of June," or the
20th day of December, as the case might be,
"in each year, specifying the amount of tax to be paid, which
amount shall be the interest on said bonds for the said period, and
demanding payment of the same into the Treasury"
at the appointed time. If default occurred in the payment of the
tax, and it continued for sixty days, it was made the duty of the
treasurer,
"through the Attorney General, to make and file a petition,
under the seal of the treasurer's office, in the Pulaski Chancery
Court, setting forth the amount due and the fact of such default,
praying the issue of the writ of sequestration contemplated in said
act, and the appointment of a receiver, to be named in said
petition, to receive in his behalf the revenue and income of said
company, for the purpose specified in said act, which writ shall
issue upon the filing of the petition for the same."
Upon the issue of the writ so ordered, the receiver therein
named was required to
"take possession of all the income and revenues of the
defaulting company, with authority to demand and receive all moneys
coming to the same from the operation of such road,"
and it was further made
"the duty of all officers of said company to return all moneys
to him, for receiving which he may require the submission of all
necessary books, papers, and accounts to him, and may examine any
and all persons under oath, and any person making false returns, or
failing to pay over moneys, shall be deemed guilty of a
misdemeanor, and any person swearing falsely shall be declared
guilty of perjury."
Section 5 of this act was as follows:
Page 125 U. S. 113
"SEC. 5. That such receiver shall give such bond as the
treasurer may require, shall be removable at the pleasure of the
treasurer, and a successor appointed, to be approved by the
chancellor. He shall at the end of each month make full report and
return to the treasurer of all moneys received by him, with his
estimate of the necessary cost of operating said road, which, on
the approval and order of said treasurer, shall be paid out of the
money so returned, the surplus or net proceeds to be applied in the
discharge of the tax due and unpaid, and shall so continue until
such amount in default shall be paid, with the reasonable cost of
sequestration, to be taxed and certified by the chancellor, when
the treasurer shall account with said company, and withdraw said
receiver from the management of its affairs."
The Little Rock and Fort Smith Railroad Company received a land
grant from the United States, and on the 28th of April, 1869, its
application to the state for "the benefits of" the Act of July 21,
1868, was granted as a "loan of state credit." Afterwards,
beginning April 2, 1870, state bonds to the amount of $1,000,000
were issued to the company, as its road was built, in the following
form:
"
No. ___ No. ___"
"
$1,000 UNITED STATES OF AMERICA $1,000"
"It is hereby certified that the State of Arkansas is indebted
unto the Little Rock and Fort Smith Railroad Company, or bearer, in
the sum of one thousand dollars, lawful money of the United States
of America, redeemable at the City of New York thirty years from
the date thereof, with interest at the rate of seven percent per
annum, payable semiannually, in the City of New York, on the 1st
day of April and October in each year, on the presentation of the
proper coupons hereto annexed. The faith and credit of the state
are hereby solemnly and irrevocably pledged for the payment of the
interest and redemption of the principal of this bond. Issued in
pursuance of an act of the General Assembly of the State of
Arkansas approved July 21, 1868, entitled 'An act to aid in the
construction of railroads,' the said act having been submitted
Page 125 U. S. 114
to and duly ratified by the people of the state at the general
election held November 3, 1868."
"In witness whereof, the governor of the state has signed this
bond, the state treasurer has countersigned the same, the seal of
the state has been affixed at the City of Little Rock, Arkansas,
this 1st day of April, 1870."
[Seal]
"POWELL CLAYTON, Governor"
"R. J. T. WHITE, Secretary of State"
"HENRY PAGE, Treasurer"
"J. B. BERRY, Auditor"
Each of said bonds at the time of their issue had sixty interest
coupons thereto attached, numbered from one to sixty, inclusive,
and which, with the exception of the time of payment and number
thereon, are as follows, to-wit:
"
$35.00 $35.00"
"The treasurer of the State of Arkansas will pay to bearer
thirty-five dollars, in the City of New York, on the 1st day of
October, 1870, being semiannual interest due on bond No. ___."
