12 S.C. 200 | S.C. | 1879
Lead Opinion
The opinion of the court was delivered by
For a proper understanding of the questions raised by this appeal, as well as to show how it is that these actions are brought against the state in one of her own tribunals,
On the 8tb of June, 1877, (16 Stat. 318), the general assembly adopted a joint resolution, which, after reciting that “ great uncertainty” existed in the minds of the taxpayers as to the real amount of the valid indebtedness of the state, provided for the appointment of a commission, consisting of three members of the senate and four members of the house of representatives, whose duty, in general terms, it should be to investigate and report upon such indebtedness. This commission, which, for convenience, will be called, as it is usually designated, the bond commission, were, amongst other things, specially directed to inquire and report: First What was the entire amount of consolidated bonds and certificates of stock which had been issued under the provisions of an act entitled “ An act to reduce the volume of the public debt and provide for the payment of the same,” approved December 22d, 1873, (15 Stat 518), which act will be called throughout this opinion the consolidation act. Second. “Whether there is, in the state treasurer’s office, on file as vouchers, canceled bonds, coupons and certificates of stocks of the issues described, issued in accordance with law and authorized to be consolidated by the act above recited, to the amount required by said act.” These duties involved, therefore, the institution of four inquiries: First What was the entire amount of consolidation bonds and stocks issued? Second. Whether there were vouchers in the treasurer’s office in the shape of canceled bonds, coupons and certificates of stock for which the consolidation bonds and stocks were issued, to the amount required by’the terms of the consolidation act ? Third. Whether such vouchers — canceled bonds, coupons and certificates of stock — had been issued in accordance with law? Fourth. Whether such canceled bonds, <fec., were amongst those which were authorized to be consolidated by the terms of the consolidation act? For, it will be remembered, that the bonds, coupons and certificates of stock authorized to be consolidated are specifically mentioned in that act, while others are not mentioned at all; and others again, a very large proportion — nearly all, in fact — of the conversion bonds, are specially
In due time the bond commission submitted an elaborate report, accompanied with various schedules — that called No. 6 being intended to represent the consolidation bonds and certificates “affected by vouchers which, in the judgment of the bond commission, were not issued in accordance with law and authorized to be consolidated under the act to reduce the volume of the public debt and provide for the payment of the same.” Thereupon the general assembly, without either affirming or disaffirming the conclusions of the bond commission, so far as the validity of the bonds and stocks mentioned in Schedule No. 6 were concerned, passed a “joint resolution providing a mode of ascertaining the debt of the state and of liquidating and settling the same.” -March 22d, 1878, 16 Stat. 669. That resolution, in its first section, provides for the establishment of a Court of Claims, which “ shall have jurisdiction to hear and determine any case or cases made up or brought to test the validity of any of the consolidated bonds, coupons and certificates of stock, or of any of the various classes of them, mentioned in the said report of the bond commission as resting on vouchers not issued in accordance with law and authorized to be consolidated by the act of the general assembly, approved December 22d, 1873, entitled ‘An act to reduce the volume of the public debt and provide for the payment of the same,’ and, also, as not issued in accordance with law, and further designated and described in Schedule 6 of said report. In Section 9 it is provided “ that the attorney-general and his said associates, with the consent of the creditors of this state, or so many of them as shall be necessary, may make up a case or cases to be heard and determined in said court, in which, if practicable, the state shall be defendant, to test the validity of the said consolidated bonds and coupons and certificates of stock mentioned in said Schedule 6, bringing before the court the various classes of vouchers which, it is alleged in the report of the said commission, impair the validity of the said consolidated bonds, coupons and certificates of stock, or any of them.” The tenth section directs “ that there shall be levied for the current fiscal year a tax sufficient to pay the coupons and interest orders
The judgment of the Court of Claims is based upon a construction of the provisions of the joint resolution constituting it, by which they hold that their jurisdiction is limited to the inquiry, “ Were the vouchers — that is, the canceled bonds, coupons and certificates of stock — issued in accordance with law and authorized to be consolidated by the act of the general assembly, approved December 22d, 1873 ?” But they carefully avoid the inquiry, as not, in their judgment, within the scope of their jurisdiction, whether, assuming this to be so, the bonds and certificates of stock issued under the provisions of the consolidation act, are, nevertheless, valid or invalid; or, to use their language, whether “the consolidation bonds issued under the act of 1873 are valid or invalid in other respects.” It is very clear, from the grounds upon which that court base their conclusions, that they use the words “not in accordance with law,” not in the sense that there was no act of the general assembly authorizing the issue of the bonds in question, but that the various provisions of the acts authorizing their issue were not complied with, and for that reason they were not issued “ in accordance with law.” But, as we shall see, the real question in these cases is, whether there were any acts authorizing the issue, and that
We think- it plain that the object of the resolution was to provide for “ a final adjudication ” of the vexed question as to what was the real debt of the state, and not simply to institute an inquiry into the consideration of that which purported to be such debt; for it is too plain a principle of law that a negotiable security — to which class it will be seen the bonds in question belong — whether issued by a private individual, a corporation, or a state, may constitute a valid debt, even though originally based upon an insufficient or fraudulent consideration, or upon no consideration at all, to suppose that any one, much less the legislature which passed this resolution, could be ignorant of it. Hence, when the declared object of the legislature, as evidenced by the title of the resolution, was to provide “ a mode of ascertaining the debt of the state, and of liquidating and settling the same,” we cannot suppose that they intended that the investigation should stop half way, but that it should be complete and thorough — that the debt should be ascertained, and not simply the nature of the consideration upon which it rested. And as this investigation was referred to a judicial tribunal, the necessary inference is that the object was to submit the question to the test of legal principles. But, in addition to this, the express terms of the resolution leave no doubt in our minds as to the real intention. In the first section the Court of Claims is invested with jurisdiction to hear and determine any case brought “ to test the validity,” not of all the consolidation bonds, &c., but only of such of them as ar.e “ mentioned in the said report of the bond commission as resting on vouchers not issued in accordance with law.” Now, the validity of these bonds could not be tested by limiting the inquiry, as the Court of Claims have done, to the
In reviewing the judgment of the Court of Claims two general questions present themselves: First. Are the conclusions announced in that judgment as to the existence of the several infirmities alleged against the several classes of vouchers well founded ? Second. If they are well founded, does it follow that the consolidation bonds, &c., resting in whole or in part upon such vouchers, are invalid and not binding obligations of the state? But, from the view which we take of this ease, it will only be necessary for us to consider the second question, as the answer to that will be conclusive of the result in the cases now before the court.
