The Legislature of the State of Tennessee, on the 11th of
February, 1852, enacted a law "to establish a system of internal
improvements," in which it was provided that the state should issue
to certain railroad companies therein named its negotiable coupon
bonds, and that when the respective roads should be completed, the
state should be invested with a lien upon each road and its
superstructure and equipment, "for the payment of all of said bonds
issued to the company as provided in this act, and for the interest
accruing on said bonds."
Held, in view of other provisions
in the act and of the practical construction put upon it, that the
lien thereby created was created to secure payment to the amount of
indebtedness it thus undertook to incur, and not payment to the
holders of the state bonds thus agreed to be issued, and that the
state could accept payment in other mode or modes than those
pointed out by the act or acts creating the lien, and could cause
the property to be released from it, either by legislation or by
foreclosure under the statute, while the bonds issued to the
company for the construction of the road released or foreclosed
were still outstanding and unpaid.
Hand v. Savannah & Charleston Railroad Co., 13 S.C.
314, distinguished from this case.
Sinking Fund Cases, 99 U. S. 700,
distinguished from this case.
The relation of principal debtor and creditor at no time existed
under the acts of the Legislature of Tennessee referred to in the
opinion of the Court between the railroad companies and the holders
of the state bonds issued under the act, nor did the state at any
time under those acts hold the relation of surety toward such
holders; the state was at the outset and remained the sole debtor
bound on the bonds.
These are suits brought by the holders of unpaid bonds of the
State of Tennessee issued to various railroad companies under the
Act of February 11, 1852, "to establish a system of internal
improvements," to enforce the lien which was vested in the state by
that act on the property of the companies respectively as security
for the payment of the bonds and the accruing interest thereon. The
sections of the act on which the rights of the parties depend are
1, 2, 3, 4, 5, 6, 7, 10, 12, 13, and 14. These are as follows:
"SECTION 1.
Be it enacted by the General Assembly of the
State of Tennessee that whenever the East Tennessee and
Virginia Railroad Company shall have procured
bona fide
subscriptions for the capital stock in said company to an amount
sufficient to grade, bridge, and prepare for the iron rails the
whole extent of the main trunk line proposed to be constructed by
said company, and it shall be shown by said company to
Page 114 U. S. 666
the Governor of the state that said subscriptions are good and
solvent, and whenever said company shall have graded, bridged, and
shall have ready to put down the necessary timbers for the
reception of rails, and fully prepared a section of thirty miles of
said road at either terminus, in a good and substantial manner with
good materials, for putting on the iron rails and equipments, and
the Governor shall be notified of these facts, and that said
section, or any part thereof, is not subject to any lien whatever
other than those created in favor of the state by the acts of
1851-1852, by the written affidavit of the chief engineers and
president of said company, together with the written affidavit of a
competent engineer by him appointed at the cost of the company, to
examine said section, then said Governor shall issue to said
company coupon bonds of the State of Tennessee, to an amount not
exceeding eight thousand dollars per mile on said section, and on
no other condition, which bonds shall be payable at such place in
the United States as the president of the company may designate,
bearing an interest of
six percent per annum, payable
semiannually, and not having more than forty nor less than thirty
years to mature."
"SEC. 2.
Be it enacted that the bonds before specified
shall not be used by said company for any other purpose than for
procuring the iron rails, chairs, spikes, and equipments for said
section of said road and for putting down said iron rails, and the
Governor shall not issue the same unless upon the affidavit of said
president and a resolution of a majority of the board of directors,
for the time being, that said bonds shall not be used for any other
purpose than for procuring the said iron rails, chairs, spikes, and
equipments for said section and for putting down said iron rails,
and the Governor shall have power to appoint a commissioner to act
under oath in conjunction with said president in negotiating said
bonds for the purposes aforesaid and to act in any other matters
pertaining to said company where the interest of the state, in the
opinion of the Governor, may require it."
"SEC. 3.
Be it enacted that so soon as the bonds of the
state shall have been issued for the first section of the road
as
Page 114 U. S. 667
aforesaid, they shall constitute a lien upon said section so
prepared as aforesaid, including the roadbed, right of way,
grading, bridges, and masonry, upon all the stock subscribed for in
said company and upon said iron rails, chairs, spikes, and
equipments when purchased and delivered, and the State of
Tennessee, upon the issuance of said bonds and by virtue of the
same, shall be invested with said lien or mortgage without a deed
from the company for the payment by said company of said bonds,
with the interest thereon as the same becomes due."