"L.R. and F. S. R. R. J. R. BERRY, Auditor"
On the 22d of December, 1869, the railroad company executed a
mortgage on its railroad and the income thereof to Henry W. Paine
and Samuel T. Dana, to secure a proposed issue of bonds to the
amount of $3,500,000, and on the 20th of June, 1870, another
mortgage to the same parties on its land grant to secure another
proposed issue of $5,000,000.
Interest was paid on the state bonds up to and including April
1, 1873. Default having been made in the payment of interest upon
the bonds issued under the railroad mortgage, a suit was begun by
the trustees May 12, 1874, for the foreclosure. To this suit the
state was not a party, but in the bill the fact that state aid had
been granted to the company was set forth, and the prayer was for a
sale
"subject to the lien of the State of Arkansas, if your honor
shall find and decree that any lien existed in favor of said state
prior to the lien created
Page 125 U. S. 115
by said deed of mortgage."
Upon this bill a decree was rendered
pro confesso
directing a sale of the mortgaged property, but making no decision
and giving no directions as to the suggestion of a lien in favor of
the state. Under this decree, the property was bought by a
committee of the bondholders for a nominal sum, and they organized
a new corporation under the laws of Arkansas by the name of the
Little Rock and Fort Smith Railway to take the title, the original
bondholders, or such of them as elected to come in, being the
stockholders. Afterwards the property purchased was conveyed to the
new corporation.
On the 15th of March, 1869, state aid was awarded to the Little
Rock, Pine Bluff and New Orleans Railroad Company under the Act of
July 21, 1868, to the amount of $1,200,000, and on the 25th of
June, 1870, to the Mississippi, Ouachita and Red River Railroad
Company to the amount of $600,000. On the 20th of April, 1870, the
Little Rock, Pine Bluff and New Orleans Company mortgaged its
railroad and income to Benjamin A. Farnham and David B. Sickels to
secure an issue of $1,200,000 of bonds, and on the 3d of May, 1870,
the Mississippi, Ouachita and Red River Railroad Company mortgaged
its road and income to the same trustees to secure another issue of
bonds, amounting to $2,040,000. In October, 1873, these companies
were consolidated into one corporation under the name of the Texas,
Mississippi, and Northwestern Railroad Company. Default having been
made in the payment of interest on these bonds, suits were begun by
the trustees, March 15, 1875, to foreclose the mortgages under
which the two roads were sold by order of the court, and afterwards
conveyances made to the Little Rock, Mississippi, and Texas
Railway. The proceedings in these suits were substantially the same
as in that against the Little Rock and Fort Smith Railroad Company.
No interest was paid on the state bonds after April, 1873, and at
its May term, 1877, the supreme court of the state decided that the
bonds were void because issued in violation of one of the
provisions of the constitution of the state.
Arkansas v. Little
Rock, Mississippi & Texas Railway, 31
Page 125 U. S. 116
Ark. 701. On the 29th of May, 1874, the legislature repealed the
Act of April 10, 1869, being the act above mentioned, "to provide
for paying the interest on bonds issued to aid in the construction
of railroads."
William H. Tompkins is the owner of 2,286 coupons cut from the
bonds of the state issued to the Little Rock and Fort Smith
Railroad Company which his mother bought in open market in 1870,
without notice, and which she gave to him on his coming of age in
1875 or 1876, and he, on the 15th of March, 1882, began the suit
against the Little Rock and Fort Smith Railway, in which he appears
here as appellant, in the Circuit Court of the United States for
the Eastern District of Arkansas, "on behalf of himself and all
holders of bonds issued by the state" to the Little Rock and Fort
Smith Railroad Company, the object of which is to subject the
earnings of the railroad formerly owned by the Little Rock and
Forth Smith Railroad Company to the payment of the interest due on
the state aid bonds and to require the new or reorganized company
to account for the earnings since the road has been in its
possession and apply the amount due in the same way.
