Commonwealth of Virginia v. State , 32 Md. 501 ( 1870 )

Miller, J.,

delivered the opinion of the Court.

After a persistent and successful struggle of more than forty years with many disasters and innumerable difficulties, the Chesapeake and Ohio Canal Company has at last received from its tolls and revenues a surplus over and above its ordinary expenses, applicable to the payment of its preferred or lien creditors. Under the pi’oceedings in this cause a part of this surplus has been paid into Court, and the immediate question now to be decided is, to whom shall this fund be paid ? Inasmuch, however, as there is a confident and apparently well-founded expectation that there will hereafter be large and increasing revenues annually accruing, to be applied to the same purpose, all parties in interest desire an adjudication by this Court of the priorities of the several classes of creditors of the Canal Company, not only to the fund now to be distributed, but to such future earnings. Most of the questions that will necessarily govern future distributions, arise and must be decided in order to settle the proper disposition of the present fund. We shall, therefore, address ourselves to the decision of these priorities. The several classes of claimants, parties to this proceeding, and who are contesting priorities and preferences inter sese as well as against the State of Maryland, are:

1st. The holders of obligations or bonds to the amount of $56,896.48, issued to such of the creditors of the former Potomac Company as came in and accepted the terms offered by the resolutions of the Canal Company in 1834, for a portion of their several claims as then agreed upon.

2d. The holders of what are termed “Repair bonds,” to the amount of $200,000, issued in 1849, guaranteed by the State of Virginia, due on the 1st of July, 1869, and bearing coupons for semi-annual interest.

3d. The holders of what may be termed “Preferred construction bonds,” to the amount of $1,699,500, issued under the Maryland Act of 1844, ch. 281, due thirty-five years after date, with coupons for semi-annual interest, $300,000 of which were also guaranteed by Virginia.

The State of Virginia, having paid as guarantor part of the over-due coupons of each class of bonds, and being also assignee of the claim of Selden, Withers & Co., for payment of other coupons of the Preferred construction bonds, is complainant in the cause. The State of Maryland, the largest and most generous creditor of the Canal Company, has, by an Act of her Legislature, consented to be a party to the bill and submits her rights to the adjudication of the Co,urt. All the legislation of Congress, of Virginia and of Maryland, chartering and aiding this corporation, is referred to and made part of the bill and answers.. The necessities, resources, revenues, loans and financial condition of the Canal Company, from time to time, as set forth in the annual reports of its several presidents, with accompanying documents, are also spread upon the record, giving to the Court all necessary information to enable it fully to understand the important questions it is called upon to decide. A detailed statement of what is thus disclosed, constituting as it does a familiar part of the legislative, judicial and financial history of the State, is unnecessary and could not be given without protracting this opinion to an inordinate length. We shall content ourselves, therefore, with only such reference thereto as is essential to a fair understanding of the several legal points that have been argued and arise for decision.

