6
FEDERAL BEPOIl.TEB.
stricted to non-residents. If, however, the question is to be determined by the citizenship of the parties to the record a.t the time the administrator became a. party to the record, which position is sustained by our view of the ruling in Relfe v. Rundle, supra, and also by tile ease of Burdick v. Peterson, McCrary, 135, [$. C. 6 FED. REP. 480,] the same result follows, as the administrator was then a citizen of Iowa, and hence could not remove the cause under the act ')f 1867. Under either view, Grayson did not possess the right of removal under the act of 1867 at any time, and hence the cause could not be removed to this court under that act. The motion to remand must therefore be sustained.
TOMPKINS 1:. LITTLE ROOK
&
FT.
S.
Ry.
and others.
(Otrcuit Court, E. D. Arkansas. October Term, 1882.) 1. STATE LoAN-IN AID OF RAILliQAD.
The act of the legislature of Arkansas, providing for a loan of the bonds of the state to railroad companies, construed, and held (1) to create a statutory Tnortgage on the roads, and their income and revenues, to secure the payment of the state bonds by the companies accepting the loan; (2) that such lien took effect from the date of the award of the loan, by the board of railroad commissioners, to the company applying for the same; (3) that the duty of the governor to issue the bonds, after the award of the loan, was ministerial; (4) that all persons were bound to take notice of the lien reserved by the act, and when it accrued; (5) that the lien reserved to secure the payment of the bonds is primarily a security for tho;e h.olding the bonds; (6) that as between the state and the company receiving the bonds, the company was the principal debtor and bound to pay the bonds, or furnish the state means for that purpose; and if the bonds are void as obligations against the state, the company which received and negotiated them as genuine is bound to pay them to bonafide holders, and the latter may enforce the lien reserved by the act to secure thIs result. i. DEBTOR AND ("'REDITOR-LIEN BY CONTRACT-ENFORCEMENT.
Where a creditor acquires the right by contract to seize and sell the property of his debtor, or sequester its income and revenues to pay tho latter's debt, such contract necessarily imports and creates a lien on the property. which may be enforced by any lawful holder of the debt. 8; "INCOME AND REVENUES" OF A RAILROAD COMPANY·
·, Income and revenues" of a railroad company are all the income and enues of the company, and necessarily embrace the" earnings" of its road. ... MORTGA.GES FOR FUTURE ADVANCES.
It is a well-settled rule that where the mortgagee has the option to make the advances or not, each advance is as upon a new mortgage; but where the mortlI;agee is bound to make the advances, the lien relates back to the date of the b ... Ctgage, and is superior to any subsequent lien or conveyance. "
TOMPKINS V. LITTLE ROCK &; FT. S. BY. 5. .r-.EGOTIABLE PAPER.
7
The payee of negOtiable paper who transfers idor value thereby: t"llltrllnttes the genuineness of the paper, and thl: truth of on ita facti" Wlitl:flal to its validity .and value.
In Equity.· On the twenty-first of JulY';tS68,tbe general assembly of the· stgte of Arkansas paeseq.;au act t<{a,hi in the of railroads by a lOl\.n of the state's credit. '. ,.. T'he oUhe act upon questions intlia caaearis6 areas follows: . "Section l.Eor the ,l)urposepf securing such lines of in this state as the'interests of the' people may from time. to time reguire; the faith and credit of the state of Arkansas are hereby irrevocably pledged, and the proper authorities of the state will and shallissllc to: each railroad company or corporation, which shall become entitled thereto; the ,bonds of this lItate, in the sUJ;1l,of 81,000 each; ,paYable in 30 years the date thereof, with coupons thereto '\ttached for. the payment of interest on the same in the city of New York, semi-annually, at '( per cent. per annum, in the sum o( $15,000 in bonds for each mile of l;ailroad which has not 'received a railroad land grant frolli the United States, and $10,000 in bonds for each mile of railroad which has received a land grant' from the United ,States, on account of which such bonds sball'be due and .issuable as provided." I "Sec. 2. The board of' railroad are authorized and reo quired to receive the application for the loan of. state cred,it herein provided for, and to designate the roads entitled to the same." . } .. Sec. 7. The legislature shall, froni time to time,impolle upon each railroad company, to which bonds shall hate been issued, a tax equal to the amount of the annual interest upon· such bonds thim outstanding and unpaid, which tax may be paid in money or in the past-due coupons of the state at par, and, after the expiration of five years froD;l the completion of said road, the legislature shall impose an additional 'special tax of 2i per cent. per annum upon the whole amount of state aid granted to such company, payable in money or in the bonds and coupons of the state at par; and, if in money, the same shall be invested by the treasurer of the state in the bonds of the state, at their current market value. The taxation in thls section provided to continue until .the amount of bonds issued to such.company, with the interest thereon, shall have been paid by said company as, herein I'Ipecified, in ,Which case the said road shall be entitled to a discharge from all claims otliens 011 the part of the state: prOVided. that nothing shall be so construed as to deprive any company, securing the loan of the bonds of the state herein provided for, from paying the whola amount due from such company to the state, at any time, in 'the bonds of the state loaned in aid of railroads, or the coupons thereon, or in money. .. Sec.. 8. In case any company shall fail to pay the taxes imposed by the preceding section at the time the same become due, and for 60 days thereafter, it shall be the duty of the treasllrer6f the state, by writ of sequestration, to
8
FEDERAL REPORTER.
seize and take possession of the income and reyenues of said company until the amount of said defaults shall be fully paid up and satisfied, with of sequestration, after which said treasurer shall release the further revenues of said company to its proper officers." "Sec. 12. At the next general election to be holden under the provisions of section 3 of article 15 of the constitution of this state, the proper omcers haYing charge of such election shall upon·a poll, as in other cases, take and receive the ballots of the electors qualified to vote for officers at such election for and against this act, in compiiance with section 6 of article 10 of the constittltion,such ballot to contain the words, 'For Hailroads,' or 'Against. Railroads;' and if it appear that a majority so voting have voted' For Railroads,' this act shall immediately become operative and have full force, and all laws heretofore passed for loaning the credit of this state in aid of railroads shall cease and be void; but if a majority shall be found to haVe voted 'Against Railroads,' this act shall be void and of no effect."
