Tennessee Bond Cases Stevens v. Memphis & C. R. Co.

114 U.S. 663 | SCOTUS | 1885

Lead Opinion

MR. Chief Justice Waite

delivered the opinion of the court. After stating the facts as above recited, he continued:

The question which lies at the foundation of all these suits is, whether the statutory lien with which the • State of Tennessee was invested, upon the.issue of its bonds to railroad companies under the internal improvement act of Eebruary 11, 185-2, and the several.acts amendatory thereof, bound the property of the company to which the issue was made for the payment of the bonds so issued, and the interest thereon, to the several holders thereof, or only to the State; for, if to the State alone, it is conceded the lien has been discharged, and is no longer operative. The precise point of the inquiry is, for whose benefit was the lien created? Was’it the State, or the bondholders, or both the State and the bondholders ?

The lien which was vested in the State was as security for the payment by the company of “ all of said bonds issued to the company, as provided in this act, and for the interest accruing on said bonds.” This is the language of the provision for the final lien which was to attach on the completion of the whole road, to “ all the property owned by the company, as incident to, or necessary for, its business.” § 4. To whom this payment was to be made is nowhere stated in express terms. .In the absence of anything to the contrary, the implication would undoubtedly be that it must be to the holder of the bond, as be was the person to whom the bond, as a bond, was payable ; but if, on an examination of the whole statute in the ■light of surrounding circumstances, and interpreting it with reference to the subject matter of the legislation, it appears that' the intention was to secure only a payment to the State of the debt incurred by the company on the loan of the bonds, there is nothing in the language employed to express the legis-lativo will which necessarily extends .the operation of the statute beyond what is required to give effect to such an intention. It may be that the legislature used the phrase “ payment of the bonds and the accruing interest thereon ” to express the idea of “payment to the State for the bonds,” and, if it did, the statutory lien will stand only as security for such a payment.

The liability of the companies to the bondholders, if any there be, rests alone on the statute, which contemplated loans by the State of its own bonds to the several companies in aid of the public works they were respectively engaged in constructing. The bonds were to be “coupon bonds of the State of Tennessee.” This implies State bonds with coupons for interest attached, in the ordinary form then in use, whereby the faith of a State of the United States was pledged for their payment. Such must have been the understanding of all parties at the time, for the bonds actually issued were of that kind, and on their face bound only the State. The law made no provision for naming, either in or upon a ’bond, the particular company in whose favor it was'issued. Neither did the bonds themselves, as issued, contain, by indorsement or otherwise, any obligation whatever on the part of the companies. They were State bonds, pure and simple, “issued in pursuance and by authority of an act of the General Assembly of said State, passed February 11th, 1852.” They were not even made payable to the companies to which they were respectively issued, but went on the market as coupon bonds of the State of Tennessee, payable to the bearer thereof, and apparently nothing else. In this form they were bought and sold by dealers and investors in public securities. So that the point to be determined from an examination of the statute, is, whether a State, when lending its own bonds and taking back security for their payment, intended to protect those who might afterwards become the holders of the bonds against the consequences of its own repudiation or inability to pay, or only to indemnify .itself . against loss by reason of the loan of its credit' to those who were engaged in constructing its great works of internal improvement. To say the least, the strong presumption is that, in such a transaction, the purpose of a State would be to protect itself,- and not to secure its own pledge of faith to the bondholders by a mortgage from those to whom its credit was loaned!

Such being the subject matter of the legislation, we proceed to inquire what the payment was which the State intended to secure by the statutory lien with which it was to be invested. It was to be a payment. This implies a debt from him -who pays to him who is to receive, and that when the payment is complete the debt will be discharged. It is not claimed that a borrowing company was to incur two debts by accepting a loan under the statute, one to the State and the other' to those who might become the purchasers or holders of the borrowed bonds. The obligation was to pay the bonds once, not twice, and the payment was to be made at the time and in the'. way provided by the law. "Who then became the creditor of the borrowing company when it incurred its debt for the borrowed bonds? "Was it the State or the bondholders?