William S. Williams is the owner of bonds issued to the Little
Rock, Pine Bluff, and New Orleans Railroad Company to the amount of
$67,000, and of bonds issued to the Mississippi, Ouachita and Red
River Railroad Company to the amount of $24,000, on all of which
coupons No. 6 and thereafter remain unpaid. These bonds, with the
coupons attached, he bought in open market at the current price,
after the decision in
Arkansas v. The Little Rock, Mississippi
River, & Texas Railway, above referred to, but without
notice of any want of power or defect in the issue of the bonds
other than is shown on their face. The suit in which he is here as
appellant was brought in the same court, in the same way as that of
Tompkins, on the 29th of January, 1883, against the Little Rock,
Mississippi and Texas Railway, to obtain substantially the same
relief. Both bills were dismissed after hearing, and from decrees
to that effect these appeals were taken. Two opinions were filed in
the court below, one by the presiding
Page 125 U. S. 117
justice in favor of the decree, and reported in 18 F. 344, and
the other by the district judge against it, and reported in 21 F.
370.
The liability of the present companies, or the roads in their
hands, for the payment of the state bonds depends entirely on the
operation and effects of the Acts of July 21, 1868, and April 10,
1869, under which the bonds were issued, and they, being
in
pari materia, are to be construed together. The position taken
in argument, as stated in the brief of counsel, is that the
acceptance of the bonds by the several companies created
"an equitable or statutory lien or charge in favor of the state,
upon the income and revenue of the roads, to the extent necessary
to meet the interest and principal upon the bonds as they accrued
and became due,' and that 'the bondholders can avail themselves of
the lien."
This lien on the income and revenue, it is further claimed, is
in law and in fact a charge on the roads themselves, which attached
as soon as the awards of aid by the board of railroad commissioners
were made to the several original companies, and can be enforced
against subsequent encumbrancers or purchasers until the debt of
the company to the state is paid in full.
It cannot be denied that the bonds were issued as "a loan of
state credit," and that the original companies were bound to hold
the state harmless from all liability on the amounts taken by them
respectively. This might be done by paying to the state at the
times specified the taxes imposed under the law, either in money or
in the bonds and coupons of the state at par, or by paying at any
time the whole amount of principal and accrued interest then
unpaid, in money or in the bonds of the state loaned in aid of
railroads or the coupons thereon. Such is the express provision of
§ 7 of the act of 1868. The bonds were bonds of the state, "pure
and simple." They carried on their face no express obligation of
the railroad company to the holder. The promise made by the company
on the acceptance of the bonds was to pay the state, not the
bondholder. The failure of the company to meet its obligations to
the state did not operate in any manner to relieve the state from
its liability on the bonds. The debt of
Page 125 U. S. 118
the state still remained, and was the only debt the bonds
expressed on their face. The debt of the company was to the state
for the bond, not to the bondholder on the bond. Payment to the
state discharged the obligation of the company.
What we have thus far said relates to the bonds considered as a
valid and constitutional obligation of the state. If they were
invalid and relief was sought on that account against the company
selling them, the liability would be not on the bonds, but for the
money had and received on their sale. That certainly would be the
debt of the original company alone, and in no way binding on
purchaser of its property. In
Railroad Companies v.
Schutte, 103 U. S. 118, the
object was to enforce the statutory mortgage the company actually
gave the state as security for the issue of the bonds, not to
recover the money binding on a purchaser of its property. liability
of the new companies in these cases therefore unless the acceptance
of the bonds by the old companies created the lien which is now
contended for on the railroads or their income. In the Schutte case
there was the lien, and it was enforced. The question now is
whether a lien was created in these cases which, under the rule in
that case, will inure to the benefit of the bondholders.
If we understand the argument for the appellants correctly, it
is that because the requisition which is to be made on the company
to meet the installments of interest as they mature and to provide
a fund to pay the principal when it falls due is called in the
statute
a tax, which may in case of default be collected
by a sequestration of the income and revenue of the company, it
necessarily implies a lien on the property from which the income
and revenue is to be derived as security for the payment of the
debt, and that this view of the case is strengthened by the further
provision for "a discharge of all claims and liens on the road"
when the payment is made, which would be unnecessary if it was not
intended that a lien on the road should be and was in fact created
in favor of the state.