The election mentioned in section 12 was held on the third of November, 1868, and a large majority'of the votes cast were "for railroads." The general assembly which passed this act adjourned on the twenty-third of July, 1868, to meet the seventeenth of November, 1868, and it did meet at that time, and did not adjourn sine die until the tenth day of April, 1869. Anuther act on the same subject was passed, and went into effect on the tenth day of April, 1869, the material portions of which are set out in the opinion. State aid was awarded to the defendant,the Little Rock & Ft. Smith Railroad Company, to the amount of $1;500,000, and bonds to the amount of $1,000,000 issued. After the bonds had been issued to and negotiated by the railroad company, the supreme court of the state, in 1877, decided they were unconstitutional and void, upon the ground that the act of July 21, 1868, was not in force when the election was held, in pursuance of the twelfth section 'Of the act, to take the sense of the at the ballot-box on the question of loaning the credit of the state, as required by section 6 of ai,tic1e 10 of the constitution. The reasoning by which this result was reached was as follows: .The constitution provided that "no pub. lie act shall take effect or be in force until 90 days from the expiration of the session at which the same is passed, unless it is otherwise provided in the act;" and the court held that the adjournment of the general assembly on the twenty-third of July, to meet the seventeenth of November next, was not an "expiration of the session" within the meaning of this clause of the constitution, and that the provison in the act itself for holding an election under it did not sufficiently evince the legislative intent that it should be in force and effect for that purpose, and that an act could only be made to take effect before the
I
TOMPKINS 11. LITTLE BOCK & FT. S. BY.
9
lapse of 90 days from the expiration of the session "by an express declaration in the act itself," which this act did not contain. The defendant, the Little Rock & Fort Smith Railway, derives title to the railroad through the foreclosure of a. mortgage executed by the railroad company on the twenty-second of December, 1869. The award of state aid was made to the railroad company on the twenty-eighth of April, 1869, and the first issue of bonds thereunder was on the twenty-fifth of March, 1870, and the last on the twentythird of Febl'Uary, 1873. The plaintiff, a holder of atate aid bonds issued to the pany, filed his hill, alleging that, the acts of the legislature under which the bonds were issued, reserved ahdcreated a statutory'mortgage on the road,andan equitabJelien on its to secure the pay"ment of the stat(l: honds, issued to and 'negotiated by the company, and prayed for the enforcement of such lien in 'his favor. To this bill 'the railway company demttl'l'ed, The fo1l6wiiig' are the only grounds of demurrer much relied upon or necessary tn be noticed: ' (1) That the act of 186l:S was not in force when the election was held under it, and that the consent of the people to the loan not having beert given at all election held in pursuance of law, the act of 1868 and the bonds'issued there- ' under are unconstitutional and void. (2) 'rhat no lien in favor of the state, or of any holder of the is (;lreated or reserved by the act in questio,n. (3) That the lien created by the mortgage deed under which. the defendant, the railway company, claims title, is superior and prior to the lien, if any, reserved and created in favor of the state or the holders of the state bonds under the act of 1868.
John McOlure and John R. D08 Pa8sos, for plaintiff. G. W. Huntington, for defendant, Little Rock & Ft.
way. ,CALDWELL, J. We are confronted at the threshold of this case with the question, whether the acts of the legislature, under which the bonds were issued to the railroad company, created a statutory mortgage or lien upon the railroad, or a,n equitable lien or charge on its earnings and income, to secure the payment interest of the state bonds. Before discussing the provisions of tne act relating to this question, it will be well to have an accurate of· the relation the state and company sustained to each other in the matter. of the bonds. It was contemplated that the company would sell the bonds to raise money to build its road. They"were Ly the state t() the company for that purpose. They were accommodation paper,
10 and, as between the state and the. company, the company was the principal debtor and the state only a su,rety. The company Wf.\S bound to save the state hfl,rmless by paying the interest on the state bonds as it fell due, and the p.1'incipal of the bonds at maturity, or provide the state with funds for that purpose. It was not n{3cessary that this obligation of the company should be expressed; the law would imply it' from the transaction itself. And if the loan was to constitute a debt at large against the company, without lien or security, there was no occasion for the act to have said more than that the bonds loaned to the company for its accommodation. FrOJ;llsuch a contract the law would imply an obligation on the cOJ;npany to provide funds to pay the bonds. If more was said, it was probably said for a' purpose, and with a view to secure performance of this duty on the of the company· . In determining the question under consideration, the acts of 1868 and 1869 are to be conlitrued together as one act, and considered in all their parts. By the terms of the act of 1869, the company was to provide the state with funds to pay the semi-anumil interest on the state bonds three months before it fell due, and after five years per cent. on the principal of the bonds annually, to was to pay raisa a sinking fund with which the bonds might be anticipated, or liquidated 'Itt maturity. The interest OI1·thebonds fell due on the -first day of October and April in each year. The treasurer of state was required to makerequisition on the c.ompany for funds to pay the October'interest on or before the first day of the preceding June, and a. requisition to pay the April intere!?t onor before the first day of the preceding Decemoer, andthecoinpany was to make payment within 30 days from the date of the requisitions, respectively, and if payment was not made within that, time sequestration of the, income and revenues of the company wasta follow. It was not contemplated that the state ,should at any pay the interest on these bonds out of her general revenues, and hence provision giving the state power to sequoster the income and revenues of company to provide funds to pay the interest 30 days in advance of the time it fell due. . The stip,ulations and of the acts 90nstitute a contract between the state and the. ,and that, contract, .like aU conthe to it are bound and be tracts, is the law governed. Ordinarily,' the legislative expression of the sovereign will binds all the desire to be,hound, thereby, 01' not. These acts are to be viewed in the double aspect of public -statutes
n
to
TOMPKINSV.LITTLE
RocIt 'oft/ FT.