Much stress was laid in the argument on the provision in § 3, “ that so soon as the bonds of the State shall be issued . . . they shall constitute a lien,” etc.; and it was insisted that, as the bond constitutes the lien, and the lien is but an incident of the debt, the lien must continue and follow the bond in the hands of the holder thereof, until it is finally paid and taken up by the company. From this it was argued that the bondholder must be the creditor, within the meaning of the statute, and that a payment would not be complete so as to discharge the debt of the company, until it was made to' him. ;

Similar language was used in a statute of South Carolina-,passed December 20, 1856, to aid in the construction of the Charleston and Savannah Eailroad, under which the State guaranteed, by indorsement, the bonds of the railroad company, and it was provided “ that so soon as any such bonds shall have been indorsed as aforesaid . . . they shall con,-stitute a lien,” etc. This, it was held by the Supreme Court of that State in Hand v. Savannah & Charleston Railroad Co., 12 S. C. 314, vested in the State a lien, not merely for its own protection against the guaranty, but also for the better security of the bonds themselves into whosesoever hands théy migh't fall. But, as this court had occasion to say in. Railroad Companies v. Schutte, 103 U. S. 118, 140, “ contracts created by, or entered into under, the authority of statutes, are to be interpreted according to the language used in each particular case to express the obligation assumed. Every statute, like every contract, must be read by itself, and it no more follows that one statutory contract is like another, than that one ordinary contract means what another does. ... It must be determined from the language, used in each particular case, what has been done, or agreed to be done, in that case.” Under the South Carolina statute the primary liability for the payment of the bonds to the respective holders thereof, rested on the company, and the State was bound only as surety. This was shown on the face of the bonds themselves, and the language of the statute was, there-' 'fore, to be construed with that as the subject matter of the legislation, that is to say, a guaranty by the State of the obligations of the railroad company. Here the State is the primary obligor, and the legislation is with reference to a loan of State bonds, on which, the railroad companies are in no way to appeal as- bound. The liability of the companies grows out of the borrowing of State bonds, to be sold in the market, as State bonds, and ■ apparently nothing but State bonds. The loans were to be by the State to the companies, and the object was to secure the payment of the loans. It may well be that the same .language when applied to one class of securities means one thing, and when applied to another class something else. The question now is, what does it mean in this case %

The fact which establishes the lien is the issue of bonds by the State to a company, that is to say, the delivery of bonds by the State to a company under the contract of loan. The lien attaches as soon as -the delivery is complete, and when there is no obligation on the part of the .company to the holders for the payment of the bonds, because the company is itself the holder, and there can be no obligation of payment by itself to itself. But, the delivery of the bonds by the State to, and their acceptance by, a company, created at once an obligation on the part of the company to.pay the loan, or, what is the same thing, pay the bonds to the State. That it was the purpose of the statute to secure the performance of this obligation on the part of the company is shown by the fact, that, from the moment of the delivery of the first bond to the company, and before the bond could be negotiated by a sale or transfer to a third person, a lien was vested in the State by the very act of delivery upon all the property of the company then acquired, or thereafter to be acquired, superior to any other lien or in-cumbrance which could be created by the company afterwards. This is the express provision of the last paragraph in §' 4; and while it is said once in the entire act that the bonds shall constitute the lien, it is repeated again and again that, upon the issue of the bonds; the State shall be invested with a lien, &c. The only place where it is stated that the bonds shall constitute a lien is that in which provision is made- for the issue on the completion of the first section of thirty miles, and, before the sentence in which this expression appears is completed, it is declared that the lien is to vest “ upon the issuance of the bonds, and by virtue of the same.” But when the whole road is completed, and the lien is established on all the property owned by the company as incident to, and necessary for, its business, the language is, “ And when the whole of said road shall be completed, the State of Tennessee shall be invested with a lien . . . for the payment- of all of said bonds issued to the company as provided in this act, and for the interest accruing on said bonds.” This shows unmistakably that the State attached no special importance to the particular phraseology of § 3 with reference to the issue for the first thirty miles of the road. The evident ■ purpose of the whole provision was to vest in the State a lien to secure the obligation -which the company assumed in consideration of the State bonds issued to it in aid of works of-internal improvement, to be constructed for the benefit of the public. If that obligation was to pay the bonds to the several persons who might become the holders thereof, then the security would run with the bond; but if the obligation Avas to pay the State for the bonds, the security Avould enure only to the benefit of the State, and be subject to tbe control of the State, without regard to the bondholders.