1st. The holders of the obligations issued to the creditors of the Potomac Company assert for their rights, an absolute priority over all other claims. The argument for this preference, in which there is most force, is that by its charter, and as a fundamental condition thereof, the Canal Company was bound and assumed the obligation to pay the claims of these creditors, in the mode prescribed by»the 12th section of the Act of 1824, ch. 79. It is unquestionably true, that the assent of the Potomac Company, with the transfer of its property, rights and franchises, was essential to, and made a condition upon which the Canal Company obtained its corporate existence, and the provisions in the charter of that company in favor of the stockholders and creditors of the former company, could not be abrogated or impaired, without their assent, by any subsequent acts of the Canal Company, or even by any legislation conjoint or separate on the part of Congress, Virginia or Maryland. It is also true, that by such transfer the Canal Company received substantial and most valuable property, rights and privileges, and may be regarded as having held them clothed with a trust in favor of these creditors, to be performed in the mode specified in its charter. If these creditors, therefore, were now standing upon the terms of the charter, expressly or substantially executed, and had done nothing which could be fairly construed as a waiver or abandonment of the privileges thus secured to them, the preference now claimed could not be successfully resisted. But it was clearly competent for them to waive any lien or priority thus existing and protected, and if they have done so by accepting different terms, and another and different security for their debts, they have lost their preference by their own act, and can have no just cause of complaint. It becomes important, then, to ascertain what the charter of the Canal Company gave them, and what they have accepted and received. The 12th section of the Act of 1824, ch. 79, makes it “ the duty ” of the Canal Company, “ so long as there shall be and remain any creditor of the Potomac Company, who shall not have vested his demand against the same in the stock of the Canal Company, (which the Act enables him to do) to pay such creditor or creditors annually, such dividend or proportion of the net amount of the revenues of the Potomac Company, on "an average of the last five years preceding the organization of the” Canal Company, “as the demand of such creditor or creditors at this time, may bear to the whole debt of $175,800.” By this, the sum of $175,800, the supposed aggregate amount of debts, is made the basis on which the dividend is to be apportioned. The net average revenues for five years being ascertained, it is easy to calculate what per cent, this would pay on the sum stated as the total amount of debts, and the same per cent, must necessarily be paid on the amount due the creditors respectively. Smith vs. Chesapeake and Ohio Canal Co., 14 Peters, 47. Thus, if the net average revenue should be ascertained to amount to three per cent; on $175,800, then each creditor was to receive an annual payment of three per cent, on the entire amount of his claim, thereby making a permanent investment of his debt at an interest of three per cent. This was the extent of the responsibility assumed by the Canal Company, and no lien or preference was given to these creditors beyond the express terms of this contract or obligation. Now what have they accepted and received, and in what position as lien-holders do they now stand? Erom the face of the obligations or bonds issued to them, and now represented in this case, it appears that it having been found difficult to decide what were the net revenues of the Potomac Company, or whether, under a strict construction of the law, it had any net revenues, two resolutions were adopted by the Canal Company in 1834; by the first of which they offered to pay on the 1st of July, 1834, to such of the creditors of the Potomac Company as have not subscribed their claims to the stock of the Canal Company, one-half the amount certified to be due them under the second section of the Act of 1824, ch. 79, provided no such payment shall be made to any creditor who shall not, before a certain time, file in the office of the Canal Company his acceptance of the terms offered by this resolution, as a full satisfaction of his claims against the late Potomac Company and the Canal Company as assignee thereof; and by the second, it was provided that the payment, thus authorized to be made, shall be paid out of the tolls of the Canal Company already received and which may not be indispensable for the completion of the canal below Dam No. 5, and if the disposable tolls on the 1st of July, 1834, shall not be sufficient to satisfy the demands then made, interest shall be allowed from that day until the whole amount admitted to be due under the first resolution, shall be paid, which interest shall be paid, semi-annually, out of the toll account, in preference to any other demand. Each of the creditors whose claims are now before us, signed his acceptance of the terms offered in these resolutions in full satisfaction of his claim against the late Potomac Company and against the Canal Company as assignee thereof, and received from that company its bond for one-half the amount of his debt, issued pursuant to a resolution passed on the 10th of October, 1835, with interest to be paid thereon half-yearly from the 1st of July, 1834. These bonds were actually issued to the several creditors, as they respectively came in from time to time and assented to the prescribed terms, between the 10th of June, 1836 and the 12th of November, 1845, and the semiannual interest was paid upon them to the 1st of January, 1841, This statement of the case clearly enough shows there was a wide and substantial difference between what was secured by the charter and w'hat was actually accepted and received. Instead of an annuity or perpetual dividend of a certain sum, on the whole amount of their respective claims, they agreed to accept part of the principal with semi-annual interest thereon, if not paid at a specified time, and received the bonds of the Canal Company as security therefor. Though called in the proceedings of the Canal Company, and even in the Act of 1844, ch. 281, an adjustment of their claims “under the 12th section” of the charter, it was in fact a compromiso and acceptance of substantially different terms, of diffei’ent amounts and secured in a different way. Being accepted with full knowledge of all the facts, in legal effect and operation, it constituted a waiver of any lien or priority these creditors may have had resting upon the terms of the charter and the character of the original transaction, and consequently, let in to absolute priority over such claims the mortgage to the State of Maryland, of the 23d of April, 1835, to secure its loan of $2,000,000.

But though these creditors have thus lost, by abandonment and waiver, any original lien or priority they may have held, we are yet of opinion they are entitled to the position in the order of preference, assigned to them by the Act of 1844, ch. 281, and to the extent there prescribed. The fifth section of that law in effect provides, that when the revenues of the Canal Company shall be more than sufficient to pay the interest due and in arrear on the bonds which that Act authorized to be issued, the sum of $5,000 shall be annually appropriated by the Canal Company, to pay the interest on the bonds issued to the creditors of the Potomac Company, and out of the surplus net revenues a sinking fund shall be provided for payment of the principal of the Preferred bonds. In the mortgage for the benefit of the preferred bondholders,’the revenues and tolls are devoted in the same manner — 1st, to pay the semi-annual interest on the Preferred bonds; 2d, to pay $5,000 annually to the creditors of the Potomac Company ; and 3d, to provide the sinking fund before mentioned. By a fair and just construction of this Act, the State has, to this extent, waived its liens in favor of these creditors, and by operation of this law and the mortgage referred to, they have a valid lien upon the tolls and revenues of the canal to the extent of $5,000 per annum, prior to the liens of the State, but subsequent to the interest due and in arrear on the Preferred construction bonds. In our opinion, this is their true position in the order of priority, and this is the extent of their lien, and we accordingly so decide and adjudge.