S. BY.
11
and ora contract. Brifthe contract is SimBEl The the loan was tendcompany was not bound to borrow' the state ered on certain terms and conditions, and when it applied for and accepted the bonds, it voluntarily assented to be bound by the provisions of the ads, which at once constituted a contract between the company and the state. By the terms of this contract, if the company did not pay the interest on the state bonds as stipnlated, it authorized the treasurer of state, "by writ of sequestration, to seize and take possession of the income and revenues of said company until: 'the amount of said default be fully _paid up and satisfied, with costs of sequestration, after which said treasurer shall return the furtherrevenues of said company to its officers." . Such seizure and sequestration might be repeated from time to time as often as the company made default. The "claims and liens on the part of the state" were not to be discharged until "the bonds issued to such company, and the interest thereon," had been fully paid. Section 7. There is nothing mysterious or doubtful in the meaning of "sequestration" and "writ of sequestration," as used "in the acts. The word is here used in its usual sense, and Dieans "to seize or take possession of the property belonging to another, and hold it till the profits have paid the demand for which it Wag taken." WorcesL This is preeisely what the company agreed'the state might do with its property if it failed at any time to furnish the state with the funds to pay the interest and principal of the state bonds according to the terms of its contract. Where a creditor acquires the right by conttiwt to seize and sell'the property of his 'debtor, or sequester the incomes and revenues of the same, to paY,the latter's debt, such right, in equity, necessarily imports arid cieatesa lien. .Jones, Mortg. § 162. A creditor at large pORsess6s no such right" and cannot seize and sell the property of his debtor or sequester its income. The terms "tax" and "taxation" are not/used in the actin the sense of a tax that is to be ltssessedand levied for the support of the state or any of its subdivisions; A tax, in the legal signification of the term, has to be levied on all property "by a uniform rule, " not only as to the ratle. but in the mode of its,'ass6ssment.. Article 10; § 2, Const.; FletcMr v. Oliver, 25 Ark. 295. Clearly. this word as used in th'e act has no reference to a tax ,in its strict legal signification. The. sense in which a word is used in any given case is to be determined by theeontext.
12
Among the meanings of the word "tax" are "a requisition; a demand; a burden," (Worcest.;) and it is here used in the sense of It charge or burden, for which the state may make a requisition in the prescribed mode. It is obvious, therefore. that what is said by the supreme court in lIaine v. Leece Com'rs, 19 Wall. 655, that "taxes not assessed are not liens, and that the obligation to assess taxes is not a lien on the property on which they ought to be assessed," has no application to the case at bar. The taxes there spoken of are taxes, in the legal ac· ceptation of the word, levied on the, property of all the citizens alike to tllupport the government or discharge a common burden. It is,a,rgued that the right to tax:or charge the "railroad company," and its "income and .re,vennes,", did not give an equitable lien on the road itself lor the income and revenues derived there. from. The company was created, ·to build and operate a Under its charter it .could lawfully no other busine38. From what source, thell. was ,to dexive its income and revenues? Obviously from the of its road. How could the state se· quester the income and revenues of the company withop.t sequestering the income and revenues derived from the operation of its road; and how could the income revenues derived from that source be sequestered unless the state or her l'epresentatives had possession of the road? i T ' " ,Ket'C.hum v. St. Loui$, 101 U. S. 306, the supreme court quotes approvinglywPat was said by the chancellor in Legard v.lIo.dges: "I take, the doctrine to be true that when parties come to an agreement as to"the produCle,Qf 1ands,th,Iil' land itself wilLbe affected by ,the provisions of the.se acts into view, the the implication is irresistible that it was the intention of the parties to fix charge or lien on the ra.ilroad, or its earnings, or both, for the whole This intentiQll: obvious for serious question, and the court win ·to . In Ketchum' v. St. LOlAi$, . ,court approved thelangunge used .fn apother English where Justice TURNER ',' There cani ,I think. be no llop:bt t1l.at itwlJ8 intended by agreements to crea,te a charge upon the prop\,\rtyofth,e companr;, but it is on the.part of the official liquidator that this not well carried into eff,ect. I apprehend, however, that where .this·c()urt is satisfied ,that it was intended to create aeharge, and that the patties wholnteTided to create it had· the power to do so, it will wve effect to the intention, notwithstandin;; any mistake which may have occurred in the attempt to
10MPKINS
'v. LITTLE BOOK &' FT. S. BY.
13
'But in the case at bar the intention of/the parties to create a lien on the road, and its income and revenues, is hot left implication or interpretation. It is expressed in terms. The seventh section of the act declares: .. The taxation in this section provided to continue until the amount of bonds issued to such company, with the interest thereon, shall have been paid by said company'as herein specified, in which ca,se the said road shall be entitled to a discharge from all claims or liens on the part of the state."