But for the fact that a different view has been suggested from u, source which we have always been accustomed to (treat with
The legal principles which determine the answer to the question which we are called upon to solve are few in number, and are well established. It is manifest that the question depends upon the inquiry whether the state has, by a valid contract, bound itself to pay the amounts which the consolidation bonds in question purport-to secure; for though the action in each of" the cases is upon a coupon of one of such bonds, it may be’ regarded, and, for convenience, will be spoken of in this opinion, as if the action were upon the bond itself — the legal principles involved being alike applicable to an action on a coupon as on a bond. State v. Spartanburg and Union Railroad Company, 8 S. C. 163, recognizing City of Kenosha v. Ramson, 9 Wall. 483, and City of Lexington v. Butler, 14 Wall. 296.
Now, as the Supreme Court of the United States has uniformly held that, while they will, as a general rule, regard the construction given by state courts to state legislation and state constitutions as conclusive, such rule is subject to this exception; that where the question involved is not only whether such legislation impairs that which is admitted to be a contract, but whether that which is alleged to be a contract, is, in fact, a contract; (State Bank of Ohio v. Knoop, 16 How. 369; Jefferson Branch Bank v. Shelly, 1 Bla. 436; Gelpeke v. Dubuque, 1 Wall. 203; Township of Pine Grove v. Talcott, 19 Wall. 666;) and as the general assembly, in providing for this investigation, has, in express-terms, recognized the right of the parties to invoke the judgment of this tribunal of last resort, it becomes important to examine-the question in the light of the decisions of the Supreme Court of the United States.
There can be no doubt but that coupon bonds, like these under - consideration, as well as the coupons thereof, are negotiable securities, and, as such, are subject to the same rules of law as govern that class of securities. White v. Vermont R. R. Co., 21 How. 575; Mercer County v. Hackett, 1 Wall. 83; Cromwell v.
There is as little doubt that states which issue negotiable paper incur the same responsibilities which attach to individuals or corporations in like case. United States v. Bank of Metropolis, 15 Pet. 392; Murray v. City Council, 96 77. S. 445 ; Floyd Acceptances, 7 Wall. 666. As is said in the last-named case, “it must be taken as settled that when the United States becomes a party to what is called commercial paper — by which is meant that class of paper which is transferable by endorsement or delivery, and, between private parties, is exempt in the hands of innocent holders from inquiry into the circumstances under which it was put in circulation — they are bound, in any court to whose jurisdiction they submit, by the same principles that govern individuals in their relations to such paper.”
That the plaintiffs in these cases, as well as the holders of the coupons for which the bonds here in question were exchanged, are entitled to be regarded as bona fide- holders before maturity, and entitled to all the rights incident thereto, we do not think can be questioned, as there is no proof to the contrary — at the very utmost, only suspicion. The rule upon this subject, as stated by Mr. Justice Swayne in the case of San Antonio v. Mehaffy, 96 U. S. 314, upon the authority of 2 Pars, on Bills and Notes, 9, and Pinkerton v. Bailey, 8 Wend. 600, is that “the holder of commercial paper, in the absence of proof to the contrary, is presumed to have taken it under-due for a valuable consideration, and without notice of any objection to which it was liable;” and, as is said by Mr. Justice Field in Cromwell v. County of Sac., 96 U. S. 57-8, in speaking of similar obligations issued by municipal corporations, “ they are transferable by delivery, and, when issued by competent authority, pass into the hands of a bona fide purchaser for value before maturity, freed from any infirmity in their origin. Whatever fraud the officers authorized to issue them may have committed in disposing of them, or however entire may have been the failure of the consideration promised by parties receiving them,, these circumstances will not affect the title of subsequent bona fide purchasers for value before maturity or the liability of the municipalities. As
If, then, the bonds here in question are negotiable securities .■and the holders thereof are bona fide holders, our next inquiry will be as to the rule governing that class of securities in the hands of such holders. The rule, as stated by one of the most recent writers on this branch of commercial law, is that if such ■securities are issued by competent authority, they are, in the hands of such holders, unaffected by, and exempt from inquiry into, the circumstances under which they were put into circulation. 2 Dan. on Neg. Inst., §§ 1502-3. Now, as corporations or states issuing such paper must necessarily do so through the instrumentality of officers or agents, the only inquiry in such cases is, whether the officer or agent has been entrusted with authority to make and issue the paper, and it is not competent to inquire into his conduct in making the issue. . If he has been guilty of irregularities or even frauds in exercising the power with which he has been entrusted, the loss thereby occasioned must fall upon the party who entrusted him with-such power, and not upon the
It is true that the cases which establish the foregoing principles arose upon bonds issued by municipal. corporations; but if, as we have seen, negotiable bonds issued by states are subject to the same rules which govern that class of paper when issued by individuals or corporations, it is difficult to conceive how this can make any difference — and, indeed, it seems to be conceded in the argument on both sides that there is no distinction. The rule grows out of the principles which apply to that class of paper, and is in no wise dependent upon the character of the parties who make or issue such paper.
