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HAGOOD, Comp. Gen. of South Carolina, and others v. SOUTHERN and another

March 1, 1886

HAGOOD, COMP. GEN. OF SOUTH CAROLINA, AND OTHERS
v.
SOUTHERN AND ANOTHER, ASSIGNEES, ETC. SAME
v.
WILLIAMS.



These two cases were heard together in the circuit court upon the same testimony, and the same decree passed in each. The facts common to both are as follows: By an act of the general assembly of South Carolina, passed September 15, 1868, entitled 'An act to authorize additional aid to the Blue Ridge Railroad Company in South Carolina,' the state, by a guaranty indorsed thereon, pledged its faith and funds to the payment of the principal and interest of bonds to be issued by the railroad company, to the amount of $4,000,000. The bonds authorized by the act, with the guaranty indorsed, were in fact issued. On March 2, 1872, an act of the general assembly of South Carolina was passed entitled 'An act to relieve the state of South Carolina of all liability for its guaranty of the bonds of the Blue Ridge Railroad Company by providing for the securing and destruction of the same.' The preamble to this act recites the issue of the bonds, the fact of the guaranty indorsed, the liability of the state on account thereof, and the desire of the state to withdraw them, and thus relieve itself. It then proceeds to require that all such bonds then held by the financial agent of the state, as security for advances of money made to the railroad company by the state, shall be delivered up and canceled, releasing the railroad company from all liability on account of such advances. It then provides that upon the surrender by the company to the state of the balance of the issue of $4,000,000 of said bonds, issued and guarantied as aforesaid, the state treasurer should issue in lieu thereof, to the amount of $1,800,000, certificates of indebtedness, styled revenue bond scrip, expressing that the sum mentioned therein is due by the state of South Carolina to bearer, and that the same will be received in payment of taxes and all other dues to the state, except special tax levied to pay interest on the public debt. The act also provides as follows: 'Sec. 4. That the faith and funds of the state are hereby pledged for the ultimate redemption of said revenue bond scrip, and the county treasurers are hereby required to receive the same in payment of all taxes levied by the state, except in payment of special tax levied to pay interest on the public debt, and the state treasurer and all other public officers are hereby required to receive the same in payment of all dues to the state; and still further to provide for the redemption of said revenue bond scrip, an annual tax of three mills on the dollar, in addition to all other taxes, on the assessed value of all taxable property in the state, is hereby levied, to be collected in the same manner and at the same time as may be provided by law for the levy and collection of the regular annual taxes of the state; and the state treasurer is hereby required to retire, at the end of each year from their date, one-fourth of the amount of the treasury scrip hereby authorized to be issued, until all of it shall be retired, and to apply to such purpose exclusively the taxes hereby required to be levied. 'Sec. 5. That if any such revenue bond scrip is received in the treasury for the payment of taxes, the treasurer be, and he is hereby, authorized to pay out such revenue bond scrip in satisfaction of any claim against the treasury, except for interest that may be due on the public debt.' The exchange contemplated by this act was effected; private individuals holding the guarantied bonds as collateral security for loans of money to the railroad company surrendered them and accepted, in lieu thereof, revenue bond scrip at the lower rate. In this way Amos D. Williams, the appellee in one of these causes, became and remains the holder of $165,000 of revenue bond scrip, for which he surrendered $417,000 of guarantied bonds; and Edward B. Wesley became the holder of $1,005,000 of revenue bond scrip, for which he advanced in case $344,925, with which were redeemed $2,902,000 of guarantied bonds, also surrendered to the state. Wesley became, by leave of court, a party complainant with Williams in his bill, before final decree. Subject to the lien of Wesley for the payment of his cash advance as above stated, the assignees in bankruptcy of the Blue Ridge Railroad Company, who are appellees in the other cause, claim to own the revenue bond scrip held by Wesley as collateral security for his advance. Other bonds of said railroad company guarantied by the state, by like exchanges, were surrendered by other holders, who received and hold corresponding amounts of said revenue bond scrip, and who have come in, under the bill of Williams, which was filed on behalf of himself and all others in like interest choosing to do so, and have proved their claims before a master, so that the whole issue of $4,000,000 of said bonds, except about $4,000 thereof, are shown to have been surrendered to the state and canceled, on the faith of said revenue bond scrip. After the consummation of these transactions the legislature of the state of South Carolina, by an act passed March 13, 1872, abolished the office of state auditor, and vested his powers in the comptroller general; and by an act approved October 22, 1873, repealed the fourth section of the act of March 2, 1872, providing for an annual tax of three mills on the dollar for the redemption of the revenue bond scrip, and also forbade the comptroller to levy any tax for any purpose whatever, unless expressly thereafter authorized to do so by statute. On December 22, 1873, it also passed an act forbidding any state or county officer to accept payment of taxes in revenue bond scrip. In a similar case, between the same parties, in which the complainant's bill was dismissed without prejudice, and reported as Williams v. Hagood, The opinion of the court was delivered by: Matthews, J.