2d. The rights of the holders of the $200,000 Repair bonds are next to be considered and determined. The history and purpose of this loan are fully set forth in the record. It is sufficient to state here, that it appears to have been effected for the purpose of repairing and fitting for transportation that portion of the canal which lies between Dam Ho. 6 and Georgetown; that these repairs were absolutely essential to make that portion of the work westward from Dam Ho. 6 to Cumberland, for the construction of which the Preferred bonds issued under the Act of 1844, ch. 281, were applied, of any practical value whatever. In fact, the repair of this part of the canal seems to have been indispensable to the successful operation, if not to the very existence of the work, and the receipt of any revenue to be applied to the payment of any creditor. At all events, it is perfectly clear, that without these repairs, the security of the preferred bondholders, dependent upon tolls and revenue, would have been utterly worthless. The revenues actually received and in hand were wholly insufficient for the purpose. The loan was' effected upon the guaranty of the State of Virginia. This guaranty was obtained upon the faith of a pledge by the company, of its revenues for their payment, and not until an opinion had been expressed by the Attorney General of Maryland, upon the question being submitted for his opinion by the Governor of the State, that the company had power to issue their bonds and pledge the tolls and revenue of the work for the purpose of raising money to put and keep the canal in good condition and repair, and that this pledge would make such bonds superior and prior, not only to the liens of the State, but also to the bonds issued under the Act of 1844, ch. 281. The bonds thus guaranteed were issued in 1849, were sold for a premium, and, as the record sufficiently discloses, the proceeds were applied to the contemplated repairs, and for purposes clearly covered by the terms of the last proviso to the second section of the law of 1844. Is the debt thus created entitled to priority over all existing liens ? The counsel for the prer ferred bondholders deny the power of the company to effect such a loan, to issue such bonds, or to anticipate its revenues, by any borrowing of money for the purpose of repair on any pledge of the same, so as to create thereby any priority over their lien. Their argument is, and of necessity must be, that the only power which the company had over this mattei’, was to use and apply from time to time, as revenues were actually received and in hand, so much thereof as might be needed for the purpose of repair. Is this position sound ? By the Act of 1843, ch. 124, amending its charter, power was conferred upon the Canal Company, in express terms, to borrow money from time to time, to carry into effect the object of its charter, (chief among which was the construction of the canal and repairing and keeping it in order,) to issue bonds and and other evidences of such loans, and to pledge its property and revenues for the payment of the same, ánd the interest to accrue thereon, in such form and to such extent as its President and Directors, or a majority of them, may deem expedient; provided the prior rights and liens of the State of Maryland under the mortgages theretofore made to it, should not be impaired, and such mortgages should be held binding, except in so far as the same should thereafter be waived, deferred or postponed by the Legislature of the State. By the Act of 1844, ch. 281, the State waived its lien in favor of the Construction bonds, to be issued for the completion of the canal from Dam No. 6 to Cumberland, and declared them to be preferred liens on its tolls and revenues, which were pledged for payment of the same and the interest-to accrue thereon; provided, however, “ that the President and Directors of said company shall, from time to time, and at all times hereafter; have the privilege and authority to use and apply such portion of said revenues and tolls as, in their opinion, may be necessary to put and heep the said canal in good condition and repair for transportation, provide the requisite supply of water, and pay the salaries of officers and agents and the current expenses of the said company.” It is too plain to admit of doubt, that by this Act the State waived her liens upon the tolls and revenues in favor of the application of so much thereof as might be necessary for repairs and other purposes mentioned in this proviso. This reservation was inserted in the law for the very purpose of preserving the life of the corporation, by preventing, and, in effect, prohibiting alienation or suspension of vital powers by a stringent pledge of all its revenues and resources in favor of the Construction bonds about to be issued. To those about to purchase these bonds, the State, by this law, said, in effect, you shall have a lien on the tolls and revenues for payment of the principal and interest of your investments, hut only on so much of them as shall remain after the objects mentioned in this proviso shall have been secured; in other words, the liens of the State are postponed to that of the bondholders, but before either shall be paid, the company shall have power to use and apply its revenues in such way as to preserve the existence of the canal, and keep it a living operative work, capable of earning tolls and revenues, and sub-serving the great public purposes for which its charter was granted. If, then, an emergency for repairs arises, to meet which the receipts from tolls and revenues are insufficient, can the company anticipate them and l'esort to the power granted by its charter, and issue bonds for the purpose, upon the faith and pledge of its after-accruing revenues, in preference to any other lien or claim thereon ? Why not ? It is very clear, that but for the exercise of the power to borrow money on such faith and pledge, the canal would long since have ceased to exist, and if the company has no such power now, the work may become useless and dead at any time. The proviso referred to certainly does not, in express terms, restrict the use and application thereby authorized, to receipts from tolls actually in hand when there is occasion for repairs, and it would be a nari’ow and illiberal construction so to confine it. Tliei’e is nothing in the nature of this corporation, or the purposes intended to be subserved by it, that would warrant such a construction. On the contrary, our predecessors have said that though “it is a private corporation, as distinguished from a public municipal body, it is not of that ordinary kind which is created merely for the pecuniary benefit of its stockholders, but like that of the Baltimore and Ohio Railroad Company, it was designed to promote great public interests, which were its chief objects, and to the accomplishment of which more than ordinary powers were granted, and liberal rules of interpretation for its benefit ought to be adopted in expounding its privileges and rights, for effectuating the designs of the Legislature, and securing the rights of the State in a work of such magnitude, and involving such vast public interests.” Brady vs. The State, 26 Md., 303.