"SEC. 4.
Be it enacted that when said company shall
have prepared as aforesaid a second section or any additional
number of sections of twenty miles each of said road connecting
with a section already completed for the iron rails, chairs,
spikes, and equipments, as provided in the first section of this
act, and the Governor shall be notified of the facts, as before
provided, he shall, in like manner, issue to said company like
bonds of the State of Tennessee to an equal amount with that before
issued under the first section of this act for each and every
section of twenty miles of said road so prepared as aforesaid, but
upon the terms and conditions hereinbefore provided, and upon the
issuance of the said bonds, the State of Tennessee shall be
invested with a like mortgage or lien without a deed from said
company upon said stock and upon said first and additional section
or sections of said road so prepared, upon the rails and equipments
put or to be put upon the same for the payment of said bonds and
the accruing interest thereon,
provided that if the last
section of said road shall be less than twenty miles or if the
railroad proposed to be constructed by any company hereinafter
specified shall be less than thirty miles in extent, bonds of the
state shall be issued for such section or such railroad as may be
less than thirty miles in extent for an amount in proportion to the
distance as provided in this act, but upon the same terms and
conditions in all respects as required in regard to the bonds to be
issued for the other sections of said road. And when the whole of
said road shall be completed, the State of Tennessee shall be
invested with a lien, without a deed from the company, upon the
entire road, including the stock, right of way, grading, bridging,
masonry, iron
Page 114 U. S. 668
rails, spikes, chairs, and the whole superstructure and
equipments, and all the property owned by the company as incident
to or necessary for its business, and all depots and depot
stations, for the payment of all of said bonds issued to the
company as provided in this act and for the interest accruing on
said bonds. And after the Governor shall have issued bonds for the
first section of the road, it shall not be lawful for the said
company to give, create, or convey to any person or persons or body
corporate whatever any lien, encumbrance, or mortgage of any kind
which shall have priority over or come in conflict with the lien of
the state herein secured, and any such lien, encumbrance, or
mortgage shall be null and void as against said lien or mortgage of
the state, and the said lien or mortgage of the state shall have
priority over all other claims existing or to exist against said
company."
"SEC. 5.
Be it enacted that it shall be the duty of
said company to deposit in the Bank of Tennessee at Nashville at
least fifteen days before the interest becomes due, from time to
time, upon said bonds issued as aforesaid an amount sufficient to
pay such interest, including exchange and necessary commissions, or
satisfactory evidence that said interest has been paid or provided
for, and if said company fail to deposit said interest as aforesaid
or furnish the evidence aforesaid, it shall be the duty of the
Comptroller to report that fact to the Governor, and the Governor
shall immediately appoint some suitable person or persons, at the
expense of the company, to take possession and control of said
railroad and all the assets thereof and manage the same and receive
the rents, issues, profits, and dividends thereof, whose duty it
shall be to give bond and security to the State of Tennessee, in
such penalty as the Governor may require, for the faithful
discharge of his or their duty as receiver or receivers to receive
said rents, issues, profits, and dividends and pay over the same
under the direction of the Governor toward the liquidation of such
unpaid interest. And if said company fail or refuse to deliver up
said road to the person or persons so appointed by the Governor,
the person so appointed shall report that fact to the Governor, who
shall forthwith issue his warrant, directed to the sheriffs of the
counties
Page 114 U. S. 669
through which said road shall run, commanding them to take
possession of said road, fixtures, and equipments and everything
pertaining thereto and place the said receiver in full and complete
possession of the same, and said receiver so appointed shall
continue in the possession of said road, fixtures, and equipments
and run the same and manage the entire road until a sufficient sum
shall be realized, exclusive of the costs and expenses incident to
said proceedings, to pay off and discharge the interest as
aforesaid due on said bonds, which being done, the receiver shall
surrender said road and fixtures and equipments to said company.
The Comptroller shall from time to time settle the accounts with
the receiver, and the balance shall be deposited in the Treasury of
the state. The Comptroller is authorized, and it is made his duty,
upon his warrant to draw from the Treasury any sum of money
necessary to meet the interest on such bonds as may not be provided
for by the company as provided for in this act, and the Comptroller
shall report thereof to the General Assembly from time to
time."
"SEC. 6.