It is true that the requisition provided for is called "a tax"
in
Page 125 U. S. 119
the statute, but that does not make it "a tax," in the ordinary
sense of that term. By statute in Arkansas, "all property, whether
real or personal," except such as shall be "expressly exempted," is
"subject to taxation," and must "be entered on the list of taxable
property for that purpose." Gantt's Dig. § 5048. Each owner is
required to list his own property (§ 5066), and when valued in the
way provided by law, the county clerk is "to make out . . . a
complete list or schedule of the taxable property in his county,
and the value thereof," placing each separate lot or tract of real
property opposite the name of its owner. The aggregate value of the
personal property of each owner is also to be set opposite his
name. § 5133. This being done, the clerk is to enter the amount of
taxes imposed upon each parcel of property, and deliver the list to
the proper officer for collection. §§ 5137, 5139. It is then
provided by § 5153 that
"The lien of the state for the taxes levied for all purposes in
each year shall attach to all real and personal property on the
first Friday after the first Monday in October in each year, and
shall continue until such taxes, with any penalty that may accrue
thereon, shall be paid."
Taxes upon personal property, if not paid by the owner, may be
collected by distraint. § 5173. Taxes on land not voluntarily paid
are to be collected by a sale of the property. §§ 5185-5188.
Such taxes are undoubtedly liens on the property taxed, for they
are in express terms made charges thereon, and there is something
directly pointed out to which a lien may attach. The lien is not on
the property of the owner generally, but only on that upon or
against which the tax is charged. Taxes are also levied and
collected in Arkansas for privileges (§§ 5050-5054), but these are
not liens on the property of him to whom the privilege is granted.
He may be prevented from exercising the privilege until the tax is
paid, but the tax is certainly no lien on his property until a
seizure has actually been made under some appropriate form of
proceeding for its collection, or something else done in that
behalf.
In the present case, the tax provided for is not on the property
of the company, and it has none of the qualities of
Page 125 U. S. 120
tax for revenue. It is in reality nothing but a way of fixing
the amount due at a particular time from the company to the state
on account of the loan of credit under the statute, and demanding
its payment. The object is to collect a debt due, not to require a
contribution from the company for the public necessities. The
obligation to pay grows out of a private contract between the state
and the company, not out of the political relations between a
sovereign and his people. The rights of the respective parties
depend on the terms of the agreement they have entered into, not on
the reciprocal duties between a state in its public capacity and
its citizens. An exaction by the state under such circumstances and
for such purposes is not made a lien on the property of the person
who is to pay the money by simply calling it a tax. To create a
charge, there must be something more than the mere giving of a name
to the requisition that is made. In short, the statute which
authorizes the requisition must in express terms or by reasonable
implication establish a lien. That has been done in Arkansas so far
as taxes for revenue are concerned. The question to be determined
is whether the same thing has been done in respect to the liability
of railroad companies to the state under the statutes now in
question.
Certainly no such lien has been created in express terms. A
provision for the "discharge from all claims or liens" does not of
itself establish a lien. If the lien does not exist without, such a
provision will not create one. The provision may be used in aid of
construction if there is doubt, but not as an affirmative grant of
a positive right.
Is there anything, then, in the rest of the statute from which
the creation of a lien may be reasonably implied? Before the loan
could be obtained, it was necessary for the company to make a
statement to the board of railroad commissioners setting forth its
charter and organization, a map of its line, and the progress made
in construction, its financial condition and resources, and for it
to furnish such other information as the case might require. The
board was also to inspect the road from time to time and to
indicate to the governor how the aid was being used and applied.