The sovereignties that created this corporation, exerting in its behalf the right of eminent domain, taking from citizens their private property for its use, designed the construction and perpetual maintenance of a great public channel of internal and inter-State commerce, which they declared should be forever “ esteemed and taken to be navigable as a public highway, free for the transportation of all goods, commodities and produce whatever, on payment of tolls to be imposed,” and it would be strange if there could be found in any law passed for the express purpose of' aiding its construction and maintenance, any provision restraining its power to avail itself Df its revenues and resources in such a way as to secure its existence, or if by any law, any authority had been conferred or permission granted, so to bind itself by pledges of its tolls and revenues in favor of any class of creditors, as to disable it from doing what was essential to self-preservation, and thereby work its own destruction. Indeed, it has been argued with great force and upon high authority, that the Legislature could not authorize this corporation so to manacle itself, by any contracts, mortgages or pledges that it could not fulfil its duty to the public for the purpose of its creation, and that quite independently of any legislation, power must be deemed to be reserved for the purpose of keeping it a “ living, going concern;” that like bottomry bonds, which avail for the benefit of all in interest; owners and mortgagees, and take precedence of all other claims, so .loans for repairs vital to the existence of an enterprise like this, likewise availing for the benefit of all interested, must also take precedence of all liens and incumbrances of every kind whatever; that the imperative necessity to keep in repair, as a -claim above all other claims, makes it the duty of this corporation, first, to apply its tolls for that purpose, and if tolls in hand do not suffice, then it is equally its duty to anticipate them by pledge, and to pledges so given for such purposes, all other pledges and mortgages are of necessity subordinate and must yield. But without either assenting to or denying the correctness of the position thus broadly stated, the preference of these Repair bonds ma.y, we think, be safely rested on the narrower ground of granted power. For, adopting those liberal rules of interpretation we are bound 'to apply, in construing for its benefit grants of powers and privileges to this company, we are of opinion the power to effect this loan, to issue these bonds and pledge the future accruing tolls and revenue for their payment in priority over the Preferred bonds and the liens of the State, is contained in the amended charter (Act of 1843, ch. 124,) and in the last proviso to the second section of the Act of 1844, ch. 281. It is said in behalf of the preferred bondholders, that this construction will defeat the objects of this Act of 1844, and the intent of all parties at the time of its passage, with whose rights that law professes to deal; that absolute preference was by that law given to the Preferred bonds, and the State waived its lien for their benefit only and for the specific amount, of bonds thereby authorized to be issued; that every one supposed ample security was provided by this Act, for payment of the interest on the bonds thus preferred, and the ultimate payment of the principal protected ; that the bonds profess upon their face to be preferred liens on the revenues of the company, and no one would have invested his money in them if he had supposed their security and priority could he impaired and superseded by a loan for repairs; that if this construction is to prevail, there is no limit to the power to effect loans for the same purpose, whenever the company may deem it expedient to make them, which will supersede even the present Repair bonds themselves, and thus the security.of the Preferred bonds, as well as the liens of the State, will be completely destroyed and all hope of ultimate payment of these debts will be lost. In answer to this, it may well be retorted, of what value would these Preferred bonds now be, or will they be hereafter, if the power to raise money by loan on the pledge of its revenues for the purpose of repair does not exist in the company ? It cannot be doubted the only value they now bear, arises from the fact that the proceeds of the Repair bonds were expended in making repairs for their benefit, as well as of every other lien creditor, and from the fact, that since that period money has from time to time been borrowed on similar pledges and used for similar purposes. No doubt all parties, at the time the law of 1844 was passed, supposed the revenues of the canal, under the contracts which that Act required to be made, would be sufficient to subserve all the ends that law professed to accomplish, and that all regarded the security as ample; but here, as in a thousand other instances where investments have been made in enterprises of like character, the most confident expectations have been frustrated and the best founded hopes disappointed. All that in reason can be said, is that those who loaned their money on these bonds relied upon a security which they thought was sufficient, which they were willing to accept, but which has hitherto failed them. They took security only upon expected tolls and revenues, and only on so much of them as might remain after repairs and other expenses were first provided for. There is certainly no equity in the pretensions they now assert. But the conclusive answer to their whole complaint is, that by the face of their bonds they were referred to the Act of Assembly, a public statute of a State, under which they professed to be issued, and are in law chargeable with knowledge of all its provisions and of the true construction to be placed upon them by the Courts, And besides this, the mortgage taken for their benefit, recites the proviso in the second section of this Act, as well as all its other provisions, and devotes the mortgaged tolls and revenues to their security only, “after payment of the debts now existing and that may hereafter be contracted and in arrear for repairs on the canal and officers’ salaries.” It is true, if an emergency shall arise for another loan, for the same purpose of repair, the power to effect it can be exercised, and, upon the construction we have given to the law, the debt thus created will have priority over all other liens, including that of the present Repair bonds, but it is not to be assumed this power will be abused, and, from the present condition of the work, it is reasonable to expect the receipts in hand from time to time will always more than suffice for everything needed for repair or contemplated by the proviso referred to. If, however, some unexpected calamity should again unfortunately befall the canal, the exercise of the power is confided to the good faith and sound discretion of those to whom the law has entrusted the management of the -work, and clothed with the duty of protecting the interests of all who have invested their money in it. It is not necessary to pursue the subject further. After the best consideration we are able to bestow upon it, we are satisfied the construction we have given is correct, and accordingly adjudge and determine that these Repair bonds now constitute the first lien on the tolls and revenues of the Canal Company, and are entitled to priority of payment out of the fund in Court.