, When the said ,road be entitled to a di8aharge from all claims or liens on the part of the state?" The answer given in the very language of the act is, when "the amount of bonds issued to such paid by said com· company, with the interest thereon, shall panyas herein specified."If ,the state h'ad no "lien" on the "road," why make provision for discharging it ? ;. Again,the act (section 5, Aot 1869) provides that, when' the com· 'puny'has; paid the debt, the' treasurer of the state shall "withdraw said receiver from the of its affairs." "Affairs" isaword of large import, and a receiver having themah· agement of of a railroad company must necessarily have the control and management of its road. Thereceive.r here spoken of wa:s to be:desigfiated by the treasurer of the state, and to give ashe required,· and was removable at his pleasure, thus in effect him an 'agent of; the Any disoussion of this question would seem to be unnecessary,;in of the decision 'of the supreme court of the United' :Sttttes in Ketchum v. St. Louis, 101 U. S. 806; B. C. 4 Dill. 78, under the title that case the act'authorizied;,the of Ketchum v. PacifieR:. Co. county tJ .loan .its bonds totba: railroad eompany, and; provided that the fund commissioner of .;the road, a'll' offieer th-e-retofo!"e· crea.ted; 'by , income. of the'road, td seoure 'the law to receive' state from liability on i1isbonds before that tilne loaned to the com· pany,' sJiOrild; 'pay into the co.unty treasury,' out! of' the .ell.rnings of the road,a. specified Bum to' :pay' the: iiltereatand' principal of' tthe . bonds which the county migbt"lOaIl'00' ·trhif3ia,c£'wias passed inlS6'5,and the same year, the"countyagreed colli· ., But 'this agreement 'was' :not .cattriedout pany to'lssue' the and no bonds were issued undei'it ,until't1M'5.:, :Foi.- a peHod of,to years tb:isagreementl'a.ydohna-nt. ' In in:'1868Jthe office of furid 'commissionet' was abolished; :Ketchum'! -v..Po!ci/lC B,. 'R0'4 Dill. :W8is 'the: cortditi0n' the lcdmpariyexectlted-one or' more mortgagea O'Dits' road) j"
In
"14
, FJ!lDEBAL REPORTER.
mortgages was executedaitl,years after the date of the agreement becompa:g;y, for the loan of its bonds, and tween the county and fonr years before,they we're, issued, and three years after the office of fund commissioner had been abolished, and the company had come into the fuUenjqymellt of its earnings and income. And on this state of facts the court held that the equitable lien. of the county for the bonds loaned had relationback,to,thedate of the agreement for the loan, and was' superior and paramount to that of the mortgage. This conclusion was reached upon, the ground "that all parties claiming under mo,rtgages executed after the acceptance of .the act of 1865, lire chargeable with notice, of the appropriation of the earnings made by that act;" that this, appropriation of the earnings constituted an equitable lien; and that "with that lien the property itself was chargeable by whomsoever it, or the funds accruing therefrom, are or may }le held." It is futile to say that there is iii, distinction .between a pledge or appropriation of the the road," as in the KetchuJn Case, and the "inoome and revenues of the oompany," as in the case at bar. The "income andrevel1ues" of a railroad company are all the income and revenues of . the ,oompal:lY, :&lld, necessarily, embrace the "earnings" of its road., Undoubtedly it would h/tve been competent for the legislature to have loaned the state bonds to the railroad c0;J:;llpfl,nies on their corporate credit. alone. But sllch action; on so extended So scale, would bavebeen without precedent in the history of the country, and would ,praotiaally have amounted to a donation of the bonds to the companies :t: lceiving them. It is part .of. the public history of the state, andI the records of this eourt disclose the fact, that insolvency was the'fate of every company which borrowed !ltate bonds, and that not one of them, now possesses any corporate PNperty, and some of them, probably, not· even a corporate existence; One did not have to .be endowed withpreacie:Qce to foresee !luch results. The commonest unCleri)tandingcould;not fe.il to possible, and; even prob.able. To supposo the.legjslature did not li(pprehend these results, or that, them;. it :tn:ade no provision to protect the state fromlQ8s, in such a contingency, .is.to jwppteto th!ttbodY,a want of common or a of the plainest dicof duty:, ,Neither of these imp\ltati,()ns i!l well founded .. Was thm lien prior in POiJ:lt of time to the mortgage' aid was madeunder which the flefendallt claims:? , T,he_!twatd Qf OJ} u:nder which defEln.dauts claim, was executed December 22, 1869, and recorded
TOMPKINS ,".!LITTLE BOOK & FT. S. BY.
February7,Ul70. 'Thefirst-issue of state bonds to! the company was on the March,,'1870; and the Iwat on the twenty-first day of February, 1878. The.rules applicable to mortgages for future advances fnrnishthe correct solution to this question. One of these rules now firmly established is that where. the mortgagee hssthe' option to make the advances or not, each advance is·as upon a newmortgage;.,bilt where the mortgagee is bound to make the advances, the lien .relates back to the date of the mortgage,! and is superior to anysubseqn:ent Y.) ,58; lien or conveyance. AckerJ!Ul1t 'v. Hunsucker, 21 Hun, Brinkmeyer v. Broumeller, 55' Ind. 487;: S. O. 4 Cent. Law J. 370; Bus'ell v. Gowdy,3lConn. 47; C.3 Amer. Law Reg.. {N. s.}, 79; Nelson v. Iowa Eastern R. Co. 8 Amer., Ry. Rep. 82, 1 Jones; Mor,tg. §§ 370; 373,378. ' When, then, did the state become bound to issue its bonds to ril.ilroad company? Thelj,ct is very eKplicit ,on this point. After prescribing the mode in whiCh application, for state aid shall, bEl made; the fourth section declares that if the "board of railroad commission.'! ers'shall consent· to appro-v8' ,alid'grant ,such, application, then and tbereafter the said railroad company or corporation shall be entitled to, and have a right'to ask-Jor, demand, :and, receive, the bond#3 of tih:e sta,tehereinbefore declared to be and graLited, upon: comply!" ing with and fulfilling the terms and conditions hereiIiaft'er setforth.. 'r And the next section enacts "tbatanyrailroad company: 01'; oorpo. ration which shall have acquired the right, to demand and receive state aid, by virtue' of the official certificate 'iuthepreceding section specified, and claiming an issue of bonds in it" behalf, shwll first in th,eofficeofsectataryof state lIere foh lowS' an. enut)leration of the ,papers to be :filed, and whi'6h only eould be filed after the .award had been .made. , :A.nd,when these, papers, filed the sixth; section deollllres thereupon the governor, m:tbe person .filling J91'tbe time :Qeing ,the .executive office, shall issue, ,to the president 'of, said cotnpalnyihe bonds of the state ,of Arkansas; bearing the seal of the sta.te; by,the secretary of state,Jl,sprovided in section thereof, upon ,the completion and fortheiro,nrails of:each miles or ,more, until 9:1:' liJ;lesofroaAof railrofta corporation shall be completed." And, by the terms qrElt f*l(). tion of the a¢t;: "the 'f$ith, and credit ¢, Arkans&s is pledged, and the, proper
16
FEDERAL REPORTED.