The lien was to be “ for the payment of all of said bonds issued to the company as provided for in this act, and for the interest accruing on said bonds.” It was, as has been seen, to begin as soon as the bonds were put into the hands of the company, for it was then and by that act that the liability of the company under the statute was created. At that time no one but the State could be interested in the security, and at that time clearly the lien operated only as security for the payment of the loan of the bonds. This could be made by a return of the bonds themselves, or in any other -way provided in the statute. A return of the bonds to the State would not technically pay the bonds, but it would pay the loan, and thus cancel the obligation of the company to the State and discharge the lien. This brings us to the inquiry whether provision ivas made in the statute for payment by the company in some other way than'by taking up the bonds from the several Is Iders thereof, and if so, to whom and how.

The obligation under the statute is to pay the bonds and the interest accruing thereon. This clearly means payment of the bonds and the interest in 'the way provided by the statute, if there be any. As the liability of the company to pay at all grows out of the statute, it follows that if a particular mode of payment is provided for in the statute, payment in that mode is all the company can be required to make. Looking then to the statute, we find that provision is made in one part for the payment of interest and the enforcement of that obligation of the company, and in other parts for the payment of principal.

1. As to interest. § 5 makes it the duty of a company to deposit in the Bank of Tennessee, at least fifteen days before coupons for interest on any of the bonds issued to that company fall due, an amount of money sufficient to pay such interest, including exchange and necessary commissions, or satisfactory evidence that it has been paid or provided .for. The Bank of Tennessee was- established by the act of January 19, 1838, “in the name and for the benefit of the State,” and “the faith and credit of the State ” were “ pledged ” for its support. The State was its only stockholder, and was. entitled to all the profits of its business. It was the fiscal agent of the State, and was practically'the treasury in which all public moneys were kept. The state treasurer held none of the State funds-in his own hands, but deposited them all in the bank, where they were placed to the credit of the “ Treasurer of Tennessee,” and subject to his checks, drawn according to law, and countersigned by the comptroller. Other accounts connected with the financial business of the State were kept in the books, of the bank, headed “ Interest on State Bonds,” “ Interest paid on State Bonds,” “Railroad Companies for Interest,” and otherwise. The entries made in the books showed • the amount which each railroad company paid in for interest, but the payments were all passed to the credit of the State, either in the treasurer’s general account, or in the account headed “ Interest on State Bonds.” The bank paid the interest on all State bonds without reference to the purpose for which they were issued. It had correspondents in New York and Philadelphia through whom such .payments .were made, and these agents took up the coupons when presented and forwarded them to the bank, by which they were handed over to the proper State officers. The moneys paid in by railroad companies for interest were sent with other moneys of the State to the New York and Philadelphia agents, by whom thej were paid out upon coupons, no distinction being made as to the different kinds of bonds. The agents kept no accounts with the companies, and neither they nor the bank knew what bonds had been issued to any particular company. No attempts were made, either by the bank or its agents, to classify or identify coupons, when paid, as being coupons from bonds issued to one company or another.

In the books of the treasurer of State there was an account-headed “ Bank of Tennessee,” the reverse of that kept by the bank in the name of the treasurer. There was also an account headed “ Interest on Capitol Bonds,” in which was shown the interest paid on bonds issued for the State house. Besides this there was an account headed “ Interest on Internal Improvement Bonds,” showing the gross amount paid out on such bonds, but not by whom the money was furnished, nor the numbers or character of the bonds on which the interest was paid. No separate accounts were kept in the treasurer’s books with the different railroad companies, and, with the exception of the distinction between capitol and internal- improvement bonds on his books, the treasurer paid no attention to the different kinds of bonds, but treated all as equally the obligations of the State. This was the way in which the business was done by all the companies, the bank, and the treasurer of the State, as long as the bank was in operation.

