State v. Clinton , 28 La. Ann. 393 ( 1876 )

Wyly, J.

The State enjoined the Auditor and Treasurer from pajfing the coupons attached to the bonds issued under act No. 95 of 1871, on the ground that the issue of said bonds, amounting to @2,500,000, was in contravention of the constitutional amendment, and said bonds are not valid obligations of the State.

The Now Orleans, Mobile, and Chattanooga Railroad Company intervened.

The case was before this court in 1874, and it was remanded. Before the trial on the remandment, Williams & Guión, holding certain bonds of this issue, intervened, setting up their right as third holders to obtain payment of the coupons and to have their bonds declared valid.

The court perpetuated the injunction and decreed said bonds to bo void. Thereupon the intervenors, Williams & Guión, appealed.

It will be necessary to examine the provisions of the acts of 1869,1870, and 1871 in order to determine whether the bonds in question are valid. By act No. 26 of 1869 it was provided the New Orleans, Mobile, and Chattanooga Railroad Company shall complete the first section of forty miles within one year from the survey and location, and the whole road to Houston, Texas, within three years and six months from the survey and location, eight months being allowed for making the survey and location; “ and in case of the failure of said company to survey, locate, and construct the said main line of said railroad within the State of Louisiana, in the manner and within the time limited in this section of this act for such survey, location, and construction, the obligation of the State of Louisiana, by virtue of this act, to guarantee the second-mortgage bonds of said company (as in this act provided) for or upon that portion, of the said main line of railroad not constructed within the time limited, shall cease and determine, and none of said second-mortgage bonds for or upon that portion of said main line of railroad, not constructed within the time limited, shall be guaranteed by the State of Louisiana. But no failure of the company to complete said railroad shall effect or forfeit the rights of said company to maintain and enjoy such portions of its railroad as it shall have completed, nor any other rights or franchises secured to said company under its charter, or by the laws of the State of Louisiana, or of any other State relating thereto.”

By act No. 31 of 1870 it is provided, among other things, “that the said company be and is hereby empowered and authorized to locate, construct, and build, and thereafter to own, maintain, manage, and use a railroad with one or more tracks and suitable turnouts, from any point upon the main line of its railroad, as the same has been or may hereafter be located in the parish of St. Martin, or in the parish of Lafayette, northwesterly, on such a course or route as the directors of said company may deem most expedient and for the interest of said company to adopt, toward and to Shreveport, in the parish of Caddo, via Alexandria, in the parish of Rapides; * * * provided, however, that such of the provisi:ns of the act entitled ‘an act to expedite the construction of the New Orleans, Mobile, and Chattanooga Railroad Company in the State of Louisiana,’ approved February 17,1869, as relate to the guarantee of the second-mortgage bonds of said company shall be applicable only to such parts or portions of the said lines of railroad to Shreveport, and to said point in the parish of West Baton Rouge, as shall be surveyed, located, and constructed within five years from the acceptance of this act by said company; and said provisions, of said act shall be applicable to such parts or portions of the said last-mentioned lines of road as shall be surveyed, located, and constructed within the time last aforesaid.”

But what are the provisions of the act of the seventeenth of February, 1869, which relate to the guarantee of the second-mortgage bonds of said company ? As they are made applicable to the branch road to be extended to Shreveport, it is important to determine the obligation of the State arising from said provisions.

Section one of said act provides that “the New Orleans, Mobile, and Chattanooga Railroad Company, a corporation of the State of Alabama, be and is hereby authorized .to make. and issue, from time to time, as hereinafter provided, its bonds to be known as ‘ second-mortgage bonds of the New Orleans, Mobile, and Chattanooga Railroad Company, guaranteed by the State of Louisiana,’ of such denominations as the company may elect, but to an amount not exceeding in the aggregate twelve thousand five hundred dollars for each and every mile in length of the main line of its railroad, westerly from the city of New Orleans and within tlio State of Louisiana, which-said company shall construct.” * * *

Section seven provides that the said mortgage after it has been executed shall be delivered to the Governor, and, if the same be in conformity with the provisions of this act, he shall indorse his* approval in writing thereon and cause the said mortgage thus approved to bo recorded in the office of the Secretary of State.

Section eight provides that “when the said second mortgage shall have been so delivered, approved, and recorded, and one continuous portion or section of foi 'ty miles in length of said main line of railroad, within the State of Louisiana, shall have bean constructed by the company and the rails laid thereon, the company may deliver to the Governor of tho State of Louisiana five hundred thousand dollars, or one hundred thousand pounds sterling, of such second-mortgage bonds, and the Governor shall thereon subscribe a certificate, to be written or printed on each of said bonds in the following words: ‘ The payment of the principal of the within bond when due, and of the interest thereon when it accrues, is guaranteed by the State of Louisiana, pursuant to the provisions of the act of the General Assembly of said State authorizing such guarantee,’ and shall affix the great seal of the State of Louisiana to such certificate, and tho said seal shall be attested by the signature of the Secretary of State, and the bonds shall then be delivered to the company for its general uses and purposes authorized by its charter.”

Section nine provides that “upon the construction of each additional section or portion of forty miles in length of said main lino of railroad, within tho State of Louisiana, the company may execute and deliver to the Governor of the State of Louisiana a further amount of such second-mortgage bonds, equal to twelve thousand five hundred dollars or two thousand five hundred pounds sterling, as tho company may elect, for each and every mile in length of said main lino of railroad,” and thereupon the Governor shall subscribe a certificate of guarantee, etc.