If
Page 125 U. S. 121
improperly used, the governor was authorized to withhold all or
any part of the bonds and to take such other steps as he might deem
proper to the end that the bonds should not be squandered. Any
action of that kind on the part of the governor was to be reported
to the General Assembly, which was empowered to take such steps as
might be necessary to protect the interests of the state. If the
company failed to complete its road within the time limited by the
statute, it was to forfeit its charter and franchises to the state.
In all this we see no intention of establishing a lien on the road
as security for the loan which was actually made. A right to
forfeit a charter and its franchises for not completing that which
had been begun does not necessarily imply a prohibition against a
sale or encumbrance of property acquired before a forfeiture was in
fact enforced. The taking away of the franchises may, under some
circumstances, affect the value of the property in the hands of a
purchaser, but it cannot ordinarily deprive him of his title. A
forfeiture of the charter does not necessarily transfer the road
built under it to the state, or give the state any rights
therein.
The whole matter therefore depends, so far as the act of 1868 is
concerned, on the operation and effect of § 8, which provides that
if the company fails to pay "the taxes imposed" by § 7,
"it shall be the duty of the treasurer of state, by writ of
sequestration, to seize and take possession of the income and
revenues of said company until the amount of said defaults shall be
fully paid up and satisfied, with costs of sequestration, after
which said treasurer shall release the further revenues of said
company to its officers."
The act of 1869 provides the machinery for obtaining this writ
of sequestration and carrying it into effect through a receiver to
be appointed by the Pulaski Chancery Court. This receiver is
authorized to demand and receive all moneys coming to the company
from the operation of the road. To accomplish this, it was made the
duty of the officers of the company to return all moneys to him,
with power on his part to require the submission to his inspection
of books, papers, and accounts and to examine persons under oath.
Operating expenses were
Page 125 U. S. 122
to be paid by the receiver, on the approval of the treasurer of
state, out of the moneys turned over to him, and only the surplus
or net proceeds applied in discharge of the tax. When the tax was
satisfied, the treasurer was required to "account with said
company, and withdraw said receiver from the management of its
affairs."
This, it is contended,
"created and designated a fund from which the bonds were to be
paid, and in case of default named a person who should seize that
fund and apply it to the payment of the interest and the principal
of the bonds."
Such being the case, it is argued, on the supposed authority of
Ketchum v. St. Louis, 101 U. S. 306,
that the statute created a lien on the entire income and revenue of
the company for the payment of the debt, and, as the company relied
exclusively on its road for its income and revenue, this lien
extended to the road itself as the thing out of which the earnings
must necessarily come, and that too notwithstanding the road has
passed into other hands.
We do not understand that the case relied on warrants any such
conclusion. Its facts were peculiar. The Pacific Railroad was
mortgaged to the State of Missouri to secure a loan of state aid
bonds amounting to $7,000,000. It was unfinished, and more money
was needed for its completion. Authority was then given the company
by the state to issue more bonds for that purpose, to be secured by
a first mortgage on a part of the line, which should be superior in
lien to that already existing in favor of the state as security for
the original loan. Under this legislation, a fund commissioner was
appointed who had acquired, by authority of the statute, for the
security of the state, "complete control of the earnings and income
arising from the property." In this condition of affairs, the state
was invaded by armed forces during the late civil war, and while
the invasion continued, much of the property belonging to the
company, including bridges, depots, machine shops, and track, was
destroyed. To raise the money to repair these damages and put the
road again in a condition for use, the company applied to the
County of St. Louis for a loan of $700,000 of county bonds. In aid
of this application, the
Page 125 U. S. 123
Legislature of Missouri passed a statute authorizing the county
to issue the bonds, "under such conditions as may be agreed upon
between the said county court and the board of directors of the
Pacific Railroad Company," and directing that
"the fund commissioner of the Pacific Railroad, or such person
as may at any time hereafter have the custody of the funds of the
said railroad company, shall, every month after said bonds are
issued, pay into the County Treasury of St. Louis County, out of
the earnings of said Pacific Railroad, $4,000, and $1,000
additional in each month of December, to meet the interest on the
said seven hundred bonds, said payments to continue until said
bonds are paid off by said Pacific Railroad."