Under these circumstances it is difficult to see how a deposit in the bank by a company of the money to pay interest can be treated otherwise than as, within the meaning of the statute, the payment by the company of the accruing interest on the bonds, which the company had bound itself to make. The deposit was made to enable the State to meet its own obligations. It was not placed, neither by the statute was it required to be jtlaced, to the credit of the company, but of the 'State. The bank did not take the money for the company, but for the State, and consequently the deposit was accepted and kept as and for State funds. Neither the bank nor the State was bound, either to the companies or to the bondholders, to use the deposits made by a particular company to pay the interest on bonds issued to that.company. The bank is nowhere made by the law the agent of the company. It was to take, keep, and pay out .according to law, for the State, all moneys deposited or set apart for the liquidation of accruing interest. If the deposits made by the various companies were not enough' for that purpose, it was the duty of the comptroller to draw from the treasury, on his own official warrant, a sufficient amount to make- up the deficiency. No special provision was made in the statute as to the way in which coupon-holders -were to be paid. That was all-left to be determined by such regulations as might from time to time be adopted for the government of State officer's and State agencies in the payment of State debts. The money when deposited became at once the money of the State, and was in noway thereafter subject to the control of the depositor. When used to pay maturing interest, it was paid by, and on bebalf of, tbe State, through its own agencies,' to redeem its own pledges of faith to the holders of its own obligations. The company performed its whole duty to the State when it deposited in bank, subject to the control of the • State, a sufficient amount of money to meet the interest which was to accrue on the State obligations fifteen days thereafter, and the expenses incident to such payment. . It is true an option was given the company to pay the interest instead of making the deposit, but this was clearly intended for the convenience of the company, and not because of any obligation the company was supposed to be under to the bondholders. Payment, therefore, by a company, into the bank, of a sufficient amount of money to enable the State to meet its accruing interest, was, and was intended by the legislature to be, not only a payment of the interest on the bonds by the company, but the payment, and the only payment, of interest the lien created by the statute was to .secure. To hold otherwise would be to decide that the legislature, while providing for a loan of the bonds of the State to corporations engaged- in works of internal improvement, required the corporations to secure by liens on their own property, not only the payment to the State of the interest on the loan, but also the redemption by the State of its own pledges of faith to the future holders of the State bonds that were lent. Certainly no such construction will be given to the statute unless it is imperatively demanded; and when provision is made in express terms for a payment to the State, no second payment of the same debt will be presumed to have been in the contemplation of the parties,.in the absence of some positive requirement to the contrary. The lien must be held to be for the security of the payment which is expressly provided for and no other.

But the correctness of this view of the statute is made still more apparent by another important provision of the same § 5, to the effect that if a company failed to deposit the interest at the time required, or furnish the «necessary evidence that payment of the interest had been made or otherwise provided for, the governor should appoint a receiver to take possession, and run and manage the railroad of the company until a sufficient sum was realized from the earnings to discharge such “ unpaid interest.” The" failure of a company to make its deposit did not relieve the State from the obligation to keep its faith and pay the interest to its bondholders at maturity. Consequently, the “ unpaid interest ” here referred to must have been the interest for which a deposit had not been made, and this clearly implies that the deposit was the payment which the lien was intended to secure. Interest on the lent bonds deposited for was paid, within the meaning of the statute, and that not deposited for was unpaid. A receiver was to be appointed, and possession taken, only when there was default on the part of the company in making its deposit. Non-payment of interest by the State, after the deposit, created no such default. As the statutory remedy for the enforcement of the statutory lien must be presumed to have been intended-to be commensurate with the- lien itself, and this remedy was confined to cases of default in making deposits, there cannot be a doubt that it was the understanding of the legislature that a deposit for interest was a payment of interest on the bonds, so far as the company was concerned, and released the company as well as its property from all further liability to the State, or to any one else, which had been assumed for interest. The pledge of State faith for the performance of all State obligations under the act constituted the only security of the bondholders for the prompt payment of the interest due to them. .The liens on the property of the companies stood only as security for the payment of the interest on the bonds to the State.

2. As to the principal. This is provided for in three ways 1, by the establishment of a sinking fund; 2, by foreclosure if the company failed to pay the bonds at maturity; and 3, by foreclosure and proceedings against guilty stockholders, before maturity, if an issue of the bonds was obtained by fraud, or contrary to the provision of the act.

The sinking fund was first established by § 7 of the original act, which required each company, at the end of five years after the completion of its road, to set apart annua-lty one per centum of the amount of bonds issued to such company, and use it in the purcháse of bonds of the State of Tennessee, which bonds the company was to pay into the treasury of the State, taking a receipt therefor, and, .as between the State and the company, the bonds so paid in were to -be a credit on the bonds issued. The bonds paid in, and the accruing interest thereon, were to be held and used by the State as a sinking fund for the payment of the bonds issued to the company. If in this way a company re-purchased and paid in any of the bonds issued to it, they were to be cancelled. Should a company fail to comply with these provisions, it was to be proceeded against, as in § 5, for a failure to pay, or deposit for, interest. This provision was changed by the act of 1856 so as to increase the annual payments to two per cent, on the amount of the issue of bonds, and to require them to be made in money, and to begin at the end of five years after the dates of the several issues. The money, when paid into the treasury, was tó be invested by a board of sinking fund commissioners in bonds of the State, and all accruing interest was to be reinvested in like securities. If a company failed to comply with these provisions of the amending act, it was to be proceeded against as for a default in the payment of the bonds at maturity under § 6 of the act of 1852. Under'the statutes of 1852 and 1856 the companies were not released from their obligations to provide semi-annually for the payment of the accruing interest on the entire issue of bonds. That was still to be kept up, notwithstanding the debt of the company to the State had been reduced by the annual payments required by § 7.