will and shalLissue to each railroad company or corporation, which shall become entitled thereto, the bonds" of the state. These provitlions of the act are conclusive upon. this question. Under them the moment the award was made by the commissioners it amounted to a concluded and irrevocable contract on the part of the state to issue the bonds of the state to the company upon its filing the required vouchers. The award was made on the application of ,the 'company, by the board of railroad commissioners, who alone had the power and authority to award the aid. When, as in this, case, the application of the company asked an award of aid·fOr the whole line of the. compQ.Dy's road, and it was awarded, their powers and duties, so far forth as related to that road, were at an end. : The process did not. have to be repea.ted upon the completion of every 10 miles of road. The act did not contemplate the issue of any btmdsattlie time the aid was awarded; they were to be issued, the first imtaUrilent, when 10 miles of'theroad had beeniconstvucted, and a like installment upon the completion of each 10 miles thereafter. What the company was required to do after the award of the aid; and before it received the bonds from the governor, was to file cer. tain'papers'and vouchers which could only be filed after the award. There was no further contract to be made between the company and the state. And upon filing the requisite vouchers it was made the duty of the governor to issue and deliver to the company the bonds of the state, according to the terms,of the award. No discretion was vested in the governor. His power and duty to issue the bonds was found in the award of the commissioners, and not in any new contract. There was no convention between him and the company. He had no power to enter into any contract with the company. After the company had qualified itself to receive the bonds, his duty was merely ministerial, and was enjoined upon him in the most peremptory terms by the sixth section of the act. A ministerial act is well defined to be "one which a person performs in a given state of facts in a prescribed manner, in obedience to the mandate of legal authority, without regard to or the exercise of his own judgment upon the propriety of the act being done." Flou'l'n0Y v. Oity of Jeffersonville, 17 Ind. 169. The duties devolved upon the' governor fall exactly within this definition. The proceeds of the bonds were to be used in building the roads, 'and by the third section oBhe. act it was made the duty of the board
TOMPKINS V. LITTLE BOCK & FT. S. BY.
17
of railroad commissioners to inspect the roads and see that the state aid was being applied in the manner required by the act; and if any road was not so applying it the board was. required to indicate that fact to the g()vernor, whose duty it then was to suspend the further issue of bonds to such company until the next meeting of the legislature, when the facts were to be reported to that body for its-consideration. This/ provision shows, quite conclusively, that the board had no power to revoke or suspend an award of aid once- made, and that the governor not only had no power to refuse, at his discretion, to issue bonds after the award of 'aid, bat that he could not, on his own motion, suspend the issue of bonds for the misuse of the 'bonds previously issued. The act embodied a policy, oarefully matu:red by the legislature,furdeveloping the resouroes of the state, by promoting-the oonstruction <>timportant lines of railroad by the loan af'ihestate's oredit, and it was oontemplated that it should receive the sanction of the people of the state at the ballDt-box. It would be singular indeed if, after such a measure had received of the·legislature and the approval of the people at the the aot had put it in the power of a single officer of the state to defeat both the legislative and the popular will at his discretion. A oareful reading of the 'aot gives evidence of a settled iritentionon the part of the legislature not to iuvest the governor with ahy discretion in the premises. . The amount for which the state might aoquire a lien, under the award, was fixed and definite ;" it was for the sum of $10,000 per mile for 150 miles. The validity of a mortgage or lien, for advances to be made to the mortgagor, was never doubted merely beoause it oontained no oovenant making it obligatory on the mortgagor to apply for and. receive the maximum sum agreed to be advanoed, by the mortgagee. Whether the oompany might have declined to file the requisite papers and take the bonds, after applying for and reoeiving' the award, is an lInmaterial question. The essential question is, whether, by the award of the commisioners, the oompany had in its power to compel the state to make the loan; or, in other words, whether the oompany could, without further negotiations with the state, make it the legal duty of the governor to iSBue the bonds. It not only oould do this, but it actually did do it. It does not, therefore, affeot the validity of such a lien or mortgage, or in any manner impair its efficacy as against subsequent incumbrances, that the mortgagor is required to show in v.15,no.1-2
1$ some proper mode" bl;ifore he ,receives each instalhl111nt, that he has complied with the conditions, of thew,Qrtgage that entitles him thereto; as, for instance, that all prior installments have ,been expended in the mode agreed upon; or, as in thecaae a.t bar,that 10, additional miles of railroad have been, graded and put in readiness for the iron rails. Whenever .the bound to make the advanoes upon compliance with those and like oonditions on the part ,of the mortgagor, the mortgage creates a binding contract hetweenthe mortgagor and the mortgagee, and a valid lien, as of its date, for all advances which are made in conformity to its provisions; and subsequent mortgagees, and those claiming unde,rthem, are bound to regard such a mortgage as a,valid lien for the utmost amount that the mortgagor has a right to demand shall be advanced to him under it. If less is advanced it. is their, good fortune. If the full suto is advanced they cannot complain. 'They had 'notice, and took the risk. It was implied, in the application of the company for state aid, that it was qualified and entitled to ,receive the same, and wonld produce the requisite vouchers and papera to authorize the governor to issue the bonds, and that it would apply the proceeds of· the bonds as ro'luired by the act. The moment the' award was made, on the application of the company, every requirement of the statute, relating to the issue of thebonc1s, assumed the shape of a statutory contra-ct, binding alike upon the state and the, company, and no third party will be heard to complain that the state and the cornpanycomplied strictly with their express and implied obligation-sto each other. In Ketchum v. St, Lou{s, supra, the lien was all equitable one, created by a which anteda.ted the creation of the debt 10 years; butwhen the.dept was created by the issue of the bonds, it lU1d relation back totp.e date of the eOlltract under the statute il,ing their and cu't out all lienl\!, So familiar is this principle that it was. no.t e¥6n adV'erted to in the opinion oltha court, and it il\! only by, refarancj:lto the facts, as given in the opinion, (pages 310, 311,) that We discover .that it was 'applied inthat.oase. These were all persons are bound to take notice of any lien, charge, or seQurity reserved to the 'state by them. ,Memphi,q e.t L ·. R. Il./;JQ. V. State, 37 Ark. 64:2 j Ketchwu v. St. Louis, supra,., . It is alleged in the, bill, and admitted by the demurrer, that the promoters, owners, and officers of the defendant compa,ny, /lit its ore-
TOMPKINS V. LITTLE nOOK· & FT. S. BY.
