Stevens v. Louisville & Nashville Railroad

Withey, D. J.

I cannot refrain from expressing personally and officially my acknowledgements for the complete and exhaustive arguments by learned and eminent counsel which distinguished the hearing and submission of these important cases. I approach their consideration with all the aid which the most consummate and elaborate arguments can afford. The opinion will not extend over all the debated ground.

Have the holders of internal-improvement bonds, loaned by the state of Tennessee to a railroad company, under the act in question, any enforceable right, by contract or otherwise, in the statutory lien that is reserved to the state of Tennessee for the payment of the principal and interest of the bonds as they matured? Section 3 provides “that so soon as the bonds of the state shall have been issued for the first section of the road as aforesaid, they shall constitute a lien upon said section, * * * and the state of Tennessee, upon the "issuance of said bonds, and by virtue of the same, shall be invested with said lien * * * for the payment by said company of said bonds, with the interest as the same becomes due.”

This section of the statute relates only to the first division of 30 miles, but the lien there declared is by another part of the act applied and extended to each additional section of 20 miles as fast as completed, and finally to the entire road, as security “for the payment of all bonds issued to the company.” Section 4.

The lien upon the property of the company was effected by virtue of the statute upon the issue of the bonds by tire state and their acceptance by the company. Unless an intention of the legislature to secure the purchaser of the bonds can be implied from the act and the dealing of the parties, the claim of complainants to the relief ashed in these suits rests upon a mere equity. There is no denial that it was the state of Tennessee which was invested with the lien, but it is said that she occupies the position of a surety holding security for the payment of the debt, which security the creditor — the bondholder- — can, upon default of the principal debtor, — the railroad company, — avail himself in equity; that default by the company and by the state in the payment of the interest having occurred, the state becomes, and is, a trustee of this lien for the benefit of the bond holder. It was the state and the railroad company that dealt together in this matter. The state dictated the terms upon which it would grant aid, and the company accepted those terms without reference to what the purchaser of the bonds would say or claim. The bonds were loaned by the state, and passed over to the company to be sold for money to aid or accommodate the company. The bonds were accepted by the company upon the understanding and agreement (1) that the state was invested with a lien upon the company’s railroad and property to secure “the payment by said company of said bonds, with the interest thereon as the same becomes due;” (2,) that the interest should he paid by the company to the financial agent of tho state at least 15 days before it should become due, or satisfactory evidence be produced that it had been paid or provided for; and (3) that the principal of the bonds should be paid by the company by means of a sinking fund in the state treasury, created by the purchase and deposit therein of Tennessee interest-bearing bonds, supposed to be adequate for the purpose of enabling the state to meet its bonds at maturity.

There is nothing in any of these stipulations out of which the relation of the state to the bond holder is changed from that of a principal debtor to a surety; nor does it appear ' how the company becomes debtor to the bond holder in any degree whatever. There is no express promise on its part to the bond holder, nor is any contract relation implied between him and the company. Section 3 contains no language importing such promise. It declares merely that the state- of Tennessee shall be invested with a lien for the payment of the bonds by the company. The state imposes the lien if its aid is accepted and as a condition of the grant. The language may imply a promise by the company accepting the aid to pay the state, but there is no obligation of the company to pay the bond holder resulting either from positive law or from contract express or implied.

The lien was clearly “reserved in favor of the state.” It was the state of Tennessee that, upon the issuance of the bonds, was invested with the lien or mortgage without deed. No other lien could have priority over or come in conflict with the lien of the state. The company was tp deposit the interest money and exchange with the state’s fiscal agent at least 15. days before it became due, or satisfactory evidence that the interest had been paid or provided for. All the suits and proceedings under the act are given as remedies exclusively to the state. The state might have a decree and sell the road for non-payment of any bond. The bond was made by the state for the accommodation of the railway company, and was sold in open market, without any promise by the company other than what is implied to the state by accepting the benefit of the act.

There is no express declaration of trust on the part Of the state. It is sought to raise a trust out of the language of the act, and the principle is invoked applicable to a security given by a debtor to his surety conditioned that it shall be void if the mortgagor pays the debt on which the mortgagee is surety, viz.: that in such case the mortgage will be held both as an indemnity to the surety and as a security for the debt; the surety being .regarded in equity as trustee for the benefit of the creditor, and as having no right to discharge ,or defeat the trust, unless it be to a purchaser for a valuable consideration, without notice. The rule is not questioned. But it is not conceived that this rule would control the express terms of a mortgage or other instrument of security, nor render wholly nugatory the effect of an express reservation of a right of disposition of the mortgaged property by the mortgagee, as is provided in the statute under consideration.

