After the adoption of Article 233 of the Constitution of
Louisiana, declaring certain designated state bonds void, the
treasurer of that state fraudulently put them into circulation and
absconded. Payment having been refused by the state to an innocent
holder of such a bond which he had purchased for value,
held, in a suit brought by him to recover back the
purchase money, that such refusal by the state raised no federal
question.
Page 148 U. S. 138
This was a motion to dismiss a writ of error upon the ground
that no federal question was involved.
Suit was begun by a petition filed by McGehee in the Civil
District Court of the Parish of Orleans, December 10, 1889, setting
forth that in May, 1888, petitioner had purchased of defendant,
Bier, a certain state bond numbered 788, "denominated and
represented to be a consolidated bond of the State of Louisiana,"
for the sum of $1,000, issued January 1, 1874, under authority of
Act No. 3 of the state legislature of 1874; that after the purchase
of said bond and payment therefor, it was claimed by the State of
Louisiana, through the attorney general, as its property, and that
it had been stolen by one Burke from the state treasurer, and the
return of said bond, with $60 received in payment of the coupons
attached thereto, was demanded by the attorney general. The
petitioner further averred that the bond was purchased by him under
the full belief that Bier was the lawful owner thereof, but that he
was not at the time of the sale by him, or since, the owner
thereof, and that he had good reason to believe, and so charged,
that the bond was then the lawful property of the State of
Louisiana, and part of the Agricultural and Mechanical College fund
held by the state; that said bond was worthless in his hands; that
the defendant refused to repay the purchase price. He prayed for a
judgment rescinding the sale of the bond, and that the defendant be
condemned to take back the same, and return the amount paid
therefor.
Defendant, in his supplemental answer, denied that he was ever
the holder of the bond, or that he had ever sold the same to the
plaintiff, and averred that he had never purchased or acquired any
such bond that was not acquired in good faith, in open market,
before maturity, in the due and regular course of trade, as
commercial paper, and that any law of the State of Louisiana
supposed to affect or alter the contract contained in the
consolidated bonds of the state, issued under the act of 1874, was
repugnant to the Constitution of the United States.
Upon the trial, it was proved, and not denied by Bier, that he
had purchased the bond after the adoption of the constitution
Page 148 U. S. 139
of the state in 1879. The state treasurer's report of 1879 was
put in evidence to show that the state was the owners of the bond
at that time. The court decreed that the sale of the bond be
rescinded, and that the defendant, Bier, be compelled to take back
the bond, with the coupons attached, and the sum of $60, received
for the coupons paid in error, etc. Defendant appealed to the Court
of Appeals of the Parish of Orleans, which affirmed the judgment,
and thereupon he sued out a writ of error from this Court which
defendant in error, McGehee, moved to dismiss.
MR. JUSTICE BROWN, after stating the facts in the foregoing
language, delivered the opinion of the Court.
Plaintiff in error invokes the jurisdiction of this Court upon
the ground that article 233 of the Constitution of the State of
Louisiana, which declared that the consolidated bonds of the state,
held for the Agricultural and Mechanical College and the Louisiana
Seminary fund, were null and void, was repugnant to Section 10,
Article I, of the Constitution of the United States, prohibiting
states from passing laws impairing the obligation of contracts.
The article in question declares the debt due by the state to
the Agricultural and Mechanical fund to be $182,313.03, being the
proceeds of the sales of lands and land scrip granted by the United
States to the state for the use of a college for the benefit of
agriculture and the mechanical arts; directs that said amounts
shall be placed to the credit of said fund on the books of the
auditor and treasurer as a perpetual loan; that the state shall pay
an annual interest of five percent on said amount from January 1,
1880, for the use of said college, and that the consolidated bonds
of the state, then held by the state for the use of said fund, were
to be null and void after January 1, 1880,
"and the General Assembly shall never make any provision for
their payment, and
Page 148 U. S. 140
they shall be destroyed in such manner as the General Assembly
may direct."
That the constitution of a state is a
law of the state,
within the meaning of the Constitution of the United States,
prohibiting states from passing laws impairing the obligation of
contracts, is not denied, and the plaintiff in error assumed the
position that it is beyond the power of the state to annul or
cancel bonds outstanding and presumably in the hands of
bona
fide purchasers. If Bier had been a holder for value of this
bond when the Constitution of 1879 was adopted, it would evidently
be beyond the power of the state, by act of the legislature or by
an amendment to its constitution, to nullify such bond in his
hands; but if, when the constitutional amendment was adopted, the
bond was still in the possession of the state, there was then no
contract with Bier upon which such amendment could operate, and
hence no contract subject to impairment.