19
atioti· and organization, were the Btook and· bond holders of the- old company, and that the defendant acquired the property with the full notice, in fact, of the whole transaction between the latter company and) the a:nd took it, therefore,. charged with, all the equities and lienB ill favor ofthe state or the holders of th6 state bonds, to which it was subject in the hands of the old company.· The award of state aiid was made, and the acts of 1868 and 186,9 were both in force before the execution of the mortgage under whioh the defendant claims. Thestate-is8ned the bonds and delivered ,them to. the company, in accordance with the statutory contract, to an amount aggregating $1,000,000. These bonds were put upon the market and sold by the company for money, which was useq to build its road as contemplated by the act. ,Afterwards, and in 1877, the supreme court Of the state decided that the provisions of the act of 1868, providing for holding an election to take the, sense of the people on the question of loaning the6reditof the state aB therein provided, were not in force when the election was held, and: that the consent of the people to such loan not baving'been "expressed through the ballot.box," as required by section 6, art. 10, of the con.stitution; at. an election beld in suance of law; the bonda were void and imposed no obligation upon the 'state. Htatev. Little Rock, M" :R. w Ry. Co. S1Ark. 701. Assuming, but not deciding,:- that the ruling of tho supreme court of tbestate,in the case last is a. sound exposition of the law, or that, whether so or not, it is binding upon this court, wew'ill proceed to inquire, in the light of that decision, into. the relative rights and the holders of the' state bonde and the railroad companies. The holders of the bonds were not before the court in that case, antlthe question of their rights, and the effect of decision upon the· statutory Hen,for the payment of the bonds, was not cided: The court, at the conclusion of the opinion in that case, are careful to say: "The question of lien upon the road,and its effectB, Deed not be conBidered." ' , are spared the necessity oiextended discussion"or,.indeed, of l1ny discussion at all, of the remaining questionsi1dhiB case. They ha"e all been by the supreme court of the- United States in Bailroad C08. v. Schutte, 108 U. S. 118· . . The state of like the state of Arkansa.s, adopted the policy ofalding in the: 'cOnstruction· of tailroadB within. the state /py loaning its 'negotiable', bonds to railroad (lompanies. In the Florida case, as in j cuse, at .bar, themlroadoompameswerb, to'-pay the interest and the principal of the state bonds according to their terms, and
de-
the
20
performance of this obligation wRs8Elcured by statutory liens on the roads. After the bonds had been issued and negotiated by the companies receiving them, the supreme court of that state decided they were unconstitutional and void, and imposed no obligation on the state; but the court also decided that this did not relieve the railroad companies from their obligations to pay the bonds, and that the statutory lien was good, and could be enforced against the company by the bona fide holders of the state bonds. State v. Florida Cent. R. Co. 15 Fla. 690; Trustees oj [mpr. Fund v. Jacksonville, P. x M. R. Co. 16 Fla. 708. Subsequently, a suit brought by the holders of state bonds against the railroad companies, to compel payment of the bonds and foreclose the statutory lien created to secure the payment, came before the supreme court of the United States, (Railroad C08. v. Schutte, supra,) and that court held that the bona fide holders of the state bonds could recover the. amount of the same from the railroad companies which negotiated them, and were, entitled to have enforced in their favor the statutory lien given for their security. B lfore quoting from the opiriionof the court, attention will be called to the only particulars in which the facts inthatca&e. vary from the case at bar. (1) In the Florida case the act provided that the railroad companies should execute to the state their non-negotiable; bonds, payable to the state at the same time and pltlc,e and for like amounts as the state bonds. These bonds were secured by a statutory lien, and were executed in rursuance of the' act requiring the, issue of the state bonds, and were given by the companies inflxchange for the bonds, of the state. ' When the companies paid their bonds to the state, the state was to apply the money to the payment of her bonds issued and loaned to the companies. In that case, as this, the object of the statutory lien was to compel the complltnieato the state with funds to pay the principal and interest of her bonds, loaned. to the companies, as the same fell due. n is not .contended that the execution,by the these nonnegotiahlebonds, payable to,tpe-state, can either,add to or diminislJ. the effect of'lJl!1estA.tutory;mortgage,or tbe rights of the state bonds thereunder. . ,(2) The 'bonds in thatoase were not' paya1:;lle to the companies to which they were issued;,b,utto and disclose, on their fa-ae",under what,aot or for whatp\1rpose but the governor put an edraoflioial certifioate on. them to ,this ef:fect:
TOMPKINS ,t1. LITTLB BOCE ·
PT. S. BY·
21
.. This bond is one of a series, issued in aid of the Jacksonville, Pensacola & Mobile Railroad Company,to the ext.ent of $16,000 per mile upon completed road; the state of Florida holding the first-mortgage bonds of. said railroad . company for a like amount, as further security to the holder hereof."