It is not within the province of equity to import conditions into the mortgage. The conditions of this statutory lien were that the company should deposit the interest,money and exchange with the state’s fiscal agent, or furnish evidence of prior payment, and should also pay into the treasury the means of providing a sinking fund for the ultimate payment of the bonds. This dealing was to be with the state, — as to the payment of the principal it must have been; as to the payment of interest it was optional with the company, — and there being no express covenant by the company, a compliance with the conditions named in the mortgage would discharge the lion.

We do not overlook a claim made by one of complainants’ counsel that the intention of the legislature is to be ascertained by the language of the statute declaring the lien, but we think the statute must be construed together, and that the requirements put upon the mortgagor — the conditions of his mortgage, when read in connection with the declaration, many times repeated in the statute, that the lien is the lien of the state — should have great weight in determining the legislative intention. The meaning of the legislation is to be declared from the words and subject-matter of the statute. It is the scope and meaning of the whole enactment, raliher than the literalism of words and phrases, that are to govern. The signification of the entire act, and not a single clause, determines the intention of the law-maker. Thus, section 6, considered with other provisions of the act, is important as reserving to the state the right, through proceedings in court, to sell the road, thereby discharging it from the lien imposed by the statute.

The fact that the state might discharge the lien in such way imports that there was no intention of the law-makers to give a beneficial interest in the security to any one but the state. This view applies with peculiar force where the holder of the security is a state, not amenable to the ordinary process of courts.

This view of the effect of section Q upon the construction as to the legislative intent is not weakened, but fortified, by section 14, which declares that “in the event any of the roads shall be sold under the provisions of the act it shall be the duty of the governor to appoint an agent for the state to attend the sale, and, if necessary, to protect the interests of the state, buy in the road in the name of the state; and, in case the state shall be the purchaser, the governor shall appoint a receiver, who shall take possession of the road and property, and use the same as provided for in the fifth section of this act, and said receiver shall settle his accounts semi-annually with the comptroller, until the next meeting of the general assembly.”

This section imports three things at least as to a sale: (1,) a third person may be a purchaser; (2,) the state may be the purchaser; (3,) that the purchaser obtains a title discharged of the lien. It is manifest that if a stranger buys he takes title freed from all liens imposed by the act upon the property, and there is nothing in the language of the section or in the act to indicate that the state, becoming purchaser, does not take the property equally free from such lien.

The receiver appointed by the governor is to take possession of the road and “use the same as provided for in the fifth section;” that is, in like manner, viz.: “run the same and manage the entire road.” This he is to do until the next meeting of the general assembly, when by clear implication the future management or disposition of the road is left to legislative action.

The contract between the state and the company is that the state shall have a lien “for the payment by said company of said bonds,” but it is nowhere required by the state, and therefore not assented to by the company, that the latter shall pay to the loud holder. It was urged that this language imports payment by the company to the only person then entitled to ask or enforce it. The language must, however, he understood to relate to other parts of the statute, which prescribes specifically the manner of payment by the company, viz.: payment annually into the state treasury of a sum to be employed as a sinking fund.

It is made optional, by section 5, with the company whether it will deposit the interest as it becomes due with the fiscal agent of the state, oí pay the same to the bond holder; and by section 7 the principal was to be paid by setting apart annually, after five years from the completion of the road, a certain per centum of the amount of bonds issued to the company, invested in any bonds of the state and assigned to the governor. This sinking-fund provision would, within the period which the bonds bad to run, place in the treasury of the state an amount sufficient to nearly or quite enable the state to pay the bonds. The Tennessee bonds were generally 6 per cent., and funded in those the time required would be 33 years and two months.

There is nothing in the act to indicate that after the company has complied with these provisions as to interest and sinking fund, and has thus provided the state with the means of payment, that the company was also required to pay to the bond holders. Certainly this was not the condition of the security, as the only way in which a default could occur was by failure of the company to provide for payment of the interest and principal in those specified ways.

But it is said the sinking fund was not to be commenced until five years after the particular road should be completed, and that that event might not take place at all, or not till half or more of the time which the bonds had to run had expired, so that the period might be wholly inadequate in which to provide a sufficient sinking fund for paying the bonds when due, and that this indicates that the lien was not intended as security merely for payment by the company to the state by means of a sinking fund in the manner provided. A statute must be construed from the stand-point, — the circumstances and surroundings of the law-makers, — when it was enacted; and it would be unjust and repugnant to reason and common experience to assume that the legislature passed the act in the expectation that the roads would never be finished, or would not be completed within a reasonable time. Besides, section 12 reserved to the.state ample powers to make such modifications in relation to the time for the sinking fund to commence, and the per cent, annually to be paid into that fund, as would fully protect the interests of the state against delay on the part of the railroad company.