There is, however, a very strong case in which these principles were applied to bonds issued by a state. California v. Wells, Fargo & Co., 15 Cal. 236. In that case certain warrants which had been issued by the proper authorities of the state were paid and deposited in the office of the state treasurer. The warrants were afterwards stolen and presented to the treasurer to be funded under the provisions of an act entitled “ An act to provide for paying certain equitable claims against the state.” Bonds were issued in exchange for the stolen warrants, the treasurer at the time not knowing that they had been stolen. Sub
The practical question, then, in these cases is, were the bonds in question issued by competent authority ? As the bonds purport to be the bonds of a state, and as a state cannot, like an individual, directly make and issue a bond, but must do so through the instrumentality of its officers or agents, who can only act under special authority conferred upon them, the inquiry in these cases is narrowed down to the question whether such authority was conferred upon the officers who issued the bonds in question. This authority, under the constitution of the state, could only be conferred by an act of the general assembly passed in conformity to the provisions of that instrument. Hence, it is not sufficient to show that an act of the general assembly has been passed authorizing the issue of such bonds, ■ but it must also appear that such act is not subject to any constitutional objection. Town of South Ottawa v. Perkins, 94 U S. 260; Harshman v. Bates County, 92 U. S. 569. "Which,,though overruled by the case of Cass County v. Johnston, 95 U S. 360, as to the point that the act there in question was unconstitutional, may yet be regarded as authority for the proposition that if the act conferring the power to issue the bonds is unconstitutional the issue of such bonds will be without authority, and the bonds, even in the hands of a bona fide holder, will be invalid. So, too, if, by a proper construction of the terms of the act, the authority to issue the bonds is not conferred, the bonds will be invalid in the hands of a bona fide holder. As, for example, in the case of Marsh v. Fulton County, 10 Wall. 676, where the act authorized the issue of bonds to one railroad corporation and the bonds in question were issued to another corporation, which, though a portion of the first-named corporation, was held to be a distinct and separate corporation; and in the case of Town of Fast Oakland v. Skinner, 94 U. S. 255, where the charter of a railroad
The bonds, the validity of which we are called upon to inquire into, all purport.to be bonds issued under the provisions of the consolidation act in exchange for coupons or other bonds called vouchers, purporting to have been previously issued under various acts of the general assembly, which will hereinafter be more particularly mentioned, and it is conceded that in every instance except one — that of the case of G. M. Walker, cashier — the vouchers were amongst those mentioned in the consolidation act, the bond in the case of Walker, cashier, being admitted to rest in part upon a batch of some $9000 of coupons detached from bonds for relief of the treasury, which are not included in the bonds of that class mentioned in the consolidation act. It is likewise conceded that the consolidation act was not passed “ by the vote of two-thirds of the members of each branch of the general assembly,” and was not submitted to a vote of the people, as is required by Article 16 of the constitution, adopted January 29th, 1873, (15 Stat. 466,) where after that time the general assembly undertakes “to create any further debt or obligation” on the part of the state. It cannot, therefore, be allowed the effect of creating “ any further debt or obligation,” and must be regarded as simply a scheme for the re-adjustment of the then existing debt. When, therefore, a question arises as to the validity of any bond which purports to have been issued under the provisions of that act, the inquiries are: 1. Was the debt for which such bond was issued a then existing debt of the state ? 2. If so, was such debt amongst those provided for by the terms of the consolidation act? The answer to the first inquiry depends upon the answer to the question whether the “ vouchers,” which were surrendered upon the issue of the consolidation bonds now in question, were made and issued by competent authority. These
It is not and cannot be denied that the acts so referred to do in fact purport to authorize the issue of the bonds, except in the case of the second issue of bonds for the payment of the interest upon the public debt, for which there does not seem to have been the shadow of authority of any kind, and which, therefore, are absolutely void, no matter in whose hands they may be. For, if the act be construed as giving authority for a second issue, there is no conceivable reason why a third or fourth or an indefinite number of issues could not have been made upon the same construction ; and, certainly, a construction leading to such a result cannot be the correct one. It is a mistake to suppose that because the consolidation act authorizes the funding of $1,197,000 of
The constitutionality of the act entitled “An act to authorize a loan to redeem the obligations known as the bills receivable of the State of South Carolina,” ratified August 26th, 1868, (14 Stat. 17,) is assailed upon the following grounds:
1. Because the debt thereby purported to be contracted was not for the purpose of defraying “ extraordinary expenditures,”' and is, therefore, a violation of Article IX., Section 7, of the constitution. This objection is manifestly based upon the idea that the word “extraordinary” is used in that section in its popular sense, whereas it is clear from the context that it is only used in contradistinction to the word “ ordinary,” as the latter word is used in the sense of current or usual annual expenditures in a preceding section of the same article; for in Section 3 of that article the constitution declares that “ The general assembly shall provide an annual tax sufficient to defray the expenses of the state for each year ; and whenever it shall happen that such ordinary expenses of the state for any year shall exceed the income of the state for such year, the general assembly shall provide for levying a tax for the ensuing year, sufficient, with other-sources of income, to pay the deficiency of the preceding year,, together with the estimated expenses of the ensuing year.” After thus providing for the expenses of the state government (of course meaning the government which was then to go into operation under the provisions of the constitution of 1868), designated as “ordinary,” in the sense of current annual expenses, the constitution proceeds, in Section 7, to provide that “for the purpose of defraying extraordinary expenditures, the
2. The next ground is that the act in question does not levy a tax annually sufficient to pay the annual-interest of the debt, the-contracting of which it purports to authorize, and is, therefore, in violation of one of the clauses of Article IX., Section 7, of the constitution. This objection is disposed of by the decision of this court in the case of Morton, Bliss & Co. v. Comptroller-General, 4 S. C. 430. Whether that decision be right or wrong,, until overruled by competent authority it stands as an authoritative construction of those sections of the constitution which are therein considered, binding not only upon every citizen of the state, but upon every tribunal which undertakes to administer its laws. To say, as has been said, that each judge has a right to determine for himself the proper construction of a clause of the constitution, regardless of the construction Avhich may have been placed upon it by superior authority, amounts to saying that we have no settled laAV, and that we are living in a state of anarchy. It is quite true that each judge, as well as each of the other officers of the state, takes an oath to observe the constitution ; but the constitution is not what he construes it to be, but what it is construed to be by the tribunal invested with the power to determine what is the proper construction. As long as