By the act of 1860 other changes were made, which increased the amount of annual payments to two and one-half per cent, on the original issues, and allowed them to be made in money, or in bonds of a like character with those issued to the company, at their faee value. If paid in money, the sinking fund commissioners were to invest it immediately in bonds of a like character with those issued to the company, and have them cancelled. By this act also the company was released from the obligation under the act of 1852 to provide for the. interest on the whole issue of bonds, and required to deposit only for that which would accrue on the amount of bonds “ unpaid ” at the time the interest 'fell due. 'What was here meant by the word “unpaid” is shown by §§ 1, 2, and 9 of the act,.which provide that all sinking fund payments, in money or bonds, made before January 1, 1860, with the accruing interest thereon to that date, “ shall be passed directly to the credit of the party having so paid the same, and be a release to said party for that amount of the debt due by them to the State of Tennessee.” The Comptroller of the State was also required to open and keep a regular account with each company, charging it with the total amount of bonds originally issued to such company, and crediting it with the amount of the sinking fund paid. It was also made his duty to furnish to the Treasurer of State a statement of the amount due by each company on the first days of June and December in every year, “that he may know how much interest each company has to pay,” that is, deposit, “ as now provided by law, on the amount of bonds unpaid at the time said interest falls due, and not on the original amount issued to . . . said company.” Act of 1860, §§ 8, 9.

While it is true, that neither the'act of 1856 nor that of 1860 can change any contracts the companies may have made with bondholders under the act of 1852 before their passage, they may be resorted to in aid of construction to show what had been the legislative understanding, for a long series of years, of the meaning of the words “ payment of said bonds and the accruing interest thereon,” as used in the original act.

The provision of § J is that the company shall pay the bonds purchased into the State treasury, and that' for the purchased bonds so paid in a receipt shall be given and a credit allowed, as between the State and the company, on the bonds issued. Thus the company was required to make a payment to the State, and for this payment the State was to give a credit on the bonds. This clearly implies that the loan of the bonds was to create a debt on .the bonds by the company to the State, and that this debt was to be discharged pro tanto on the payment annually into the State treasury of the amount required by the sinking fund.section. If there were nothing else in the statute, no one would doubt that the payment of the bonds which the company was required to make was a payment to the State for the bonds at the times and in the manner provided.

It is contended, however, that, as the credit to be secured by these payments was only “ as between the State and said company,” the liability of the company to the bondholders is not affected by what may be done by and with the State. This would be true if there were any such liability to the bondholders, but the very point to which our inquiries are now directed is as to whether or not that liability exists. The phrase relied on and quoted above is undoubtedly suggestive of some other liability of the company on the bonds than one to the State, but it does not of itself create such a liability. If it exists at all, it must- be by virtue of some other provision of the statute. As has already been seen, there is but one debt, and whatever pays that debt, cancels the obligations of the company upon the bonds. Whenever, therefore, it appears that payment of the bonds must be made to one, the idea of a debt on the bonds to another is excluded. Here a payment to the State is absolutely required. This obligation to pay is express, and has not been left to implication. The provision is that the sinking-fund bonds must be bought and paid in at the appointed times and to the prescribed amount. If this is not done, the payment is to be enforced by putting the railroad of the company into the hands of a receiver, and running and managing it until the requisite amount of money is realized by the State from the earnings. Under the act of 1856 the payments were required to be made in money, and in case of default proceedings for foreclosure and sale were to be instituted to collect the amount to be paid, \as in cases of non-payment of bonds at maturity. If the statutes of. 1852' and 1856 stood alone, it would be clear to our minds that payments into, the sinking fund were to be treated as a release pro tcmto of all the liability of the company on, or on account of, the bonds. But the act of 1860 shows, beyond áll question, that such was the legislative- understanding at that time of the operation of this provision of the original act. It is there declared in positive language that by the loan of the bonds a debt was incurred by the company to the State,- and that payments to the sinking fund should release and discharge the companies pro tanto from their liability on that debt.