Ch. Richardson Miles and L. F. Youmans, for appellants.

Dennis McMahon, for appellees.

[Argument of Counsel from pages 62-63 intentionally omitted]

No spec

ific provision is made in these decrees for the redemption of the revenue bond scrip in which the assigness of the Blue Ridge Railroad Company claim an interest, nor any direction to the treasures of the counties in which its taxes are due to receive the scrip in payment therefor from the company; but the command of the decrees is broad enough to include such relief in their favor. But it is difficult to conceive on what theory of the relation between the railroad company and the state it can be maintained. The revenue bond scrip was issued by the state in exchange for the bonds of the railroad company guarantied by the state, and in order that by their surrender and cancellation the state might be relieved from its liability on that account. The state was surety for the railroad company, and not debtor to it, and was not liable to it either upon the guaranty or the certificates of indebtedness issued in lieu thereof. Neither was available as a demand against the state except in the hands of a holder for value, and neithere constituted a contract until value had thus passed, as a consideration for the promises of the state. The railroad company is certainly not such a holder, and its assignees in bankruptcy are in no better position. As between the railroad company and the state, the former is primarily liable for any debt represented by the revenue bond scrip, or for which it is held by others as security, and is bound to indemnify the state against loss on account of its suretyship. To authorize the railroad company to pay its taxes in these certificates is simply to exonerate it from taxation, and to compel payment of them to it, is to reverse the order of the obligation, by compelling the suretgy not only to become principal debtor to strangers, but to convert its debtor into a creditor.

No other parties to these suits, including those who have merely proved their claims before the master under the order of reference, have made any tender of revenue bond scrip in payment of specific taxes due from them; and, so far as the contract is that such payment may be made, no breach is shown. The discredit cast upon the scrip by the general refusal to accept it by the tax collectors of the state, and the depreciation in value occasioned thereby, are not actionable injuries. In this aspect the case falls precisely within that of Marye v. Parsons, 114 U. S. 325, S. C. 5 Sup. Ct. Rep. 932, and does not materially differ from the case as made on the previous bill of Williams, and decided in Williams v. Hagood, 98 U. S. 72. So far as the instrument contains a promise that it will be received in payment of taxes, it is a contract with the holder for the time being who has taxes to pay; and although such a stipulation, faithfully executed, would give commercial value to the paper in whosesoever hands it may happen to be, it cannot be said, as a matter of law, that the contract is broken until it has been tendered for taxes due from a holder and been refused, nor that the legal right of the holder is threatened unless he is in a situation to make a present tender for that purpose. He has no legal right to have this scrip received for taxes unless he owes taxes for which it is receivable; and in order that it may be used for the payment of the taxes of another, he must transfer it to the new holder, and that would divest himself of all right to enforce a contract to which he is no longer a party and in which he has ceased to have a legal interest.

But it is urged, with earnestness and zeal, that the complainants Williams and Wesley are entitled to so much of the relief prayed for as in effect would operate to compel the comptroller general of the state to execute in their favor the provisions of the act of March 2, 1872, relating to the levy, collection, and application of the tax pledged by the fourth section of that act to the redemption of the revenue bond scrip. The ground on which that relief is based, of course, is that the act of March 2, 1872, must still be regarded as subsisting, notwithstanding the subsequent formal repeal by the legislature, which must be treated as null and void, because it impairs and destroys the obligation of the contract between the holders of these certificates of indebtedness and the state of South Carolina. Treating the repealing acts, then, as of no force, the inference is drawn that the duty of the officers of the state remains as declared and defined by the act of March 2, 1872, and its performance may be enforced by judicial process in behalf of every one having a legal interest in the subject.