This act was accepted by the railroad company, and the bonds
were loaned by the county to the company under a special
arrangement in accordance with its provisions. The fund
commissioner had at the time full control of the earnings and
income under the provisions of the previous statute. What was done
under these circumstances was held to be
"not a simple, naked covenant to pay out of a particular fund,
but the act, being accepted by the parties interested, operated as
an equitable assignment of a fixed portion of the fund -- an
assignment which became effectual without any further intervention
upon the part of the debtor, and which the party holding the funds
of the company, whether the fund commissioner, or some other
person, could respect without liability to the debtor for so doing.
It was an arrangement based on a valuable consideration, which
neither the state nor the company, nor both, nor parties claiming
under either, with notice, could disregard without the assent of
the county, expressed by those who had authority to bind it. It was
an engagement to pay out of a specially designated fund,
accompanied by express authority to its custodian to apply a
specific part thereof to a definite object, in the accomplishment
of which all the parties to the arrangement were directly
interested."
In other words, it was a specific appropriation by statute of a
fixed and definite portion of the future earnings of the railroad
to a particular purpose, with an express statutory provision for a
custodian of the earnings as they accrued, whose duty it should
Page 125 U. S. 124
be to apply this specified portion in this specified way. No
further action of the company was required. The law made it the
duty of the custodian of the earnings of the road, whoever he might
be, to use this definite amount thereof in this definite way, and
in no other way whatever, so long as the debt remained. The effect
of this was to charge the road as a road, into whosoever hands it
might come, with the payment of this amount of money each month out
of its current earnings. If the earnings came into the hands of the
person or corporation owning the road for the time being, and the
payments were not made as the law required, then some other
custodian of the earnings -- some other trustee -- could be
appointed by the proper judicial tribunal who would obey the law in
that behalf.
In the present case, however, there is no specific appropriation
of the earnings of the road. The company is required to pay what is
called the tax to enable the state to meet the semiannual
installments of interest on the state bonds, and provide a fund for
the redemption of the principal whenever it falls due. No specific
amount of the earnings of the road is specially set apart by law
for that purpose. There is no provision for a custodian of the
earnings, whose duty it shall be to pay to the state
out of the
earnings as they accrue any definite amount on the days named.
The tax is to be paid by the company on certain specified days, but
there is no statutory appropriation of earnings for that purpose.
If the company fails to meet the tax as it falls due "the income
and revenues of the
said company" may be sequestered.
Under the operation of this sequestration, the receiver to be
appointed may "take possession of all the income and revenue of
said defaulting company, with authority to demand and receive all
of such road," but this falls very far short of a specific
appropriation of the earnings of the road as they accrue, so that
they can be demanded under the statute as earnings of the road
without sequestration. Under the law which was the subject of
consideration in
Ketchum's Case, there was no need of
sequestration, because the part of the earnings of the road to be
reached was
Page 125 U. S. 125
always in equity the property of the county, and the remedy
applied was only such as was necessary to enable the county to
reduce its own property to its own possession. Here, however, the
writ of sequestration is given as a means of enabling the state to
collect a debt, not to recover possession of its property. True, in
the process of sequestration, the state is authorized, through its
receiver, to demand and receive the moneys coming to the company
from the operation of the road, but this is for the purpose of
enabling the state to subject that particular kind of property
belonging to the company to the payment of its debt, not to get
possession of anything which actually belonged to the state
irrespective of its rights under the sequestration proceedings. It
is true also that in executing its writ of sequestration, the state
could, through its receiver, direct the officers of the company as
to the disposition of the current earnings of the road, and thus to
a certain extent assume the management of the company's affairs.