In the case at bar the bonds are payable to "the Little Rock & Fort Smith Railroad Company, or bearer," and they contain on their face this recital: .. Issued in pursuance of an act of the general assembly of the state of Arkansa!<, approved JUly 21, 1868, entitled' An act to aid in the construction of railroads,' the said act having been submitted to and duly ratified by the people of the state at the general election held November 3, 1868."
In the Florida case the supreme court said (page 139) that "the certificate of the governor, as to the security held by the state, is, inle· gal effect, the certificate of the company itself, and is equivalent to an engagement on the part of the company that the bond, so far as the security is· concerned, -is; the valid obligation of ·the state. The CAse is clearly within the reason of the rule which makes every indorSer of commercial paper the guarantor of the genuineness of the instrument he indorses. We caWiWt doubt that, under thesflcircum. stances, the company is estopped, so far as its own liabilitieaare concerned, from denyillg the validity of the bonds. Havingnegotiatad ,them on the faith of such a certificata, the company must. be held·to have agreed, as part of its own contract, whatever that was, thattbe ,bonds were obligatory." These observations of the courLare applicable to the caseRt bar.' If the recitals in the bonds in and the ,governor's in; the other, are contrasted, ·the supeof the former, for the purpose of. an estoppelltgainstthe company, cannot 8,scape attention. .,' · . By liondspayable to itself with tbjsrecital, the ,company held. to have that ,they Were jSf!Qed under '" olthe general :a.ssernbly, !!ond .the containedin tihe act to loan: the, .eredit of the ;state\t9 the raih:Qad companij3s bltd. "been submitted: to and duly ratified by the; people of ,the state." ,The..recital. in.legal ·. makes the ,part of..tbe bond, ·l1be the opin.ion of..,t1)e 8uprem,e court ,.on this point is an. answer to :the, the le8<rnedcoun,sel for the defendant.,that the purchasers. Elf bonds had,no ·fight to rely on .the tpey. ,COBt4ljined, .asagains't :the oompany 'llnd that the latter .",as not to deny, their t r u t h . . ; ': " " The authorities cited 1,>y eouJ1,8elto support his familiar ones that neither the state n:or any other public corpora.tion
22 is bound by false recitals as to the existence of its power to issue negotiable b,onds. The soundness of that proposition is not questioned. Undoubtedly, as;respects the powElr of a public corporation to issue bonds, recitaJs in the bonds themselves cannot operate by' way of estoppel as the equivalent of a statute conferring the power. But this principle bas no application totbe CBise at bar. This is not a suit against the state. It is a suit against the payee and transferrer of state bonds, cQntaining recitals which, if true, made the bonds what they purported on their face to be, 'legal and binding obligations of the state. And the rule is that the payee of negotiable paper, who transfers it for value, thereby guaranties the genuineness of the paper, and the truth of every recital On its face material to its validity and value. Byles, Bills, [157;] 2 Pars. Notes & ,Bills, 39. The railroad company had the power to negotiate the state bonds, and to incur all the obligations implied by that act; .It received them for that. purpose, and is as completely estopped to deny the truth of its representations, made by recitals in the bonds, asa natural person would be under:like circumstances. The recitals do not bind the :stfite, but,as between the company and those who purchased the bonds from it, they :10 bind the company. The distinction here adverted to is so well understood that in the Florida 'case it went without the saying. Every purchaser of a bond from the railroad company had the right, therefore, to assume that these recitals, which the company in-true by putting the bonds on the market, were true in fact. And,as between the purchaser of the bond and the railroad company, the former was not required to look ot inquire further. The purchaser, by reference to the act referred-to in tehe recital in the bonds, would see that while the bond was the bond of the state, the debt was in fact the debt of the railroad company, which was bound to provide the state with funds to pay it, and tbat the payment of this debt was secured by a statutory lien on the railroad, and its incom<l and earnings. And knowing these facts, the purchaser would also know that, if fat any reason the state declined to pay the bonds, he would be entitled· to be subrogated to the rights of the state, under the statutory lien, to 'secnrepayment of the debt represented by the bdnds. ' This ia no new doctrine. It is founded on principles of reason and justice, as old 'S;s equity jUl'ispzUdence itself. Mr. Sheldon,inhis work on SubrogatIon, says:
TOMPKINS U. LI'J:Tllllh:BOOK&.fT. S. BY.
"The broad doctrine lleen that regard security, given, by a principal debtor to his surety, though merely for the surety's indemnity, as a trust created for the payment of the debt, and will see that it is applied for that purpqse, by substitnting, if necessary, the creditor' to its benefit." Section 163. "The security for the debt, in whosesoever hands it may be, is treated as a fund held' in trust for the paYment of the debt; if it is in the hands of the creditor, surety, upon paying the deot, will Oil sUOrogated to it for indemnity; if· it is in the hands of. a surety, the creditor may resort to it to secure the payment of his demand," Section 155·.
wm
The authorities cited by the learned author suppor.t the text. In Rice's App'eal, 79 Pat St. 206, the court says: "The principle is well settled that where a surety; or a persoustanding in the position of a surety, for the paymElnt of a·debt. receives security for his indemnity, and to discharge such ihdebtedness, the principal creditor is. in' equity entitled to the of' that security, and it makes no difference that the plincipal creditor did not know of at the time, or give, cr64it on the faith of i t . " ,.
