Bank v. . Jenkins , 64 N.C. 719 ( 1870 )

In forming the opinion at Chambers that the motion for an injunction should be refused, I had the aid of a full argument by counsel on both sides. The argument at bar has tended to convince me more clearly of the soundness of that conclusion.

The motion is put on the ground that the act of the General Assembly directing the Public Treasurer to deliver to the Railroad Company the half million of bonds deposited for the indemnity of the State, on receiving a like amount of the State, is unconstitutional:

1. It violates the Constitution of the United States, in this, it impairs the obligation of a contract.

There is no contract, express or implied, between the State and the Bank in respect to this half million of bonds. The contract was between the State and the Railroad Company: That the Company should issue two and a half million of bonds only, secured by a first mortgage of the Road, etc.; the State should guaranty the payment of one million; and, to indemnify the State, half a million of the remaining bonds should be deposited with the Public Treasurer. The Bank was no party to this contract. The only contract between the State and the Bank grows out of the fact that the Bank holds $50,000 of the bonds guaranteed by the State. There is no allegation of a violation of the contract of guaranty. So the Constitution of the United States is out of the question.

2. It violates the Bill of Rights, in this, it deprives the Bank of a "vested right." In support of this position, it is said that by the purchase of the bonds the relation of creditor and surety was established between the Bank and the State, and that by a settled doctrine of equity, the creditor acquires a vested (731) right in the indemnity fund held by the State.

It is an admitted doctrine of equity, that a creditor is entitled to the benefit of a fund put by the principal debtor in the hands of a surety for his indemnity. This doctrine of the Courts of Equity is a very refined one; the principle on which it rests is not clear. It is not put on the ground of contract, for there is no contract between the creditor and surety in respect to the fund. A, in order to induce B to become his surety on a debt to C, puts a horse in the hands of B, for his indemnity; there is no contract between B and C in respect to the horse, and so far as C is concerned, it is difficult to see why B may not sell the horse, or, if he choose to surrender the indemnity, and give the horse back to A; that is, provided B is solvent and fully able to pay the debt; for if B is insolvent and is about to make way with the fund, it is a fraud on C which the Court will prevent, by converting B into a trustee of the fund for the benefit of C. In the latter case the equity is clear, but in the former I confess my inability to see any ground on which an equity can rest. If the surety be not insolvent, how does it concern the creditor what he does with the indemnity fund?

This point was called to the attention of the learned counsel who argued for the motion at Chambers, and he was requested by me to look into the books, and aid the Court upon the argument at Bar, by tracing out the principle so as to show from the authorities, whether the equity is put on the ground of contract, or of fraud. On the argument at bar, no case was referred to touching this point, and without looking through the books, on reflection and general reasoning I feel satisfied that it rests on the ground of preventing fraud, and is worked out by converting the surety into a trustee of the fund for the benefit of the creditor.

Wiswall v. Potts, 58 N.C. 184, was relied on in the argument at Chambers, but was not cited in the argument at bar, (732) for the reason, I presume, that it was found not to be in point. In that case, a debtor in failing circumstances, made an assignment to a trustee, for the indemnity of certain of his sureties; the trustee sold the property, and the question was, should he pay the proceeds of sale over to the sureties, or pay it to the creditor in satisfaction of the debt, the Court held, that it must be paid to the creditor, for, inasmuch as the debt constituted the consideration which upheld the deed of trust and saved it from being void as against creditors, by its proper construction, the legal effect of the deed was to vest the property in the trustee, to be sold, and the proceeds of sale applied to the discharge ofthe debt, for the indemnity of the sureties; there being by the construction of the Court, an express trust. The creditor had, of course, a right to enforce it, so it was not necessary to resort to the refined doctrine of converting a surety into a trustee of the indemnity fund, to prevent fraud.

In our case, to say nothing of the fact that there is no allegation of the insolvency of the surety, to-wit: the State, and admitting that a sovereign may, by express agreement, become a trustee, (although there might be difficulty in enforcing even an express trust,) I am not able to see any principle upon which a Court can undertake to declare that it sovereign is about to commit a fraud and, to prevent the supposed fraud, prohibit any disposition of the fund which the sovereign sees fit to make. No case was cited to show such an equity against the sovereign. The equity is a creation of the Court, and it never has been recognized where the sovereign is concerned. It follows that there is no such equity against the sovereign. A distinction was taken in the argument at Chambers, between a sovereign who is a natural person, like Queen Victoria, and a mere ideal sovereign, as the State of North Carolina, but no authority was cited to support it. It must be taken then, that (733) the bank, in purchasing bonds guaranteed by the State, knew that it acquired no vested right in the bonds deposited for the indemnity of the State, and relied solely upon the ability of the Railroad Company and of the State, and the mortgage on the Road, etc. The bank having no vested right in the indemnity fund, the Bill of rights is out of the question.

3. It is said, the bank will be injured by the delivery of these half million of bonds to the Company. That is not clear to my mind: The ability of the surety, the State, to meet the guaranty, will be increased by getting in a half million of its bonds to be cancelled, and thereby lessen the public debt. The ability of the principal debtor, the Rail Road Company, will be increased by having those bonds to dispose of, and the mortgage fund will be enhanced in value, by having the proceeds of these bonds applied to the completion of the Road, which is an express provision of the act. On the other hand, it is true, that a larger amount of the bonds of the Rail Road Company will be put in market, but the act by which the State agrees to guarantee one million of the bonds and requires the deposit of half million as an indemnity, expressly provides that the mortgage shall include the whole two and half millions of bonds. Surely the bank cannot expect the State to cancel these bonds for its benefit, or keep them locked up in the vaults of the Treasury.

But, suppose the bank may be prejudiced if these bonds are delivered to the Rail Road Company; this Court has no power, on that ground, to direct an officer of the State, not to obey an act of the General Assembly. We have held that the Court has the power, and will exercise it, to forbid any officer of the State, from executing an unconstitutional act of the General Assembly: University R. R. Co. v. Holden, 63 N.C. 410. But when the act is not unconstitutional, the Courts have no power to interfere.

So, the whole question turns upon the unconstitutionality of the act, and that has been disposed of. (734)

I concur with the other members of the Court.

Per curiam.

Injunction refused.

Cited: Harrison v. Styres, 74 N.C. 295; Jones v. Thorne, 80 N.C. 75;Matthews v. Joyce, 85 N.C. 266; Lutz v. Cline, 89 N.C. 188; Holder v.Strickland, 116 N.C. 192; Sherrod v. Jenkins, 120 N.C. 67; Gill v.Comrs., 160 N.C. 192.