The obligation of the State under the acts of 1869 and 1870 adverted to was to guarantee the second-mortgage bonds of th'e Now Orleans, Mobile, and Chattanooga Railroad Company on each section of forty miles “which said company shall construct” within tho time mentioned in said acts, after the act of mortgage on said section so constructed shall have been delivered to the Governor, approved by him, and recorded in tho office of the Secretary of State.

This was the subsisting obligation of the State when the constitutional amendment limiting the State debt to @25,000,000 went into operation in November, 1870. As the amount of'that limitation had already been reached, the General Assembly could not create a debt thereafter. Notwithstanding tho existence of this constitutional limitation, the General Assembly passed act No. 95, approved the twentieth of April, 1871, which provides, section one, that “the Governor-of this State be and'ho is hereby authorized to subscribe for twenty-five thousand shares of one thousand dollars each of the capital stock of said corporation on behalf of this State, and to receive the certificates of stock therefor as payment shall be made for the same, which certificates shall be deposited by him in the office of the Treasurer of this State, and shall not be assignable or transferable, except by the authority of the General Assembly. That, whereas the subscription for stock and the issue of bonds therefor herein provided for are intended to extinguish the obligation of the State to indorse or guarantee the second-mortgage bonds of said corporation under the act of the General Assembly relative to said corporation, approved February 21, 1870, and as a discharge of either party from all obligations for the issue, indorsement, guarantee, and security of said mortgage bonds as provided in the fourth section of said act, the said ■corporation shall be required, at or before the complete issue of the said bonds, to file with the Secretary of State a full release and acquittance of the obligation of the State so created to guarantee said mortgage bonds and for which the provisions of this act are designed as a ■substitute and discharge; and the said corporation shall, by its express-agreement made and entered into by the vote of its board of directors, and attested by its seal and the signature of its secretary, obligate itself to commence that part of its railroad from Yermilionville to Shreveport within six months, and to complete the same within the time limited therefor in the said act of the General Assembly.”

On the twenty-fourth day of April, 1871, four days after the passage of this act, the Governor issued to said company bonds of the State amounting to $2,500,000, notwithstanding the fact that the railroad from Yer-milionville to Shreveport had not been located and not a particle of work had been done by said company.

Indeed, the record shows that there never has been a survey and location of that branch of the railroad, as contemplated by the act, and all the work that has ever been done by said company thereon consists of a •■ditch 291 feet long, six feet wide, and one and a half deep, proved to be worth twelve dollars. That is the extent of the labor of said company on the road from Yermilionville to Shreveport after the expiration of five years, the period within which they were required to finish the whole line to Shreveport.

The obligation of the State to guarantee the second-mortgage bonds of the New Orleans, Mobile, and Chattanooga Railroad Company has lapsed, because the said company failed to complete the first section of forty miles of the main line by the eighteenth day of January, 1871; they failed to complete any of the other sections of the said main line within three years after the survey and location, and they failed to survey, locate, construct, and put in running order any part of the branch road from Vermilionville to Shreveport within five years, as specified, in the said act of 1870.

Under the circumstances, was not the act of April 20, 1871, and tlio issue thereunder by theGovernor ofbonds to the amount of two million five hundred thousand dollars, the creation of a debt in contravention of the constitutional limitation then in force ? In our opinion it was. When the constitutional limitation wentinto force,-in November, 1870, the State was under an obligation to guarantee second-mortgage bonds on sections of forty miles, if properly completed on the main line and on the branch lino to Shreveport. It was under no obligation to guarantee second-mortgage bonds on uncompleted sections or portions of said lines of railroad. If the sections should be completed and the rails laid within the time and manner specified in said acts of 18G9 and 1870, and the mortgage to the State should be approved by the Governor and registered in the office of the Secretary of State, then the State would be under obligation to guarantee said second-mortgage bonds.

The conditions precedent have not happened; the conditional obligation of the State resulting from the legislation of 1869 and 1870 has not ripened into an unconditional obligation; it can never ripen into an unconditional obligation, because the periods within which it might become so by the performance of the conditions by said company have all passed, and the conditional obligation of the State to said company has lapsed. Yet the State is now called upon to discharge the alleged obligation resulting from the issue by the Governor under act of the twentieth of April, 1871, of bonds amounting to two million five hundred, thousand dollars in contravention of the constitutional amendment then in force.

As there is now no obligation resulting from the acts of 1869 and 187O' in regard to the State guaranteeing second-mortgage bonds of said company, there is no debt due said company or those holding under it. As the bonds in suit do not represent a debt incurred prior to the constitutional amendment, for there was none, they merely evidence a debt contracted since then and in violation of said amendment. Neither the Governor nor the General Assembly had authority in 1871 to issue two million five hundred thousand dollars of State bonds in payment of a subscription for stock then made. Nor had they authority to substitute bonds of the State, unconditional obligations, for the conditional obligation arising from the legislation of 1869 and 1870 prior to the happening of the conditions precedent in said act. . ^

As these bonds bear date subsequent to the adoption of the constituí tional amendment, all persons acquiring them are charged with notice of the existence and effect of that amendment; they are charged with notice that in 1871 it was not in the power of the General Assembly and the Governor to bind the State by the issue of those bonds as a substitute for the obligation to indorse the second-mortgage bonds of the New Orleans, Mobile, and Chattanooga Railroad Company, because said obligation was conditional, and it could only become binding on the State upon the happening of the conditions precedent, and they might never happen. The issue of these bonds as a substitute for a- debt that did-not exist, and that might never exist, was to all intents and purposes the creation of a debt in 1871, in contravention of the constitutional amendment.

It is therefore ordered that the judgment herein perpetuating the injunction and declaring void the bonds issued under act No. 95 of the acts of 1871, amounting to two million five hundred thousand dollars, be affirmed, appellants paying costs of appeal.