It is argued, however, that as these payments under all the statutes were to be held and used by the State as a sinking fund for the ultimate redemption of the issued bonds themselves from the several holders thereof, the obligation of the company to pay the bonds would not be discharged -in that way; and some remarks of this court in the Sinking Fund Gases, 99 U. S. 100, 725, are cited as authority to that effect. The decision in that case was that the contributions to the sinking fund then under consideration did not pay the debts of the several companies by which the contributions were made, because that fund was established, not to secure the payment of the bonds of the United States which had been lent to the companies, but the repayment to the United States, in the manner and at the time required by law, of “ the amount of said bonds so issued and delivered to said company, together with the interest thereon which shall have been paid by the United States.” But here the sinking fund is to be held and used by the. State, not to discharge the debt of the company to the State, but that of the State to its bondholders. It was established hot to secure the State, but to enable the State to pay its own debts at maturity. In this way all payments made by the companies to the State on account of the principal of the bonds were set apart and laid by under investment, so that at the appointed time they might be used by the State to redeem its own obligations. The fund in the treasury belonged to the State, and was not in any manner subject to the control of the company, or to be used to pay its debt. That debt was discharged by the . payments which under the law were put into the fund. All payments out of the sinking fund were to be made by the State on its own debts and not on the debt of the company. A sinking fund may be, and generally is, intended as a cumulative security for the payment of the debt with which it is connected. In this case the debt to which it belongs is that of the State, and not that of the company, which was paid so as to furnish the State with the means to create such a fund.

Reference was made in tbe argument to the way in which, under the act of 1852, and perhaps that of 1856, the sinking fund was to be kept and invested, and it was urged that the fund must have been intended as security for the payment of the bonds to the bondholders by the company, because if a bond issued to a particular company was bought by that company and paid into the fund, it was cancelled, while all other bonds were kept alive to be held and used by the State to take up at maturity the bonds issued to the company which had not been so paid in. The argument seems to be, that, as the purchase of a bond issued to a particular company, and its payment into the fund by that company, would of itself be a payment of that bond by the company both to the State and the holder, the special provision for the cancellation of such a bond, while others are to be kept alive, is indicative of a purpose not to cancel the obligation of the company under the statute until the company had not only provided the State rvith the means to take up, all the other outstanding bonds, but until the State had itself performed its own obligations and actually taken them up. This is undoubtedly a circumstance to be considered in determining what the payment was which the State intended the company should make, and for the security of which the lien was created; but it is not to our minds enough to overcome the many provisions found in the other parts of the statute, which so clearly show that there was to be but one creditor of the company on account of the contemplated loans of the bonds, and that creditor the State. Whatever, therefore, satisfies that creditor, under the law, satisfies the debt. "We cannot accede to the proposition, so much relied on by the counsel for the bondholders, that on putting out the bonds the company occupied towards the bondholder the relation of principal debtor, and the State that of surety only, until the company made the prescribed payments to the State, and that after these payments were made the relations of the parties changed, so that' thereafter the State was principal and the company a surety only. The debt of the company, whatever it was, continued the same in its relation to all the parties from the time it was created until it was paid. There is nothing in the statute which contemplates any change in the obligations of the parties toward each other. There may have been no good reason for keeping some of the State securities paid into the fund alive, and directing thatj others should be cancelled, inasmuch as all were to represent State debts, for- which the State was equally bound; but that -was the will of the legislature, and it was consequently so enacted. Afterward this policy was changed, and all JState bonds, of whatever character, were cancelled by mutilation as soon as they were paid in, or bought for the sinking fund. Act of 1860. In this way all danger of a misappropriation of securities in the sinking fund was avoided.. As bonds issued to railroad companies under the act could alone be used for the investment of the fund under this act, their cancellation did not affect the liability of the several companies thereon to the' State, because that was to continue until payment was made to the State by the company to which it was issued. Payment by the State to the bondholder did not discharge,the liability of the company on the bond so paid.