This was not, however, for the purpose of enabling the state to get
possession of its own property, but of compelling the company to
apply its property to the payment its debts. Certainly, if A. owes
B. a debt, and agrees that if the debt is not paid at maturity, B.
may apply to a proper judicial tribunal for a receiver to collect
the rents of a certain building which he then owned, and apply them
on the debt until it is discharged in full, it would not be claimed
that B. had acquired a lien on the building, or even on the rents,
until he had at least commenced proceedings to subject the rents,
under the agreement. The agreement alone did not make the rents the
property of B., or charge the building as security for their
payment to him. The rents belonged to A. until default in the
payment of the debt, and until B. took steps to reduce them to
possession. If in the meantime the building should be sold by A.,
there would be no rents which B. could subject under his agreement,
because it was only rents due to A. himself that he could give B.
the right to collect. In
Ketchum's Case, the earnings of
the road to the extent that they had been specifically appropriated
to the County of St. Louis never did belong to the company after
the bonds were accepted, and the grant of the earnings was in
equity a
Page 125 U. S. 126
grant of such an interest in the road as was necessary to
produce the earnings. Hence, a conveyance of the road afterwards to
one with notice was necessarily subject to the prior equitable
charge on the road which had been created in favor of the county.
But here there was never any grant of earnings, and consequently
there was never any grant of an equity in the road. The case stands
precisely as it would if, instead of a writ of sequestration, it
had been agreed that the Pulaski Chancery Court might, on
application of the treasurer of state, issue an ordinary writ of
fieri facias to subject the property of the company to the
payment of the amount which was then due. No one could properly
claim that in such a case any lien in favor of the state existed
which would prevent an alienation of its property by the company
before steps were taken to get the execution. The writ of
sequestration actually provided for was to issue as an appropriate
form of execution to subject any "income and revenue" which the
company then had to the payment of its debt then due, and in the
income and revenue of the company that might be thus subjected was
included "all moneys coming to the same from the operation of such
road" -- that is to say, the road in aid of the construction of
which the loan of credit was made. But if there were then no moneys
coming or which could be rightfully made to come to the company
from the operation of the road, then there was nothing of that kind
of property which could be subjected to the writ. And they neither
could come nor be made to come to the company unless the original
company to which the loan was made, and by which the obligation was
incurred, either owned the road itself or had passed it to another
coupled with a condition that its earnings should be subject to the
writ, or something equivalent.
We agree with counsel for the appellants that if, on an
examination of the statutes, read in the light of the circumstances
which surrounded the legislature at the time of their enactment, it
appeared to have been the intention to charge the road of the
company as a road with a liability for the repayment of the loan to
be made, it would be the duty of a court of equity to do everything
in its power which was necessary
Page 125 U. S. 127
to enforce that charge. And it may also be true that the courts
ought to construe the statutes liberally with a view to the
establishment of such a charge as against the company itself or
those claiming under it, because, if the charge was actually
created by the statutes, those dealing with the company were bound
to take notice of it. But after a careful consideration of the
statutes and construing them liberally in favor of the state, we
have been unable to find that any such intention did in fact exist.
There was a plain and simple way in which such a lien could be
created, and that was by providing in express terms for it. That
way had been adopted by the state in a statute passed March 18,
1867, and it was the way usually adopted by other states when
granting similar aid to their own companies. The wide departure
which Arkansas made in this statute from the accustomed form of
proceeding, both at home and elsewhere, is strongly indicative of
an intention to waive security any further than it was embraced in
the reserved power of sequestration. The constitution of the state
gave authority to issue bonds in aid of such works of internal
improvement if assented to by the people. If the people gave their
consent, then the bonds when issued became a debt of the state, and
there was power in the General Assembly, under the Constitution of
1868, to levy taxes for their payment, if necessary.
This disposes of the cases and renders it unnecessary to
consider any of the other questions discussed at the bar or in the
briefs. In our opinion, the new companies took the roads free of
encumbrance in favor of the state, and neither the state nor its
bondholders are entitled to a sequestration of the income and
revenue arising therefrom in their hands. The decree of the circuit
court in each of these cases is consequently
Affirmed.
MR. JUSTICE BLATCHFORD did not sit in these cases or take any
part in their decision.