The principal of these bonds has fallen due since the bill in this case was filed. The State of Virginia was guarantor of the whole, principal and interest, and has paid but part of the interest coupons, remaining as to the rest and the entire principal, in default. By her contract of guaranty she, as -well as the Canal Company, became indebted to the holders of the bonds, her contract being to pay them in case the company failed therein. The latter is, therefore, the principal debtor and the bondholders, are creditors of both, and it is the money of the principal debtor that is now to bo distributed. In this state of case it is very clear, no part of this fund can be appropriated to the defaulting guarantor’, until the claims of the common creditors of both are fully satisfied. The distribution must therefore be, first to the payment in full of all the over-due and unpaid coupons not taken up by Virginia, next to the principal of the bonds, and then Virginia must be re-imbursed what she has paid as guarantor.

3d. Having settled the priority of the Repair bonds, little need be said of the position of the Preferred construction bonds. That is so clearly fixed by the Act of 1844, ch. 281, as to require no comment. They stand next in priority, and the liens of the State have been expressly waived in their favor. Of these, $300,000 were guaranteed by Virginia, part of the over-due interest coupons on which she has paid, and as to the rest is still in default. The principal is not yet due. By the terms of the law, all the bonds are placed on the same footing, “ without any preference or priority over each other on account of date,” and a sinking fund is directed to be provided for the payment of the principal. The overdue interest on these bonds is, therefore, first to be paid, and the fair and just rule to be followed in making distribution for this purpose, is to pay all the outstanding over-due interest coupons, in the order of seniority, whether taken up and paid by Virginia as guarantor, or not. In such distribution as holder of the coupons paid on the bonds guaranteed by her, Virginia is entitled to share in payment pari passu with holders of unpaid and over-due coupons on those not guaranteed.

In this connection, it is proper to consider and dispose of the claim of Selden, Withers & Co., of which the State of Virginia has become assignee. In reference to this claim, the bill charges that the Canal Company, being unable to pay all the interest on the Preferred bonds, due January 1st and July 1st, 1851, and January 1st, 1852, made an arrangement with Selden, Withers & Co., by which it was stipulated the latter should talce up the coupons due on those days, and hold them until the company should be in a condition to pay and redeem them and the interest to accrue thereon in the meantime, the future revenues of the company being at the same time pledged to secure the same; that in consequence of this arrangement, that firm did talce up and hold said coupons, thereby being subrogated to the rights of the original owners, amounting to the sum of $143,000 for $140,000, of which the company afterwards issued to them certificates of debt bearing interest payable semi-annually; that these certificates, with the coupons represented by them, have been transferred to, and are now held by, "Virginia, and constitute a lien upon the tolls and revenues of the canal by virtue of the Act of 1844, ch. 281, and the mortgage in favor of the bondholders executed in pursuance thereof. The bondholders and the State of Maryland, in their answers, deny the complainant was, or is, entitled on account of such assignment, to any lien or priority over their respective claims.