The rule, as stated by Taney, C. J., in Ohio Life Insurance and Trust Company v. Debolt, 16 How. 432, is as follows: “The sound and true rule is that if the contract, when made, was valid by the laws of the state, as then expounded by all the departments of its government and administered in its courts of justice, its validity and obligation cannot be impaired by any subsequent act of the legislature or decision of its courts altering the construction of the law.” This rule was recognized and affirmed in the same terms in Gelpeke v. Dubuque, 1 Wall. 206, and to it was added the following language: “ The same principle applies where there is a change of judicial decision as to the constitutional power of the legislature to enact the law. To this rule,
It is argued, however, that the decision in the case of Morton Bliss & Co. v. Comptroller-General is confined to the five bonds there considered, none of . which are under consideration here. This, we think, is an entire misconception of the effect of that decision. What is said in that case in regard to confining the remedy there applied for to the particular bonds mentioned in the pleadings, manifestly was not intended to have, and could not have, the effect of confining the operation of the decision of the various constitutional questions there discussed to the five bonds there in issue. A court of justice, when called upon to administer a remedy under a statute which is alleged to be unconstitutional, must first determine whether the statute is liable to the objection urged against it, and, having determined that question, it then proceeds to inquire whether the parties in the case have shown themselves entitled to such remedy. The two inquiries are entirely distinct and separate. Whether the objection urged against the constitutionality of the act is well founded is. one thing, and whether the parties in the particular case have shown themselves entitled to the remedy which the act purports to give rise to is quite another thing. The decision of the one question was an authoritative construction of a particular clause of the constitution, which necessarily affects every one, while the decision of the other question could only affect the parties then before the court. The decision of the various constitutional questions raised in the case must necessarily be conclusive whenever the same questions arise in any other case, though the ap_
3. The next ground upon which this act is claimed to be unconstitutional is that bills receivable are bills of credit, and are,, therefore, within the prohibition contained in Article I., Section 10, of the constitution of the United States, which declares that “ no state shall * * * emit bills of credit.” Whether bills-receivable are bills of credit within the meaning of that clause of the constitution of the United States it is not important for us now to consider, inasmuch as such a question is, in our judgment, wholly immaterial to the inquiry in which we are engaged. It will be observed that the prohibition is against the issue of' such bills — not against their payment. If, therefore, these bills are of the character claimed for them, it may be that they would be invalid and worthless as legal obligations in the hands of those who happened to hold them, and that if the question were whether the payment of such bills could be enforced, or whether the officers of the state should be restrained from issuing them, the position taken by the attorney-general would be entitled to-great consideration. Such, however, is not the question. It is not, and cannot be, denied that these bills were issued by the proper officers of the state, under an act of the general assembly purporting to confer authority for so doing, and that the state received full value for them. When the state government was-reorganized in 1868, they found these bills outstanding, and,, even though it should be admitted that they were unconstitutional in form, they nevertheless represented valid and bona fideindebtedness of the state. If the state saw fit, voluntarily, to recognize such indebtedness, even though, it stood in a form which affected its legal obligation, and provided for paying it or funding it in a form to which there could be no constitutional objection, we cannot conceive how such an act on the part of the-state, in conformity, as it was, to the plainest dictates of common honesty, can be regarded as in violation of the constitution of the United States. So far from emitting or issuing paper supposed to be within the prohibition of that constitution, the state, on the contrary, made provision for the withdrawal of such
4. The next ground of objection is, that the act in question was not passed by the requisite constitutional majority, by which is meant that the journal of the senate does not show a vote of two-thirds of all of the members in favor of the passage of the act, but only shows a vote of two-thirds of those voting — a quorum of that body. This objection is also disposed of by the decision in the case of Morton, Bliss & Co. v. Comptroller-General, and it is not necessary to repeat here what we have already said in regard to the effect of that decision., Inasmuch, however, as this seems to be one of the principal grounds of objection to that decision, we may add that it is not without the support of very high authority upon this point. See County of Cass v. Johnston, 95 U. S. 360.”
The next act, the constitutionality of which is called in question, is “An act to authorize a state loan to pay interest on the public debt,” ratified August 26th, 1868. 14 Stat. 18. This act is assailed upon the first and'second,,grounds upon which the foregoing act was attacked, and it is not deemed necessary to add anything to what we have said above, except to say that while ■current interest upon the public debt may properly fall within the class of “ ordinary ” expenses, yet the interest provided for in this act not being the current interest, it, cannot be placed in that class, and must, therefore, fall into the, class of “ extraordinary ■expendituresfor it will be remembered that while, provision has been made by the act of September 2lst, 1866, (13 Stat. 391), as supplemented by the act of December 20th, 1866, (13 Stat. 421), for funding the interest on the public debt up to July 1st, 1867, there would be no provision for the interest which accrued from July 1st, 1867, to November 1st, 1868, the beginning of the first fiscal year of the government as then reorganized, unless the act which we are now considering be regarded as intended to provide for such interest. It is a mistake to suppose that provision was made by taxation for such interest by the appropriation act of March 23d, 1869, (14 Stat. 237), for that act was •expressly declared to be an act to, make appropriations for the
The next act which we propose to consider is, “ An act to close
The next act to be considered is “ An act to authorize a loan for the relief of the treasury,” approved February 17th, 1869. 14 Stat. 182. This act we regard as liable to two constitutional ■objections: 1st. It purports to create a debt which was not “ for the purpose of defraying extraordinary expenditures;” and, 2d. The debt therein sought to be created is not “ for some single ■object,” and such object is not “distinctly specified therein,” .and it is, therefore, in violation of two of the clauses of Section '7, Article IX., of the constitution. As we have already seen, provision had previously been made for the redemption of the bills receivable and for the payment of the interest on the public •debt then in arrear, and we are not aware of any other expenditures which the general assembly were then called upon to provide for which could properly be classed amongst “ extraordinary expenditures,” and none such have been suggested to us. The most natural inference is that the object of this act was to raise money to meet the current demands upon the treasury, in anticipation of the collection of the taxes levied for that purpose, and such demands, as we have seen, fall into the class of ordinary •expenses, and cannot, therefore, be regarded as “ extraordinary expenditures.” Again, the debt which this act purports to authorize cannot be said to be “ for some single object,” nor is such object “ distinctly specified therein.” Money borrowed “ for the relief of the treasury ” might and would be applied to .as many different objects as there were demands upon the treasury. We think, therefore, that this act clearly violates both clauses of the constitution above referred to, and, upon the principles heretofore announced in this opinion, every bond, together with its coupons, issued under the authority of this act is absolutely void even in the hands of a bona fide holder because issued without any authority whatever, and hence every consolidation bond resting upon such bonds or coupons is, to the extent that it does rest upon such bonds or coupons, not a valid debt of the State of South Carolina.