The case of Hand·v. S .. «n.R.U S. C. 814, was in sOme ,oUts featur,es not unlike the case at bar, and the court said A provision' for the payment of the bonds is primarily a security for those holding the bonds. It is always in equity and a.t law when its forms permit." . There is, however, no oceasionto invoke the doctrine of subrogation.· The very object of the statutory mortgage was to secure the payment of the state bonds.by the company. In the the'sopreme court say: "In OUf' opiniontheJ:e is no' <:lccasiCin for applying here the doctrines of slibtogation, because in 'unmistakable la:Qguage the statute has made the mortgage of the company security .forthe ment of the obligations of the'stl1te:' By ,the of the seventh section of the act of 18-68,\ the road was not to be discha.l'ged from the claim or liens on the part of the state until "the amount: of bonds issued to such company, with the interest thereon, shall have bee:o. paid by sacid conipany." The company was to payJhe bonds,a:pd'the statthat result, and standsfts a seutory mortgage was taken to curity for that puxpose .to every. bondholder. . ., It is contended that if the provision of the in ;celation to the issue of the' state bonds is void, the one in relation to the stat- . utory lien is void also. This was the contention court in the Florida c.ase, and wasthu8 answered by thetollrt: "It is contended. howev:er, tha,t as the 9ttheac.t. il;lrespectto, of the state bonds is lluconatitutional" the execution the one in relatioll tothl:l' statutory lieu .on the property of ,tl:1e cQm-,
a.
24
FEDERAL RSPORTER.
pany is void also, and must fall. We do not so understand the law. Undoubtedly a constitutional part of a statute may be so connected is unconstitutio.lal as to make it impossible, if the with that unconstitutional part is stricken out, to give effect to what, taking the whole together, appears to have .been .the legislative will. In such a case the whole statuto is void; but in this, as in every other statutory construction, all depends upon the intention of the legislature, as shown by the general scope of the law. To our minds it is clear, in the present case, that the object of the legislature was not to create a debt which the state was expected to pay, but. to aid the company in borrowing money .upon the credit of the state. As between the for the money borrowed was to be the state and the company the debt of the company. If the state paid its bonds from its own funds, the mortgage could be enforced'to compel the company to make the state good' for all such payments. If the state did not pay, then the creditors had their own recourse upon the mortgage. The state credit,strfar as the state and the 'oompany were concerned, was only to aid' the company in borrowing money on its own bonds. In any event, the company was to be bound for the payment of the entire debt-'whenit matured, and its 'property was to be given as security. Under these circumstances, it seems to us that the unconstitutional part of the statute may be stricken out, and the obligation of the compltny, including its statutory mortgage in favor of state bond. holders, left in full force. The striking out is not necessarily by erasing words, but it may be by disregarding the unconstitutional provision, ana reading the statute as if that provision was not there. These bonds, as state obligations, were void, but as against the com· pany, which had actually put them out, they were good." This judg. mentof the supreme court, in a case on all fours with the case at bar, concludes the question. And see Johnson v. Griswold, 2 Mo. Ct. App.150. A single question remains. The act of 1869 was repealed oy the act of May 29, 1874. This repeal does not affect the rights of the parties to this suit. All contracts made under the act, or of which it constituted a part, and the rights acquired by such contracts, are unaffected by the repeal. The obligations of the railroad company to the holders of the state bonds, and the rights acquired by the latter, whatever they may have been, under and by virtue of that a.ct, remain to be enforced the same as if no repeal had taken place. If this were otherwise, the act of 1888 would still remain, which con· tains all the essential provisions embraced in the act of 1869.
TRAVER fJ. TBIBOU.
95
It is believed the conclusion reached is in accordance with wellsettled principles of law, and the authority of adjudged cases binding on this court; and it unquestionably is in harmony with the plainest principles of justice. The company borrowed these bonds and put them in circulation upon a distinct engagement that it would provide the funds to pay them, and it gave its assent to the statutory lien on its road to secure this result. It sold them to innocent parti<ls for money to build its road. It has received all the benefits that were expected to accrue to it under the contract, and the road and its earnings remain bound for the performance of the contra.ct by the company. There is no principle upon which this obligation can be avoided, either by the company or subsequent purchasers with notIce of the equities of the state bondholders. It WQuid be proach to the law if there wits. The demurrer to the bill is overralod.
are--
MCCRARY,
J., concurs.
TR!VJIlR and others S!Xlll L '11. BROOKS
t1.
and others. February 12, 1883.)
(Circuit Oourt, D. Oregon.
DIVTSJON·OP DONATION BETWEEN SETTLER AND
WIPB.
The division of a donation to a married man, under section 4 of the !!onatton a.ct of September 27, 1850, (9 I;t. 497,) between the settler and his wife, is comto the discretion of the surveyor general, and in contemplamitted by the tion of law is made when the. settler proves to the satisfaction of said officer that lie has complied with the provisions of the act, and the latter issues the certificate containing the facts constituting such compliance, and specifying the portion of the donation set apart to the husband and that to the wife, as provided in section 7 of said act j and no valid objection thereto Is found by the commissioner of the general land-office, which is shown by the subsequent issue of a patent thereon. 2. BUIT FOR PARTITION-8TATUTE OF LIMITATIONS.
The wife of a married settler, under section 4 of the donation act, died after · final proof by the settler of compliance with the act, and before the iS$ue of the patent. Held, (1) that the half of the donation to which she was or would have been entitled, was thereupon granted, by the act, to her surviving husba.nd and children in equal parts as the direct donees of the United States; and (2) the statute of limitations did not commence to run against the right of the heirs of Did husband to maintain a suit against his vendees of certain distinct portions thereof, for a partition of their interests in said half of said donation, until t1Ie aame was formally and finally divided by the surveyor general as aforesaid.