It is to be borne in mind, however, that the state of South Carolina denies the existence and validity of the alleged contract. It asserts that the revenue bond scrip was issued in violation of the constitution of the state, which provides (article 9, § 7) that public debts may be contracted for the purpose of defraying extraordinary expenditures; section 10, that no scrip, certificate, or other evidence of state indebtedness shall be issued, except for the redemption of stock, bonds, or other evidences of indebtedness previously issued; and, section 14, that any debt contracted by the state shall be by loan on state bonds, of amounts not less than $50 each, on interest, payable within 20 years after the final passage of the law authorizing such debts. It asserts that the guaranty by the state of the original bonds of the Blue Ridge Railroad Company was illegal and void, because made in violation of express stautory conditions, which, it alleges, were never repealed, as was claimed by the holders of them; and that, consequently, the revenue bond scrip was without consideration, which, appearing on the face of the law itself, deprived the certificates of all validity in whatever hands they might be found. It further asserts that the revenue bond scrip in question is void, as being in violation of that provision of the constitution of the United States (article 1, § 10) which declares that no state shall emit bills of credit, contending that these certificates, on the face of the instrument and of the law creating it, appear manifestly designed to circulate as money in the ordinary transactions of business.

It thus appears that a distinct issue is made by the state of South Carolina with the holders of this revenue bond scrip, and the controversy between them and the state involves the very question of the existence and obligation of the alleged contract. This controversy the state has undertaken to settle for itself. By its legislative department it has repealed the statutes authorizing its officers to execute the contract on its behalf, and forbidden the levy, collection, and appropriation of taxes for the payment of the scrip. Through its judicial department it has declared, as between itself and its officers, that the instruments themselves are unconstitutional and void, and without obligation. To this judgment, however, no holder of the scrip was a party, and, of course, it concludes no one.

The peculiarity of the alleged contract deserves to be noted. The instrument, looked at as the sole evidence of the obligation, contains no promise whatever to pay money. It declares simply that it is receivable for the amount of money named, in payment of taxes and dues to the state, except special tax to pay interest on public debt. If it be read as containing the law which authorized its issue, it is a contract that it shall be redeemed, one-fourth of the whole amount each year, out of taxes specially to be levied for that purpose. Although styled in the law 'certificates of indebtedness,' there is no agreement generally to pay a named sum at a given time, in the usual form of public securities for the payment of money, nor even an express acknowledgment of an existing debt.

The controversy in which the validity and obligation of the scrip are involved is the subject of the present suits. The complainants as holders of this scrip, in behalf of themselves and of all other holders choosing to take part, are seeking to obtain by judicial process its redemption by the state according to the terms of the statute in pursuance of which it was issued, by the levy, collection, and appropriation of special taxes pledged to that purpose, as they claim, by an irrepealable law, constituting a contract protected from violation by the constitution of the United States; and such are the decrees which have been rendered according to the prayer of the bills. These suits are accurately described as bills for the specific performance of a contract between the complamants and the state of South Carolina, who are the only parties to it. But to these bills the state is not in name made a party defendant, though leave is given to it to become such, if it chooses; and, except with that consent, it could not be brought before the court and be made to appear and defend. And yet it is the actual party to the alleged contract the performance of which is decreed, the one required to perform the decree, and the only party by whom it can be performed. Though not nominally a party to the record, it is the real and only party in interest, the nominal defendants being the officers and agents of the state, having no personal interest in the subject-matter of the suit, and defending only as representing the state. And the things required by the decrees to be done and performed by them are the very things which, when done and performed, constitute a performance of the alleged contract by the state. The state is not only the real party to the controversy, but the real party against which relief is sought by the suit, and the suit is therefore substantially within the prohibition of the eleventh amendment to the constitution of the United States, which declares that 'the judicial power of the United States shall not be construed to extend to any suit in law or equity commenced or prosecuted against one of the United States by citizens of another state, or by citizens or subjects of any foreign state.'