As to the “ Act to provide for the conversion of state securities,” approved March 23d, 1869, (14 Stat. 241,) it not being an act to authorize the borrowing of money or the contracting of
The “Act to authorize the financial agent of the State of South Carolina to pledge state bonds as collateral security, and for other purposes,” approved March 26th, 1869, (14 Slat. 258,) will next be considered. It is not pretended that the object of this act was to authorize the issue of any bonds or the contracting of any additional debt, for its sole purpose seems to have been to authorize the financial agent to dispose of the bonds, the issue of which had been previously or should be thereafter authorized, in a particular way. This act, therefore, did not come within the provisions of Article IX., Section 7, of the constitution, and the fact that it was not passed by a two-thirds vote cannot affect its validity. In Article IX., Section 14, the constitution prescribes that “Any debt contracted by the state shall be by loan on state bonds,” but how such loans are to be effected •is left to the discretion of the general assembly. "Whether they shall be by a sale of the bonds, (the most questionable mode, if the words above quoted be given a rigid literal interpretation,) by direct borrowing, as in case of one individual borrowing from his neighbor a thousand dollars, and giving his bond directly to the lender for the amount, (a mode so inconvenient in case of a state as to be almost impracticable,) or by a„deposit of the bonds as collateral security for such sums as may from time to time be advanced to the state, as its necessities require, are all matters which are left for the general assembly to determine. We do not see, therefore, how the act now under consideration can be regarded as in conflict with any provision of the constitution.
The last objection which is urged against all the bonds issued under the several acts which we have been considering is, that they were not registered in conformity to the provisions of Sec
Our conclusions, therefore, are:
1. That all the bonds issued under an act entitled “An act to reduce the volume of the public debt and provide for the payment of the same,” are valid obligations of the State of South
2. If any consolidation bond rests wholly upon, any of the three objectionable classes of bonds or coupons just mentioned, then it is wholly void j but if it rests only in part upon such objectionable bonds and coupons, then it is only void to the extent which it does rest upon such objectionable bonds or coupons, and for the balance it is a valid obligation of the state.
3. That the burden of proof is upon the state to show that any particular bond which may be brought into question does rest either in whole or in part upon such objectionable bonds or coupons, and if in part only, then the state must show what part is so affected.
The judgment of the Court of Claims is set aside, and the cases are remanded to that court for such further proceedings as may be necessary under the principles herein announced.
It will be unnecessary to add anything to what has been already said, in the opinion of the court, as to those matters in respect to which there is entire unanimity in the court. I shall confine myself to noticing the leading points, as to which some difference of opinion has arisen in the court.
The first question that will be considered is, whether constitutional authority existed for the issuing of the class of bonds that have been termed the second issue of bonds to pay interest on the public debt. The history of the transaction in question is briefly as follows: An act was passed August 26th, 1868, entitled “ An act to authorize a state loan to pay interest on the public debt,”
The first question is one of fact, namely, what was the nature of the authority that the financial board thus attempted to exercise ? This must be disposed of upon the evidence in the case. It is very clear that what the financial board assumed to do, and <dl it assumed to do, was to change in point of form, as to an immaterial matter, so far as it affected the liability of the state, outstanding obligations of the state. It is not pretended that the board intended to create one dollar of new debt. There is not the slightest evidence that the governor, who was a member of the board, intended or had in contemplation as a consequence of the transaction to add to the sum that had already been borrowed under the act already mentioned, a single dollar to be applied according to the purposes of that act, namely, “ to pay interest
It is not competent to argue that because the action of the-board appears to have resulted in the creation of new debt, that that circumstance stamps the nature of the authority attempted to be exercised. In the first place, we are bound from the evidence to assume that there was a distinct abuse of the authority attempted to be vested in him, on the part of the financial agent,, who, instead of issuing the new bonds for the exclusive purpose of retiring the first issue, as to part of them at least, used them for the purpose of creating a new debt. We have no right as matter of legal conclusion, in the absence of evidence supporting such a conclusion, to hold that the board intended the wrong accomplished by the abuse of its authority. But even if it had been made to appear that the board intended that the retirement of the old issue should be accomplished by the sale of the new issue in open market, and the application of the proceeds of the sale to retiring the old bonds, that would leave the nature of the authority attempted to be exercised by the board entirely unchanged. It would still be, in its nature and essence, an attempt to change, as to matter of form, only an old obligation. It may be argued that such a method of effecting the change would not be a fair exercise of the power of conversion; that is quite a different question, that need not be passed on here. A power does not change its nature merely because it is abusively exercised. We are here drawing a distinction between two very different classes of powers, both of which are recognized by the constitution, but differ from each other most materially, both as it regards the sanctions necessary to give validity to the exercise of such powers, the mode of their exercise, and the effect of their exercise, both upon the state and third parties dealing with the-state. It is of the greatest importance that this distinction should be clearly discerned and held in mind. To possess and exercise authority to bind the state by the terms of an obligation newly created, implies a delegation of authority of a very high order, and generally esteemed of so much importance and delicacy as to-
Let us trace these distinctions into the constitution. Section 7, Article IX., provides as follows: “ For the purpose off defraying extraordinary expenditures the state may contract public debts, but such debts shall ■ be authorized by law for some single object, to be distinctly specified therein, and no such law shall take effect until it shall have been passed by the vote of two-thirds of the.members of each branch of the general assembly, to be recorded by yeas and nays in the journal of each house,, respectively, and every such law shall levy a tax annually sufficient' to pay the annual interest of such debt.”
Here is a distinct negation to the state of power under the constitution to create public debts, except where that power is exercised for particular purposes and in a particular way, and it is off course a negation of the authority of any agent of the state to create such debts in a manner inconsistent with the provisions of the constitution.