Be it enacted that if said company shall fail
or refuse to pay any of said bonds when they fall due, it shall be
the duty of the Governor to notify the Attorney General of the
district in which is situated the place of business of said company
of the fact, and thereupon said Attorney General shall forthwith
file a bill against said company, in the name of the State of
Tennessee, in the chancery or circuit court of the county in which
is situated said place of business, setting forth the facts, and
thereupon said court shall make all such orders and decrees in said
cause as may be deemed necessary by the court to secure the payment
of said bonds, with the interest thereon, and to indemnify the
State of Tennessee against any loss on account of the issuance of
said bonds by ordering the said railroad to be placed in the hands
of a receiver, ordering the sale of said road and all the property
and assets attached thereto or belonging to said company, or in
such other manner as the court may deem best for the interest of
the state."
"SEC. 7.
Be it enacted that at the end of five years
after the completion of said road, said company shall set apart
one
Page 114 U. S. 670
percent per annum upon the amount of bonds issued to the
company, and shall use the same in the purchase of bonds of the
State of Tennessee, which bonds the company shall pay into the
Treasury of the state, after assigning them to the Governor, and
for which the Governor shall give said company a receipt, and, as
between the state and said company, the bonds so paid in shall be a
credit on the bonds issued to the company, and bonds so paid in,
and the interest accruing thereon from time to time, shall be held
and used by the state as a sinking fund for the payment of the
bonds issued to the company, and should said company repurchase any
of the bonds issued to it under the provisions of this act, they
shall be a credit as aforesaid and cancelled. And should said
company fail to comply with the provisions of this section, it
shall be proceeded against as provided in the fifth section of this
act."
"SEC. 10.
Be it enacted that the provisions of this act
shall extend to and embrace the Chattanooga, Harrison, Georgetown
and Charlestown Railroad Company, the Nashville and Northwestern
Railroad Company, the Louisville and Nashville Railroad Company,
the Southwestern Railroad Company, the McMinnville and Manchester
Railroad Company, the Memphis and Charleston Railroad Company, the
Nashville and Southern Railroad Company, the Mobile and Ohio
Railroad Company, the Nashville and Memphis Railroad Company, the
Nashville and Cincinnati Railroad Company, the East Tennessee and
Georgia Railroad Company, the Memphis, Clarksville, and Louisville
Railroad Company, and the Winchester and Alabama Railroad Company,
so far as the main trunk roads to be constructed by said companies
lie with the limits of this state, and not otherwise, and said
companies shall have all the powers and privileges and be subject
to all the restrictions and liabilities contained in this act. . .
."
"SEC. 12.
Be it enacted that the State of Tennessee
expressly reserves the right to enact by the legislature thereof,
hereafter, all such laws as may be deemed necessary to protect the
interest of the state, and to secure the state against any loss in
consequence of the issuance of bonds under the provisions
Page 114 U. S. 671
of this act, but in such manner as not to impair the vested
rights of the stockholders of the companies."
"SEC. 13.
Be it enacted that it shall be the duty of
the Governor from time to time, when there shall be reliable
information given to him that any railroad company shall have
fraudulently obtained the issuance of bonds of the state or shall
have obtained any of said bonds contrary to the provisions of this
act, he shall notify the Attorney General of this state, whose duty
it shall be forthwith to institute, in the name of the state, a
suit in the circuit or chancery court of the county of the place of
business of the company setting forth the facts. And when the fact
shall satisfactorily appear to the court that any of said bonds
shall have been fraudulently obtained or obtained contrary to the
true intent, meaning, and provisions of this act, then and in such
case the court shall order, adjudge, and decree that said road,
lying in the state, with all the property and assets of said
company or a sufficiency thereof, shall be sold and the proceeds
shall be paid into the Treasury, and it shall be the duty of the
Comptroller immediately to vest the same in stocks, creating a
sinking fund, as provided for in the seventh section of this act.
And said company shall forfeit all rights and privileges under the
provisions of this act, and the stockholders thereof shall be
individually liable for the payment of the bonds so fraudulently
obtained by such company, and for all other losses that may fall
upon the state in consequence of the commission of any other fraud
by such company, excepting such stockholders as may show to the
said court that they were ignorant of or opposed to the
perpetration of such frauds by the company."
"SEC. 14.
Be it enacted that in the event any of the
roads, fixtures, or property belonging to any of said roads shall
be sold under the provisions of this act, it shall be the duty of
the Governor to appoint an agent for the state who shall attend
said sale and protect the interest of the state and shall, if
necessary to protect said interest, buy in said road or property in
the name of the state, and in case said agent shall purchase said
road for the state, the Governor shall appoint a receiver, who
shall take possession of said road and property
Page 114 U. S. 672
and use the same as provided for in the fifth section of this
act, and said receiver shall settle with the Comptroller
semiannually until the next meeting of the General Assembly."