The provision for a foreclosure in case of a failure off the company to pay at maturity the bonds issued to it is found in § 6, which makes it the duty of the governor, when such a default occurs, to notify the attorney general, who must thereupon file a bill, against the company in the name of the State of Tennessee in the Chancery or Cffcuit Court of- the proper county. Upon the filing of this bill, the court is authorized to make such judicial orders, including the appointment of a receiver, and a sale of the road and all the property of the company, as may be necessary and proper to secure the payment of the bonds, with the interest thereon, and to indemnify the State against loss by their issue. 'We see no special significance, so far as the' present question is .concerned, in the direction of the attorney general to file the bill nrthe name of the State. Without such a direction there might be doubt whether the suit to be instituted should be in the name of the attorney general or of the State. It was probably unimportant whether the one form or the other was adopted, for, in any event, the object would be to enforce the obligation of the company and collect the money which was due. The legislature, however, saw fit to avoid all doubt on this subject, and to direct that the proceeding should be in the name of the State. Taken by itself, therefore, this section adds little, if anything, to the other evidence -in the statute as to who the creditor was for whose benefit the money was to be collected. The proceeds of the foreclosure were to be used to pay the' bonds, within the meaning of the statute, and also to indemnify the State against loss. To whom the payment was to be' made must be determined by looking elsewhere. There is nothing to show that the author of the statute had the security of the bondholder in his mind -when drafting this section, any more than when drafting the others. Payment of the bonds meant in this section what it did in the others; no more, no less.' It is true that here payment of the bonds and indemnity to the State are both spoken of, but payment of the bonds through a proceeding for foreclosure might not be enough to indemnify the State against all loss incident to the loan of the bonds. There might be expenses incurred in the foreclosure which would not be reimbursed by a simple payment of the amount of the bonds. Indemnity of this and a like character was evidently the purpose of this particular provision in the section. It was, in the language of counsel for the bondholders, to secure the State against “ a money loss ... in the way of counsel charges, or receiver’s charges, or betterment expenses, or debts not included in the words ‘ to secure the payment of said bonds.’ ” .

Proceedings for foreclosure before the maturity of the bonds, and the liability of guilty stockholders in case of issues of bonds obtained by fraud, or contrary to the provisions of the act, are provided for in § 13. This section makes it the duty-of the governor, as soon as he receives reliable information of such fraud or irregularity, to notify the attorney-general, who must at once institute a suit in the Circuit or Chancery Court of the proper county. In such a suit the court is given authority to order a sale of the road, and the property and assets of the company, or so much thereof as may be necessary. "When such a sale is made, the proceeds are to be paid into the treasury and invested by the comptroller in “the same stocks, creating a sinking fund, as provided for in the seventh section.” The guilty company is also made to forfeit all its rights and privileges under the act, and its guilty stockholders are made individually háble “for the payment of the bonds so fraudulently obtained by such company, and for all other losses that may fall upon the State in consequence of the commission of any other fraud by such company.” This is manifestly for the benefit of the State alone. The bondholder can have no special interest in such a proceeding. His rights are in no way affected by the fraud of the company in obtaining the bond he owns. The State is his debtor, and he has no right to call for the money owing to him until the maturity of his bond, which will not be until thirty or may be forty years after the commission of the fraud which gave the State the right to call at once on the company and its implicated stockholders for the payment of the bond he holds. It will hardly be contended that it was intended to make the stockholder individually liable to the bondholder, yet his liability is for “the payment of the bonds” just as is that of the company. If in his case payment of the bonds does not mean payment to the bondholder, it does not in that of the company. The language of the act is the same in both cases, and there is nothing whatever to show that as to one it- meant one thing, and as to the other something else. The evident purpose of this section was to give the State the power, immediately on the discovery of a fraud, to demand of the company “ payment of the bonds,” that is, payment of an amount of money equal to that called for by the bonds, and a remedy at once against the company and its implicated stockholders for the enforcement of such a payment in case it-was not voluntarily made. The money when collected was to be set apart; and invested “ as a sinking fund for the payment of the bonds ” by the State.

By § 14 it was made the duty of the governor to appoint an agent for the State, to attend all sales, made either under § 6 or § 13, to protect the interest of the State, and, if necessary for that purpose, to buy the road or property in the name of the State. If bought, it was to be put in the hands of a receiver to manage and run in the way provided in § 5, until the next meeting of the general assembly: The receiver was to settle his accounts with the comptroller semi-annually, but no directions were given in relation to the manner in which the net earnings were to be used in case of a sale under § 6. He was to take possession of “ the said road and property and use the same as provided for in the fifth section,” and, on the settlement of his accounts with the comptroller, the balances remaining in his hands would necessarily go into the treasury, there to be dealt with as the general assembly should direct. If a purchase was made by the State under § 13, the presumption would be that the earnings must go into the sinking fund, as such was the provision made for the proceeds of a sale to another purchaser, but all that would necessarily be under the control of the general assembly when it met.