Section 10 of Article IX. deals with the powers of evidencing existing obligations, including that of changing the forms of such evidence. It provides that no scrip, certificate or other evidence of real indebtedness shall be issued except for the redemption off stocks, bonds or other evidences of debt previously issued, or for such debts as are expressly authorized in the constitution.
In these provisions we have distinctly recognized the two^ classes of powers — the one capable by rightful exercise of bringing into existence a new specific obligation of the state, and the other of certifying in form a debt already existing. It is perfectly clear that the authority which the board attempted to exercise in the present case is that regulated by Section 10, and. not that treated of in Section 7.
Our attention has not been called to any act authorizing the financial board, or the officers composing that board, individually, to issue any bond, certificate or evidence of debt by way of changing the evidence of any antecedent debt of the state. After
The only power at all analogous to that in question was conferred in the particular case of the issue of bonds to redeem the bills receivable of the state and was confined to that object. That act (14 Stat. 17, § 5,) provides “that the bonds authorized by this act shall be sold at the highest market price by the financial agent of the state in the city of New York, and not less than for a sum to be fixed by the governor, attorney-general and treasurer, who shall fix the time of redemption and redeem said bills receivable at the office of the state treasurer, and they are further authorized to pay such sums of money as may be necessary to effect the purposes of this act out of any funds of the state not otherwise appropriated.” The powers here conferred on the persons who claimed to constitute the board are confined to the retirement of the bills receivable, and, being thus specially delegated, instead of supporting, contradicts the assumption that they had general powers of that nature, while the fact that no such power was conferred as it regards the class of bonds in
It will not be seriously contended that the governor, attorney-general and treasurer could, either singly or unitedly, assume to •change the form of an outstanding obligation of the state, in any respect, without the authority of the legislature therefor. It is apparent that the legislature, whose authority they claimed to exercise, took the same view of this question as that just expressed, for that body passed an act entitled “ An act to provide for the conversion of state securities,” March 23d, 1869, (14 Stat. 241,) which covered the exercise of the very power in question, namely, that of changing the form of existing obligations. This act allows bonds to be changed into stock and stock into bonds, but does not authorize any other change to be made in any evidence of indebtedness, and altogether ignores the existence of any authority of that description in the hands of the financial board or the officers composing it, though two of them, the governor and the treasurer, have duties to perform under this act.
It must be concluded that the governor, the attorney-general and the treasurer had no such authority, collectively or individually, as would enable them or either of them to put out an obligation for the redemption of an antecedent debt or obligation of this state, or in any way to change the form in which any such debt may be evidenced.
It is necessary to notice a view that has been strenuously urged, namely, that the action of the financial board must be referred to authority contained in the act under which the bonds in question purport to be issued, communicated to the governor, to issue as many bonds as he should at any time judge necessary, for the purpose of borrowing money sufficient to pay the interest on the public debt, provided he did not overstep the limit of the amount to be borrowed, namely, $1,000,000. This proposition has already been answered in part. It is clear that if the governor had such authority he has not attempted to exercise it. It assumes that the governor found that the proceeds of $1,000,000 of bonds was not sufficient to pay the outstanding interest on the
It is not necessary to contend that after the governor had once-made up his mind that a certain sum was necessary he could not afterwards increase that sum; but the proposition that disposes of the question is, that after he had fixed the whole amount to be raised and had actually issued it, the whole intention of the-act was carried out, and the authority it conferred spent. All the -act contemplated was that the governor should exercise a certain authority, based on his own judgment, of the extent to which that authority should go within a certain general limit.. After he had exercised his discretion, and had performed the act intended to be based upon it, what remained to accomplish the-full purpose of the act ? Possibly if an act conferring authority on a public officer, intended to meet the case of making provision against future contingencies, should be brought in question, its purposes, when rightly understood, might give rise to-the conclusion that it was intended as a continuing power. But here the matter to be ascertained by the governor was such as a sum in arithmetic would solve, and no ground is afforded by enlarging the sense of the words used by holding that it was-intended that the governor should have a continuing open judgment in the matter.
It is said that the amount that the bonds would bring on public sale was uncertain, and, therefore, the governor could not know until the sale was over how much money would be derived from the proceeds for the payment of interest. But the governor knew how much money had been realized when the further sale was stopped. The completion and termination of the issue, in view of the fact that in his judgment enough money had been raised for the purpose, was an exhaustive exercise of his power
It is clear that parties having no legislative authority so to do have put in circulation evidences of indebtedness on the part of the state, and the holders of these evidences claim that they cannot be questioned as to their legal validity. A clearer case of the abuse of public authority cannot be stated, nor one that •defies more openly all the safeguards placed by the constitution around the creation of public debts.
The next question to be considered is as to the validity of the bonds issued under the act entitled “'An act to authorize a loan for the relief of the treasury,” passed February 17th, 1869, (14 ■Stat. 182.) It is objected to these bonds that the object of borrowing is not sanctioned by the provisions of the constitution on that subject. Article IX., Section 7, is the one that alone .afforded authority for the passage of the act. That section provides as follows: “ For the purpose of defraying extraordinary expenditures, the state may contract public debts; but such debts .shall be authorized by law for some single object, to be distinctly specified therein.” The remaining provisions relate to. the requirements for the purpose of giving validity to such an act, and are not in question here.
In the first place, this section must be regarded as a limitation of the power of the legislature to authorize the creation of debt by borrowing, of such a nature as to render any attempt to communicate authority for that purpose inconsistent with its provisions, abortive and inefficacious. Unless this section is powerless, this is its intended function. The use of prohibitory language is not indispensable in a provision of law in order to have that effect. When power is granted for the purpose of bringing into existence specific rights, the mode in which that power is required ■to be exercised is material to the creation of such rights, and the
What are, then, to be regarded as extraordinary expenditures f If the verbal force of the expressions employed by the constitution was entitled to be solely considered, we should have to conclude from the third section of Article IX. that “ extraordinary expenditures ” were such as did not, in their nature, constitute the ordinary and current annual expenses of the state. It may be conceded that this view is included in the true construction of the language employed; but before all that may be embraced in the term “ extraordinary expenditures ” can be ascertained, a larger and vital principle of construction must be employed— one that is universally recognized among the canons of constitutional construction.