From the proof adduced in support of the allegations of the bill, which must be stated somewhat in detail, it appears the Directors, finding their company would be unable to meet the interest on these bonds falling due January 1st, 1851, at a meeting of their Board, held November 17th, 1850, appointed, by resolution, a committee to negotiate and procure for and on behalf of the company, a loan or advance of such sum of money as would be required to meet and discharge such interest, with power to procure said loan or advance upon such terms, and with such agreements or arrangements in regard to the deposit of the revenues of the company as they may deem expedient, and authorizing their President to issue the necessary instructions for carrying the same into effect, and also to execute, with the common seal of the company, any bond' or instrument of writing, he might deem proper or necessary for effecting and concluding the negotiation of said loan or advance. They also, at the same time, passed a resolution, that subject to existing priorities, sanetioned and authorized by the Act of 1844, ch. 281, the revenues of the company hereafter to accrue, be -pledged for the payment of the principal and interest of the loan or advance that may be obtained under the preceding resolution, and that, from time to time, as in his judgment it. may be necessary or expedient, the President be authorized and required to issue requisitions for the payment of said principal and interest, until the whole of said loan or advance is paid. At a meeting held on the 8th of January, 1851, the President reported, that in pursuance of these resolutions, and upon the terms therein mentioned, the committee had arranged with Selden, Withers & Co. to make such advance as was required for payment of the January, 1851, coupons of interest, and that firm had advanced therefor the sum of $50,000 at legal interest, to be paid from time to time as the funds of the company would permit. He also read his correspondence with that firm and with the collectors at Georgetown and Cumberland, relative to the deposit of the revenues of the company with them; all of which was approved by the Board. At the meeting, held June 2d, 1851, the President stated he had conferred with the same firm in relation to advances required for payment of the interest falling due July 1st, and that they had expressed their willingness to advance the amount required on the terms and conditions of the advance made in January last; whereupon, similar resolutions to those of the preceding November, as to the execution of a bond and pledge of revenues, were passed in reference to the advance for payment of the July interest. On the 13th of November, 1851, Selden, Withers & Co., addressed a letter to the Board, in which they say: “ On settlement of our bank books with your company, we find we have inadvertently returned to you as checks the coupons amounting to $93,000, which coupons we should have retained as security for our advances for interest on the Preferred bonds of the company. We request, therefore, the return to us of the coupons to the amount stated.” This letter was read at a meeting of the Board, held on the same day, and it was ordered that coupons on the Preferred bonds heretofore paid by that firm, and delivered to the Treasurer, to the amount of $93,000, be returned to them as requested, and that that amount of coupons be charged on the books of the company to that firm, the same having been heretofore credited to their account. At the same meeting, the President called to the notice of the Board the propriety of giving said firm satisfactory security for the money which they have advanced or may advance to enable the company to pay the interest on the Preferred bonds; and thereupon a resolution was passed that, after paying current expenses and the interest on certain specified loans for repairs, including the $200,000 Repair bonds, the tolls and revenues of the company are hereby pledged to the payment of all the money, and six per cent, interest thereon, which this firm have advanced or loaned, or which they shall hereafter advance or lend to the company, and that the President be authorized and required to issue, from time to time, requisitions' for the payment of such money, and in consideration of the money expended for, and services rendered to the company by said firm, it is hereby resolved that the account of the company shall be kept with them, and the tolls and income of the company shall be deposited with and be disbursed by requisitions drawn upon them, until all the money which the company shall owe them shall be fully and fairly paid. At a meeting held January 2d, 1852, a letter of the firm bearing date the 1st of December preceding was read, in which they expressed a willingness to advance $50,000 for payment of the coupons due January 1st, 1852, under resolutions heretofore passed by the Board, and the president stated that at the request of the firm, and in compliance with the resolutions of November, 1850, and June, 1851, two bonds of the company each for $50,000, dated December 1st, 1851, payable on demand and bearing interest from the 1st of January, 1852, were issued to them on account of advances made and to be made by them for the payment of coupons of interest on the bonds of the company, which was approved. At another meeting held December 8th, 1852, the president stated that on the 17th of November preceding, three other-bonds, amounting together to $40,000, payable on demand with interest from the 1st of January, 1852, had also been issued to the firm in conformity to the same resolutions of November, 1850, and June, 1851, on account of advances made by them for payment of the coupons of interest on the bonds of the company. This is all the record discloses on the subject of the original character of this transaction. It was agreed, however, that certain notices in the National Intelligencer of that period should be regarded as in evidence, from which it appears the Canal Company, on the 6th of December, 185Q, gave notice that the interest coupons due January 1st, 1851, both on the Repair and Preferred bonds, would be paid on presentation and delivery by Selden, Withers & Co., accompanied with a notice from that firm that they would pay the same at their banking house in Washington. A similar notice from the firm was published on the 21st of Juné, 1851, as to payment of the interest due July 1st, 1851, on both classes of bonds, and on the 25th of June, 1852, a notice was published from its Treasurer, stating the company would be compelled to suspend payment of the interest coupons due July 1st, 1852, on the Preferred bonds.