New Orleans v. New
Orleans Waterworks Co., 142 U. S. 79. There
was no objection to the state declaring bonds still in its
possession to be null and void. The amendment was practically an
inhibition against issuing bonds of the state for a certain
purpose.
The court found that there was no material difference between
the facts of this case and those of a prior case against the same
defendant, arising from the purchase of another of the same issue
of bonds, and in its opinion in such prior case (
Aycock v.
Lee), the Court of Appeals of Orleans held that it would take
judicial notice of the fact that the bonds, while in the possession
of one Burke, then treasurer of the state, had become and were null
and void by the operation and effect of article 233 of the
constitution, and that Burke, having fraudulently reissued and put
such bonds in circulation, absconded from the state, and became and
still was a fugitive from justice. The court further found that
defendants received from the plaintiff $913.75 for a paper
represented to be a consolidated bond of the state, which the state
had declared to be null and void, and which was the lawful property
of the state, and that defendants were never owners of said bond;
that plaintiff did not know such facts when he purchased, and
that
Page 148 U. S. 141
said bond was valueless in his hands. The court further found
that these bonds were never put in circulation by the state, but
that, while they were held by the state in trust for the use of the
Agricultural and Mechanical College fund, they were annulled by the
Constitution of 1879, and their destruction ordered; that the claim
made that innocent holders were entitled to exemption from inquiry
into the equities between the original parties was wholly
inapplicable to these bonds, which never were issued and put in
circulation by the state; that there was no equitable estoppel
against the state from the fact that the General Assembly failed to
have the bond destroyed, as required by the Constitution, or from
the fact that coupons attached to it were paid from the state funds
set apart for the payment of the interest on the state debt, and
that the negligence of the general assembly, the crime of the state
treasurer, and the erroneous payment of said coupons could not
singly or operating together give validity to the bonds whose
nullity had been declared and whose destruction had been ordered.
The court further held that what the plaintiff covenanted to
purchase, and what defendants covenanted to sell, was a legal bond
of the state; that there was an implied warranty on their part that
the bond belonged to them, and that it was a genuine legally
outstanding and negotiable bond of the state; that what the
plaintiff received was a bond of no validity, and that
"for this error of fact and of law as well regarding the
essential quality of the bond sold, and without which plaintiff
would not have purchased it, the contract may be rescinded."
It is quite evident from this statement that there was no
federal question involved in the case. The only such question which
could possibly have arisen related to the power of the state to
annul by constitutional amendment its own obligations, but that
could only be raised upon the theory that the obligation had been
put in circulation and that there was a contract on the part of the
state to pay the holders. If the bonds were still in possession of
the state (and the court found that they were), there was no
contract to be impaired. The real questions involved were whether
the bonds which
Page 148 U. S. 142
had been stolen by the former treasurer were valid obligations
of the state in the hands of McGehee, the plaintiff, and secondly
whether the defendant, Bier, was liable for money received by him
upon a consideration which had failed.
In the case of
Sage v. Louisiana, 144 U.
S. 647,
144 U. S. 650,
it was said by this Court, speaking of this same issue of bonds,
that the Supreme Court of Louisiana had decided
"that the governor, as the chief executive officer of the state,
had no power whatever to deal with those bonds or to dispose of
them except in the precise manner and for the distinct purpose
pointed out by the law, and that any act of his in contravention of
its provisions in that regard would be void, and could not confer
on any person or holder of the bonds a right to recover them, or to
enforce their liquidation or payment."
This decision was held not to have raised a federal question,
and the writ of error was dismissed.
It is true that article 233 did not identify the bonds beyond
describing them as "the consolidated bonds of the state for the use
of the said fund" (agricultural and mechanical), but the treasurer,
in whose possession they were, could not fail to know that bonds
were intended, and whether such bonds, subsequently stolen by him
and put in circulation, were, though not identified as belonging to
this fund, valid obligations of the state in the hands of innocent
holders, was not a federal question.
The writ of error will therefore be
Dismissed.