The necessities of a state may render the power of borrowing money indispensable even as to current expenditures, although, as an ordinary rule, the current expenses should be regulated from current income. War, domestic insurrection, pestilence and famine may be instanced as capable of giving rise to such an exigency as would warrant a departure from the safe, general rule of meeting current expenditures with current income. A constitution of government that cannot adjust itself to calamitous circumstances is of no practical value — as worthless as a man that cannot meet disease, or a ship that cannot endure a storm. No principle of construction that has the tendency to divest a constitution of government of the elacticity demanded for the reasonably-anticipated exigencies in human affairs, has the support of either principle or recognized authority. It must, therefore, be concluded fhat it is not impossible that what would generally be regarded as a current and ordinary expenditure may assume the character of an extraordinary expenditure under the
Giving, then, to the act in question the benefit of this large and liberal construction, the question arises whether the act to-authorize a loan for the relief of the treasury can be regarded as passed with a view to meet extraordinary expenditures.
The contents of the act do not assist in making its object any clearer than it is made by the statement in the title of the act, "We must, then, inquire whether funds in relief of the treasury can be regarded as funds devoted to extraordinary expenditures. Clearly they cannot. The act would have undergone no material change in principle had its title been “ to provide the means of meeting all demands upon the treasury.” Such a title would include ordinary as well as extraordinary expenditures. As ordinary expenses are sure to arise, and extraordinary ones of merely contingent occurrence, such a title would have to be regarded as an indication of an intent to provide means to pay current and ordinary expenses. Such an act would be inconsistent with the constitution, and necessarily void. Thus, if we read the act as it stands, without the light of concurrent events,, the inference to be drawn would be against its validity.
It may be a question whether, in view of the provisions of the constitution, a case for determining the actual intent of the legislature could be made out from the knowledge of circumstances that attended the pássage of the act; but it is not necessary to consider this question, for the case affords no circumstances which,, if admissible, would tend to correct the inference drawn from the language of the title and the body of the act. It is true the state was emerging from a great and exhaustive war, and was seeking to adjust itself to a new and untried constitution of government, was putting in operation new machinery for collecting and applying income, and was with an empty treasury and burdened with debt, but the legislation contemporaneous with the act in question precludes the inference that any. exigency existed that would justify the borrowing of money in- aid of the current demands upon the treasury.
An elaborate and carefully prepared act, regulating the assessment and collection of taxes, was passed September 15th, 1868..
The constitution (Article IX., Section 3,) requires “ that the general assembly should provide for an annual tax sufficient to ■defray the estimated expenses of the state for each year, and whenever it shall happen that such ordinary expenses of the state for any year shall exceed the income of the state for such year, the general assembly shall provide for levying a tax for the ensuing year sufficient, with other sources of income, to pay the deficiency of the preceding year, together with the estimated ■expenses of the ensuing year.” Here is a source made compulsory for meeting any deficiencies that might have stood from the
The question, then, resolves itself to this: Could the general assembly, in any year, create a public debt by borrowing for the purpose of anticipating the taxes or other current revenues of that year ? To that question only one answer can be given, and that is that such a case is outside of the power to borrow money, and therefore within its implied inhibition.
It will not be necessary to examine the other objections made to this act, as the view considered is regarded as fatal to the validity of the bonds issued under it.
The next question to be considered is, whether the act entitled “ An act to reduce the volume of the public debt, and to provide for the payment of the same,” passed December 22d, 1873, (15 Stat 518), aud ordinarily known as the consolidation act, is a legislative contract, binding the state and all parties coming in under it, so as to preclude an inquiry into the validity of the securities issued under its provisions. This question resolves itself into two inquiries. First. Whether it was competent for the legislature, by any act, to impart validity to obligations that were rendered invalid under the constitution. Second. Whether the act in question purports to have any such effect. The first of these questions has been fully considered in the leading opinion in this case and needs no further elucidation. The question involving the character and intent of the act will be noticed.
The first section of the act authorizes the treasurer to receive from the holders of bonds of certain specified classes such bonds, and also certain certificates of stock, and directs that he “ shall thereupon, in exchange for and in lieu of such bonds and stocks so surrendered, issue to such holders other coupon bonds and
But the proposition here to be considered has regard to the surrender of obligations alleged to be unconstitutional and void. This act must be regarded as assuming the validity of all the bonds of the classes enumerated in it as the basis of the issue of new bonds, but not necessarily as declaring such validity. ' Had such a declaration been made, and not been left to implication, could it conclusively determine the existence of the fact declared ? If so, then it would follow that the act must be considered a conclusive legislative contract as it regards all bonds or certificates of stock issued in exchange for the-securities named in the first section, at the rate of reduction therein named. The bearing of this proposition is this: a legislative contract, like any Other contract, must be upon consideration ■ and if the existence of that consideration is validly declared by law, the obligation resting on it must stand.
At this point the proposition is advanced that the legislature cannot make a declaration that would have the effect to preclude
It is, therefore, necessary to inquire whether there was, in fact, any consideration in the case of a party giving up an invalid bond and taking another of less amount. The proposition answers itself. If the obligation was void nothing was given up, and therefore no consideration exists. As the legislature could not validly declare that to be lawful which the constitution pronounced unlawful, and as the act does not declare the validity of all the bonds, for which provision is made in express terms, whatever declaration is read in the act on that subject must be the result of implication, and as the rules of implication are based on the primary idea that that sense which is agreeable, to law must be preferred, the most that can be concluded from the act is that it assumed the validity of the unenumerated bonds provided for. This assumption being disputable under the constitution, it placed the holder of the bond in the position of taking the chances -of the correctness of the assumption in his favor, but gave him no higher assurance nor ground of certainty. When it is asserted that this legislative assumption gave the holder of a bond a presumptively good title, all the efficacy has been allowed to the statute as affecting him that can be. allowed consistently with the constitution, or that construction of the intent of the statute which results from viewing it in the light in
An attempt is made to meet the force of this argument by treating the consolidation act as a composition between a debtor and his creditors. It is claimed that the creditors of the state are to be regarded as parties to each transaction with any bondholder of the class provided for. In this way an attempt is made to make out a consideration in favor of A, arising from the fact that B took a less amount than was due to him. The answer to this is that the act exhibits no such character, either in form or substance. As it regards the force of the provisions made, they are, professedly, with each individual holder of a bond, coupon or certificate of stock alone. The test of this is the fact that had but a single person accepted the benefits of the act and complied with its provisions, there is no clause or condition that could have interfered with its entire efficacy as affecting him. It was not made a necessary feature of the scheme that all or any particular part of the persons for whose benefit it was intended should come in under it. Such being the case, it was competent, so far as the form of the transaction is concerned, that it should operate wholly with particular individuals, and should not depend for its validity on its acceptance by. any number or class of individuals. If, then, it can, consistently with the language and terms employed, have such operation and effect, it ought to receive that construction, if it be found equally consistent with the spirit and fundamental intention of the act. This brings us to consider what was the true character of the transaction in its substance.