We have thus stated at length this .proof, because it embraces all the information we have, and is probably all that can be now furnished of the origin and character of the transaction on which this claim is based, and it is entirely by this that its validity must, be determined. It has not been argued, and could not be pretended, that the five bonds or certificates of debt, amounting, in the aggregate, to $140,000, issued to this firm under these resolutions, even if they contained a pledge of the revenues of the company for their payment, standing by themselves, apart from the coupons to that amount they are supposed to represent, constitute, as against the bondholders or the State, any valid prior lien. By themselves, they are simply contracts or obligations of the company, whose payment must be postponed to that of all existing liens. If, in their struggle and zeal to maintain its credit, the President and Directors of the company exceeded their powers and induced this firm to advance their money on the faith alone of these securities, that were and are now unavailing, it is a misfortune which a Court of Justice cannot remedy by depriving other lienors of their legal rights and priorities. The only plausible argument that can be urged in support of this claim, is that the original transaction effected a subrogation and substitution of these bankers, whose money was applied in paying the coupons, in the place and to the rights their owners held under the Act of 1844, and the mortgage in their favor. This right of subrogation is asserted not only against the holders of subsequently maturing and unpaid coupons, and the bondholders themselves, but also against the State of Maryland, who by waiver of her liens occupies as to these coupons and bondholders the position of subsequent mortgagee. It is manifest, however, to our minds, after a careful examination of all the evidence on the subject, that the original arrangement between the company and this firm, (even if an agreement between these parties alone to that effect could establish the priority, and work the substitution now-claimed,) did not contemplate the purchase and holding by the latter of the coupons, in the same manner as they were held by their owners, but an advance or loan of money to the company on security of a pledge of its future revenues and for other considerations, to enable the company to pay and extinguish this portion of its interest debt. The money so applied was in fact the money of the company borrowed for that purpose. The. resolutions and proceedings of the Board throughout speak of the transaction as a loan or advance to the company, and not until long after the January and July interest of 1851 had been paid, and the coupons delivered over to the Treasurer, was the idea of retaining them as security for the loan suggested by the firm, and clearly nothing that was then done could affect the rights of other lienors, which supervened immediately upon payment of the coupons. Nothing can be found in the resolutions, on the terms and conditions of which the firm was willing a.nd did make the advances, providing for retention of the coupons as security. They neither sought nor received any assignment of their liens from the parties whom they paid, nor any assent from them that their coupons should be so treated after payment, as to remain a lien in preference to those subsequently falling due. Mere payment to these creditors worked no such assignment and mere silent receipt of money due them furnishes no ground for presuming any such assent. In Swan vs. Patterson, 7 Md., 164, a mortgage was assigned by the mortgagee to one party, and the equity of redemption by the mortgagor to another, who created subsequent incumbrances on the property and gave his notes, with an endorser as surety, to the assignee of'the original mortgage, for interest due thereon. These interest notes were paid at maturity by the endorser, who claimed, by reason of such payment, to be subrogated, to this extent, to the rights of the original mortgagee, and, therefore, entitled to priority over the subsequent mortgage. He took no assignment from the original mortgagee and the Court rejected his claim, saying “it may be that when he endorsed these notes he supposed he would have the benefit of the security held by the creditor, but if this was his view he should have entitled himself to such indemnity by an agreement to that effect, or by an assignment pro tanto, when the notes were paid.” The parties here by mere payment of the coupons certainly cannot occupy a more favorable position than did this endorser by payment of these interest notes. The cases are entirely analogous, and the law of the former must control our decision of this. Looking carefully to the whole transaction, we find it to be simply a loan of money to a mortgagor, by a third party in no way connected with the mortgage, on the credit of the mortgagor and on an agreed security given by him and accepted by the lender, which money was applied by the lender, under the directions of the borrower, to the payment and discharge in part of the mortgage debt, no assignment of the mortgage being taken or asked by the lender either at the time of the loan or of the application of his money. We think no case can be found— certainly none has been cited — in which the doctrine of subrogation or of equitable assignments has been carried to the extent of protecting a party thus acting, against a subsequent mortgage. The cases of Walker vs. Stone, 20 Md., 195, and Brawner vs. Watkins, 28 Md., 226, are not in conflict with Swan vs. Patterson, and announce no doctrine nor establish any rule of equity within which the present case can be brought. Finding, then, that these coupons were, both in fact and in law, paid and extinguished by the Canal Company, with their money borrowed and applied for that express purpose, this claim to priority by substitution or subrogation must be and is rejected.