Whatever might be said in regard to the evidence adduced in these cases of contemporaneous construction, through the utterances of state officials in public documents, the action of any department of the state government, or otherwise, there is, in the judgment of the court, nothing to change the views which have been expressed.

Chamberlain v. St. P. & S. C. R. Co., 92 U. S. 299,was decided upon a statute and upon facts siihilar to those in the present cases, and is very instructive. The state of Minnesota, by a constitutional amendment, provided for an issue of its bonds as a loan to the Southern Minnesota Railroad Company, and required such company to convey the lands in question “in trust for the better security of the treasury of the state from loss on said bonds,” and further provided that if the borrowing company should make default in payment of either the principal or interest of the bonds issued by the state, the governor should proceed to sell the lands held in trust by the state. The company accordingly executed a trust conveyance of the lands to the state, conditioned for the payment of the principal and interest of the bonds issued to that company. • The company made default in the payment of interest. The state foreclosed and became the pureasor of the lands, which she granted to another corporation, the defendant in the Chamberlain suit. Chamberlain was holder of some of the state bonds, the payment of which was secured by the trust conveyance, and sought to have a lien upon the land declared in his favor.

In the case at bar, as in that case, the state was primarily liable to tlio holder of the bonds. In the case at bar, as in that case, the state reserved to itself the right of foreclosure and disposition of the property. In deciding that case, Justice Field, after stating the position of the complainant, viz., “that the interest which the state took under the trust deed and .mortgage was only the right to hold them as security against loss upon its bonds; * * that this interest was not changed by foreclosure of the mortgage and by purchase of the property by the state,” uses the following language: “The state was primarily liable to the bond holders, and’it was only between her and the company that the relation of principal and surety existed. It may be doubted whether the bond holders could call upon the company in any event. The indorsement made by the president simply transferred the bonds; it was not the act of the company. Be that as it may, whatever right the plaintiff had to compel the application of the lands received by the state to the payment of the bonds held by him, it was one resting in equity only. It was not a legal right arising out of any positive law or any agreement of the parties. It did not create any lien which attached to and followed the property. It was a' right to be enforced, if at all, only by a court of chancery against the surety. But the state being the surety hero it could not be enforced at all, and, not being a specific lien upon the property, cannot be enforced against the state’s grantees.”

This was said to bo the law of that caso, even if the bond holders could have called upon the company for payment. But, laying this feature aside, the analogies are as before stated, and whatever right the plaintiffs have to claim benefit from the security rests here, as in that case, as a mere equity. There was no legal right, because the law did not impose one, and the company made no promise to the bond holder. Such equity created no lien which followed the property; the liability of the state was to the bond holder. She held no relation as surety to him; as in the Chamberlain case, it was only as between her and the company that in any possible view the state could be regarded as surety, and this view would make it necessary to treat the company as the principal debtor to the bond holder, whereas the company was not the principal debtor, nor, indeed, a debtor to the bond holder in any degree.

The reasoning in the case of Hand v. Railroad Co., in the supreme court of South Carolina — manuscript—referred to on the argument, cannot all be adopted as applicable to these cases, if the conclusions might be.

It is not upon its fact authority. The railroad company made its own bonds, and the state guarantied their payment to the holder by indorsement. The state was secured by a lien upon the company’s road, reserved by the statute which authorized the guaranty. As a surety, the state assumed contract obligations to the creditor — the bond holder. If a creditor has a right to claim the benefit of security given by the debtor to his surety for the latter’s indemnity, it does not follow that the right exists where the principal debtor takes the security from the accommodatee, and where the security holder holds no other relation to the creditor than that of debtor, and the giver of the security is neither a debtor nor surety to the creditor.

It becomes unnecessary to further consider the effect of the reservation of power to the state under section 12. The court has already stated that such reserved power is ample to authorize a modification of the sinking-fund provisions, as has been done by increasing the amount to be paid annually into the sinking fund and changing the time for such payment to commence.

It follows that by this judgment neither the foreclosed nor the non-foreclosed roads are subject to any lien in favor of the holders of internal improvement bonds issued by the state of Tennessee, under the acts passed by that state, and to ■which reference has been made. Other topics presented in the arguments need not be considered.

A decree will be entered in each case dismissing the bill of complaint therein, with costs to defendants, and it is directed that such decrees be drawn and presented for approval.'