Conceding that if it be found that the act could not operate efficiently according to its intention, except by construing it as intending a compact among all who came in under it of such a nature that its considerations and obligations are mutual, as among all such parties — that in that case it might assume the character contended for — what is there to lead to any such conclusion ? And here we may affirm that that is an unnecessary
It is clear, therefore, that there is no legislative contract founded on consideration to support the validity of any bond issued under the consolidation act, when the security for which it was issued was invalid in law.
There is no necessity for considering the limits of the authority of the legislature to ascertain or liquidate an uncertain or doubtful debt, as no such power was exercised in the consolidation act. . The act sets out with no declarations that depend for their force on the assent of the parties coming in under it, and it affords no ground for an assumption that anything the act dealt with was regarded as unliquidated or disputable. It is-very clear that whatever power the legislature possesses of the class just mentioned, its rightful exercise does not extend to a declaration that that is valid which the constitution declares to-be otherwise.
The conclusións to which, the court has arrived are not in conflict with anything decided in Martin v. Comptroller-General, 4 S. C. 430. The questions just considered were not raised or considered in that case.
See post case No. 762.
Dissenting Opinion
dissenting. Concurring in the result, so far as it affects other classes of vouchers, I dissent from the reasoning and the conclusion by which the “ second issue of bonds to pay interest on the public debt,” (August 26th, 1868,) and “bonds for the relief of the treasury,” (February 17th, 1869,) are excluded from the operation of the consolidation act.
Some reasons for such dissent will be briefly stated.
The act of August 26th, 1868, 14 Stat. 18, clothed the-governor with power to borrow money for the state by issuing bonds, and prescribed two limitations. First, relating to amount y Second, to time. It is not pretended that either of these restrictions was violated; but it is contended that the governor was, by the act, impliedly restrained from making more than a single issue. The act is, itself, very brief, and it is difficult, within the widest scope of its language, to find support for such a proposition.
But however interesting might be questions as to exhaustion
The consequence is plain, for the officer is the mere agent of the general assembly, and the principal may waive objections to the irregularities of his agent, and, by recognition or other conduct, as well as by direct ratification, may validate his transactions. The Supreme Court having decided that a two-thirds vote was not necessary, the act of March 20th, 1869, to extend the time to make the issue, is of force. The consolidation act likewise, although not passed by the two-thirds vote, is of full force and effect so far as it has any relation to irregularities on the part of the agents employed by the legislature to issue the bonds therein named. Anterior to the passage of this act the “ first ” and “ second issue ” had been completed — the second in part canceling the first, and leaving outstanding from both issues $1,197,000 in bonds. The general assembly recognizes the amount and specifies it, and orders it to be treated as an existing debt of the state, under and by virtue of the act creating the debt, and, waiving any and all objections for irregularities or
The objection to the other class of bonds “ for the relief of the treasury ” rests upon constitutional grounds, and as to them the recognition by the general assembly does not, for the same reasons above stated, remove the defect, if such there be.
The first ground is that the loan was not “ to defray extraordinary expenditures. Const., Art. IX., § 7.
Money to be expended for the “ relief of the treasury ” certainly does not come within the “ ordinary ” expenses as defined by the constitution. That instrument carefully defines the “ ordinary,” and leaves to the word “ extraordinary ” every expenditure which does not come within the limits of the former. That is the sole question for the judiciary to consider; for if the expenditure be “ extraordinary ” in its nature, the general assembly, by the vote required by the constitution, has the power to create a debt by bonds to defray it. And it cannot for a moment be claimed that money for the relief of the treasury comes among “ ordinary ” expenses, which are otherwise directly provided for by the constitution.
It is quite immaterial that the court is not able to perceive what relief the treasury might require or the reasonableness of the expenditure. Those are matters left to the discretion of the general assembly. Luther v. Borden, 7 How. 45. But if that were a question within the jurisdiction, some light might be thrown upon it by the ordinance adopted January 29th, 1868, to levy a special tax and for other purposes, among which are drafts upon the treasury, with directions to the general assembly to raise funds, if necessary, to reimburse the treasury.
The other objection is that the debt is not for some single object distinctly specified. In obedience to another provision in the constitution, the “subject,” or “object,” (for the words are
The annual tax act seldom specifies more than the general purposes, but leaves the details to the appropriation act; yet the validity of such an act could not for a moment be questioned. The general assembly could, by a simultaneous or subsequént act, have made a detailed application of the money borrowed on the bonds issued by the act in question, and, while the propriety of the application might have been a question, the validity of the original act thus explained would hardly have been assailed by the most litigious mind. But that is a question resting with the legislative body, and not the judicial, and the public must not be made to suffer for what thus rests on discretion, and may be done after as well as before or together with the transaction out of which the contract arises.
For the reasons thus briefly and imperfectly presented, I dissent on the points indicated.
As regards the legal effect of the consolidation act, as a compromise or otherwise, I make no comment, since it has not been in that light discussed by the majority of the court. Nor do I discuss the effect of the various acts which are alleged as acquiescence on the part of the state, reserving to myself the right hereafter to express my views on these points, if, after further reflection, I should deem it necessary or proper.
Judgment set aside.