4th. The remaining question the case presents is, do the over-due interest coupons, of both the Repair and Preferred bonds, bear interest from their maturity, which is to be allowed payment out of the revenues of the company in preference to the claims of the State of Maryland ? The Supreme Court, in a series of cases, have decided that where coupon bonds, like the present, payable to bearer, are issued by a corporation under proper authority, both the bonds and the coupons, by universal usage and consent, have all the qualities of commercial paper, and are negotiable instruments; that the coupons being written contracts for the payment of a definite sum of money on a given day, drawn and executed in a form and for the purpose of being separated from the bonds, may be sued on without producing the bonds to which they were attached, and that interest being due, as a general rule, on a debt from the time payment is unjustly neglected or refused, interest may be recovered from their maturity on such coupons. Aurora City vs. West, 7 Wallace, 82. The same thing has also been decided by the Courts of several States, and it may now be regarded as a settled doctrine of American law. Without questioning, but, on the contrary, fully recognizing and adopting this law as applicable to cases inter partes — between the coupon holder and the debtor corporation, where the rights of no other parties are involved or affected — we yet consider the question now to be decided in this case, one of an entirely different character. It is mi whether this interest could be recovered against the debtor company, but whether the State of Maryland has waived its liens, so as to allow it to be paid' in preference to its claims.. The State has not permitted that waiver to rest in parol, to be made out by inference from acts in pais, nor left it to the construction of verbal agreements, or even of deeds or other written instruments of that character. It is plainly expressed in a law passed by the Legislature, a public statute of the State, which is to be construed by the same rules that govern the interpretation of other statutes. It is true that in respect of its rights as stockholder in this corporation, and mortgagee of its property and revenues, the State stood in the same position as a private party, yet having dealt with those rights by a public Act of legislation, knowledge of which is to be imputed to every one, there is no reason why the terms of such a law should be extended by construction, beyond the plain, natural signification and import of the language used. It must be construed with a view to the original intent and meaning of its makers, to be collected from the language employed, and the occasion and necessity of its passage. Canal Co. vs. Railroad Co., 4 G. & J., 162. When application was made by the company to the Legislature in 1844, for further-aid to complete the construction of the Canal from Dam No. 6 to Cumberland, the State had not only advanced in subscription for its stock, more than three and a half millions of dollars, but held mortgages and pledges of its entire property and revenues for loans and advances of over two millions more. Having these vast interests at stake, with these valid liens for several millions of dollars entitled to absolute priority over every other claim, the Legislature, unwilling to burden the people with further taxation for further loans, but still desiring to aid the completion of the work, and yet to preserve as far as was consistent with the relief proposed to be given, the State’s liens and priorities, said to the company, you may issue your bonds for a sum which shall not exceed one million seven hundred thousand dollars, and in favor of this debt, with interest to accrue thereon, the liens of the State upon the revenues of the canal shall be waived. This waiver is expressed in the 4th section of the Act of 1844, ch. 281, in these terms: “And be it enacted, that the rights and liens of this State, upon the revenues of the Chesapeake and Ohio Canal Company, shall be held and considered as waived, deferred and postponed in favor of the bonds that may be issued under the aforegoing sections, so as to make the said bonds and interest to accrue thereon preferred and absolute liens on said revenues, according to the provisions of the second section of this Act, until said bonds and interest shall be fully paid.” This language is certainly plain and admits of but one construction. The waiver extends no further than the preference is created and allowed — the latter being made the exact measure of the former, and given to the “ said bonds and interest to accrue thereon.” The term “ interest ” used in this connection, means nothing more than the simple interest that may accrue upon the bonded debt. It does not mean interest to accrue upon interest coupons the company might see fit to attach to their bonds. It is nowhere said in this Act that the liens of the State shall be waived in favor of compound interest, or allowance of interest upon interest to any extent, and there is no rule of construction that will permit us to interpolate into the statute words that will convey such a meaning. The construction which would extend this wraiver to the limit now insisted on by the bondholders, has no more of equity to commend than it has of law to support it. It finds no sanction in any other part of the statute, nor in the occasion or necessity of the Act itself. Could we view the matter in the light of, and gather the intent of the framers of this Act at the time it was passed, from subsequent events and misfortunes that have hitherto befallen the enterprise, and consider the hardships resulting from either construction, the preponderance of equity by no means rests with that upon which the bondholders insist; for if it be considered by them a grievance and a hardship that they have received no interest on their investments for many years, it is equally hard — and measured by the amount involved, much harder— that the State, as stockholder and mortgagee, has never received a cent from its vast expenditure of money in this undertaking. Unless, therefore, there is to be found some plain language in the statute by which the Legislature has said these bondholders may now receive more than a million of dollars in the shape of compound interest, or of interest upon interest, before anything shall be applied to the State’s liens, there is no hardship in confining them, as to priority over the State, to their debts and simple interest thereon. Surely they cannot ask a Court of Justice to strain by construction the language of a law waiving the State’s large liens for their benefit, in order that a result like this may be accomplished. But as we have said, the State having waived its priority only in favor of the liens created and sanctioned by the Act of 1844, ch. 28l, in our opinion the language of the waiver clause in that law, (which is applicable to both the Repair and Preferred bonds,) will admit of no other construction than the one we have placed upon it. It extends to the bonded debts and simple interest that may accrue thereon until they are paid. It does not embrace interest on the over-due interest coupons of either class of bonds, and no priority, therefore, attaches in favor of any interest on these unpaid coupons.

This disposes of all the questions necessary to be decided, and settles the rights and priorities of-the several classes of creditors, parties to this proceeding. It will be easy to state an account distributing the fund in Court and adjusting the rights of parties in accordance with these views. This fund and all like revenues hereafter accruing must, therefore, be applied, as follows:

(Decided 20th June, 1870.)

1st. All the unpaid coupons on the $200,000 of Repair, bonds, not paid and held by the State of Virginia as guarantor, must be first paid in the order of their seniority, then the principal of said bonds with interest thereon from the time they matured until paid, then the coupons on these bonds that have been paid by Virginia as guarantor.

2d. After the principal and interest of the Repair bonds have been paid as above stated, the revenues must then be applied, first, to payment of over-due and unpaid coupons on all the Preferred construction bonds in the order of seniority; and in this distribution those paid and held by Virginia, as guarantor of $300,000 of said bonds, are to share in payment pari passu with those unpaid and held by other parties, but, nothing in such distribution is to be paid' to that State as assignee of any claim of Selden, Withers & Co. After the over-due interest has been thus liquidated the accruing interest on these bonds must be paid, and then $5000 per year to the holders of the bonds issued to the creditors of the Potomac Company, and then the sinking fund for the payment of the principal of the Preferred construction bonds must be raised, applied and paid in the mode prescribed by the 5th section of the Act of 1844, ch. 281.

3d. After the above stated payments shall have been made, the entire surplus revenues of the company must be applied in discharge of the principal and interest of the liens and claims of the State of Maryland.

We are of opinion the complainant is entitled to maintain this bill, and that the supplemental bill filed by Gittings and others, should be consolidated with the present proceedings. The pro forma order dismissing the bill will, therefore, be reversed and the cause remanded to the Circuit Court of Baltimore city for further proceedings in conformity with the views expressed in this opinion. The costs must be paid out of the fund in Court.

Order reversed and, cause remanded.