The case comes thus directly within the authority of Louisiana v. Jumel, 107 U. S. 711; S. C. 2 Sup. Ct. Rep. 128. It was there said, (page 721:) 'The question, then, is whether the contract can be enforced, notwithstanding the constitution, by coercing the agents and officers of the state, whose authority has been withdrawn in violation of the contract, without the state itself in its political capacity being a party to the proceedings. The relief asked will require the officers against whom the process is issued to act contrary to the positive orders of the supreme political power of the state, whose creatures they are, and to which they are ultimately responsible in law for what they do. They must use the public money in the treasury and under their official control in one way, when the supreme power has directed them to use it in another, and they must raise more money by taxation when the same power has declared that it shall not be done. * * *' And, (page 727:) 'The remedy sought, in order to be complete, would require the court to assume all the executive authority of the state, so far as it related to the enforcement of this law, and to supervise the conduct of all persons charged with any official duty in respect to the levy, collection, and disbursement of the tax in question, until the bonds, principal and interest, were paid in full; and that, too, in a proceeding in which the state, as a state, was not and could not be made a party. It needs no argument to show that the political power connot be thus ousted of its jurisdiction, and the judiciary set in its place. When a state submits itself without reservation to the jurisdiction of a court in a particular case, that jurisdiction may be used to give full effect to what the state has by its act of submission allowed to be done; and if the law permits coercion of the public officers to enforce any judgment that may be rendered, then such coercion may be employed for that purpose. But this is very far from authorizing the courts, when a state cannot be sued, to set up its jurisdiction over the officers in charge of the public moneys, so as to control them as against the political power, in their administration of the finances of the state.' If this case is not within the class of those forbidden by the constitutional guaranty to the states of immunity from suits in federal tribunals, it is difficult to conceive the frame of one which would be. If the state is named as a defendant, it can only be reached either by mesne or final process through its officers and agents, and a judgment against it could neither be obtained nor enforced, except as the public conduct and government of the ideal political body called a state could be reached and affected through its official representatives. A judgment against these latter, in their official and representative capacity, commanding them to perform official functions on behalf of the state according to the dictates and decrees of the court, is, if anything can be, a judicial proceeding against the state itself. If not, it may well be asked, what would constitute such a proceeding? In the present cases the decrees were not only against the defendants in their official capacity, but, that there might be no mistake as to the nature and extent of the duty to be performed, also against their successors in office.

The principle which governs in these cases must be carefully distinguished from that which ruled in Osborn v. Bank of U. S., 9 Wheat. 738; Davis v. Gray, 16 Wall. 203; Board of Liquidation v. McComb, 92 U. S. 531; and Allen v. Baltimore & O. R. Co., 114 U. S. 311; S. C. 5 Sup. Ct. Rep. 925,–a distinction which was pointed out in Louisiana v. Jumel, ubi supra, and in Cunningham v. Macon & B. R. Co., 109 U. S. 446; S. C. 3 Sup. Ct. Rep. 292, 609. The rule for such cases was well stated by Mr.Justic BRADLEY in Board of Liquidation v. McComb, ubi supra, as follows: 'A state, without its consent, cannot be sued by an individual; and a court cannot substitute its own discretion for that of executive officers in matters belonging to the proper jurisdiction of the latter. But it has been well settled that when a plain official duty, requiring no exercise of discretion, is to be performed, and performance is refused, any person who will sustain personal injury by such refusal may have a mandamus to compel its performance; and when such duty is threatened to be violated by some positive official act, any person who will sustain personal injury thereby, for which adequate compensation cannot be had at law, may have an injunction to prevent it.' And on the other hand, the rule for that class of cases was stated by the chief justice in Louisiana v. Jumel, ubi supra, in these words: 'The officers owe duty to the state alone, and have no contract relations with the bondholders. They can only act as the state dirests them to act, and hold as the state allows them to hold. It was never agreed that their relations with the bondholders should be any other than as officers of the state, or that they should have any control over this fund except to keep it like other funds in the treasury, and pay it out according to law. They can be moved through the state, but not the state through them.' In such cases, as was said by Chief Justice MARSHALL in Osborn v. Bank of U. S., 9 Wheat. 738, 858, 'the state not being a party on the record, and the court having jurisdiction over those who are parties on the record, the true question is not one of jurisdiction, but whether, in the exercise of its jurisdiction, the court ought to make a decree against the defendants, whether they are to be considered as having a real interest or as being only nominal parties.'

A broad line of demarkation separates from such cases as the present, in which the decrees require, by affirmative official action on the part of the defendants, the performance of an obligation which belongs to the state in its political capacity, those in which actions at law or suits in equity are maintained against defendants who, while claiming to act as officers of the state, violate and invade the personal and property rights of the plaintiffs, under color of authority, unconstitutional and void. Of such actions at law for redress of the wrong, it was said by Mr. Justice MILLER, in Cunningham v. Macon & B. R. Co., ubi supra: 'In these cases he is not sued as or because he is the officer of the government, but as an individual, and the court is not ousted of jurisdiction because he asserts authority as such officer. To make out his defense he must show that his authority was sufficient in law to protect him.' Of such cases that of U. S. v. Lee, 106 U. S. 196, S. C. 1 Sup. Ct. Rep. 240, is a conspicuous example, and it was upon this ground that the judgment in Poindexter v. Greenhow, 114 U. S. 270, S. C. 5 Sup. Ct. Rep. 903, was rested. And so the preventive remedies of equity, by ...


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