Having thus gone over the other séctions, we are prepared to consider § 12 in its bearing on the question which is now under discussion. This section reserves to the State in express terms the right to enact “ all such laws as may be deemed necessary to protect the interest of the State, and to secure the State against all loss in consequence of the issuance of bonds under the provisions of this act, but .in such manner as not to impair the vested rights of the stockholders of the companies.” This reservation includes, and was undoubtedly intended to include, full power in the State, as against every one except stockholders, to do whatever might be deemed necessary by the legislature, with the lien reserved for the security of the obligations assumed by the companies. Nothing is said about bondholders. It will, of course, be con'ceded that if bondholders actually had any vested right or interest as against the State in the security created by the statute, nothing could be done under this section by the State to impair that right. But the same was probably true of stockholders, and the special care taken to preserve the rights of stockholders, without referring to bondholders at all, raises a strong presumption that it was never intended to vest in them any right which would interfere in the remotest degree with the free exercise of all the power of the State to deal with the borrowing companies in reference to the bonds and the security created therefor, just as might, under any circumstances that should arise, be deemed most for the intei’est of the State and the companies, they being the only parties to the contract of the companies that were to be at all interested in what ivas to be done. As has been seen, the bonds to be issued were on their face to bind only the State. At that time repudiation of State faith was not thought of. No purchaser of State bonds ever asked whether anything else than the faith of a State was pledged for their payment promptly at maturity. Repudiation was looked upon as dishonorable, and something that would never occur. Security to the State against loss by the loan of its bonds which were provided for must, therefore, be presumed to have been the sole purpose of the liens which were to be created on the issue of the bonds. Bondholders were never thought of in this connection, for they had the security of the faith of the State, and could not have been supposed to look for anything else. Hence, this reservation of power by the State was made broad enough to allow the State to deal with the securities which were taken from the companies at its own discretion, and in any way that might be deemed just. No such power could be exercised if the bondholders held an interest in the securities adverse-to the State. Under these circumstances this section is be looked upon as excluding any such possible intent, and operating as a standing notice to all who might, from time to time, become the holders of any of the lent bonds, that the payment of the bonds, and the interest thereon, which the several companies bound themselves for, was to be made to the State, and not to them, and that the security which was taken by the State was for the performance of this obligation, and might be dealt with by the State in any manner its own legislature should direct or provide. This reservation of power is entirely inconsistent with the idea of a debt from the company to the bondholders on account of the bonds; and, if there could have-been any doubt on this subject without § 12, there certainly is none with it.

. This disposes of all the cases; for the State, in the exercise of its legislative discretion, has released each of the companies whose property is involved in these suits from all its obligations growing out of the original loans, and has cancelled the liens created for their security. The companies have either voluntarily paid their debts to the satisfaction of the State, or the State has foreclosed the hen which was reserved, and sold the property, free of that incumbrance, either to the present defendants, or to those under whom they claim.

Some reliance was placed, in the argument for the bondholders, upon the legislative history of the passage of the act of 1852, which showed an offer and rejection of certain proposed amendments, and also upon the construction which had been put on the act by certain State officers of high authority in the administration of the public affairs, but we have deemed it unnecessary to add to the length of this opinion by particular reference to that branch of the argument, because, as we think, the statute contains, within itself, unmistakable evidence of its meaning. The same is true of the reference which has been made to other statutes of Tennessee, and to statutes of the States and of the United States upon the same general subject. This statute differs in its phraseology from some, and perhaps all, of the others, but its own language furnishes all the aid which is required for its true interpretation.

The decree in each of the cases is affirmed.

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Dissenting Opinion

MR. Justice HarlaN,

dissenting.

I am of opinion, that while the object of the statutes in question was to protect- the State against liability, they were, also, designed to create a lien for the payment of the bonds themselves, by whomsoever held. That lien, so far as the holders of bonds were concerned, could not be discharged, except by payment of the interest and principal, according to the terms of the bonds, and in the mode prescribed by the statute under which they were issued. For these reasons, I am compelled to withhold my assent to the opinion and judgment.

Mr. Justice Matthews and Mr. Justice Blatchford took no part in these decisions.

Case Details

Case Name: Tennessee Bond Cases Stevens v. Memphis & C. R. Co.

Court Name: Supreme Court of the United States

Date Published: Jan 1, 1885

Citation: 114 U.S. 663

Court Abbreviation: SCOTUS