On the 21st of February, 1852, an act was passed providing for
the identification of the bonds to be issued to the several
companies under the Act of February 11, the material parts of which
are §§ 7, 8, and 9, as follows:
"SEC. 7.
Be it further enacted that the different
internal improvement companies to whom the bonds of the state may
be lent under the different acts of the present legislature shall
pay the expenses of engraving and preparing the same."
"SEC. 8.
Be it enacted that the Governor of the state
shall cause to be engraved and printed the bonds which may be
issued under the acts of the present General Assembly as a loan
made to internal improvement companies, and the said bonds shall
bear date on the first day of January prior to their issuance, and
the coupons thereto shall be payable on the first days of January
and July of each year."
"SEC. 9.
Be it enacted that the coupons shall be signed
and numbered by the Comptroller, and the bonds shall be
countersigned, sealed, and numbered by the Secretary of State, and
upon delivering said bonds to the company authorized to receive the
same, the Secretary of State shall take a receipt, reciting the
number, date, and amount of said bonds, in a well bound book to be
deposited in his office, and the Comptroller and Secretary of State
shall each be entitled to receive twenty-five cents for each bond
so prepared, to be paid by the party receiving the said bond."
By §§ 5 and 6 of an Act of February 21, 1856, the sinking fund
provisions of the act of 1852 were changed as follows:
"SEC. 5.
Be it further enacted that it shall be the
duty of the several railroad companies in this state who have
received or may hereafter receive bonds of the state or the
endorsement of their bonds by the state to aid in the construction
of their said several roads, under the provisions of the act of
1851-1852 and the acts amendatory thereto at the expiration of five
years from the issuance or endorsement of their several bonds,
annually to set apart and pay over to the Treasurer of the
Page 114 U. S. 673
state two percent per annum upon all bonds which have been or
may hereafter be issued or endorsed as aforesaid as a sinking fund
for the ultimate redemption of the bonds issued or endorsed as
aforesaid, which sinking fund, when paid over, the Governor,
Comptroller of the Treasury, and president of the Bank of Tennessee
shall invest in the bonds of the state, and reinvest all accruing
interest in like securities, and they are hereby constituted a
Board of Commissioners for the management, government, and control
of said sinking fund."
"SEC. 6.
Be it further enacted that should any of said
railroad companies fail or refuse to comply with the provisions of
the fifth section of this act, it shall be the duty of the Governor
forthwith to notify the Attorney General of the district in which
is situated the place of business of said company failing or
refusing as aforesaid, of the fact, and thereupon the Attorney
General shall immediately proceed against said company to collect
said sinking fund in the manner prescribed in the sixth section of
an act entitled 'An act to establish a system of internal
improvements in this state,' passed February 11, 1852."
By another act, passed March 20, 1860, the same provisions were
further amended as follows:
"SEC. 1.
Be it enacted by the General Assembly of
Tennessee that the money or bonds that have heretofore or may
be paid by the cities or railroad companies in this state to the
sinking fund commissioners by the first of January, 1860, together
with the accruing interest thereon to that date, shall be passed
directly to the credit of the party having so paid the same, and be
a release to said party for that amount on the debt due by them to
the State of Tennessee."
"SEC. 2. Said bonds shall be all cancelled by said
commissioners, and if endorsed bonds of any railroad company shall
be cancelled as hereinafter provided for the cancellation of state
bonds, and shall be delivered over to said company or corporation,
taking the president's of said company or the officer's of said
company receipt for the same, which receipt shall be filed an the
copy of the same placed upon a book, which the said commissioners
shall keep for that purpose. If
Page 114 U. S. 674
state bonds, they shall be cancelled and filed in the office of
the Secretary of State as hereinafter provided."
"SEC. 3. That after the first day of January, 1860, all railroad
companies or city corporations who have or may hereafter receive
the bonds of the state or its endorsement of their own under the
general internal improvement law of this state or any other law,
shall be required to pay two and one-half percent per annum as a
sinking fund on the amount of the bonds so issued or endorsed by
the state for said company or corporation, to be paid in equal
installments on the first days of April and October, five years
after the date of said bonds, and annually thereafter."
"SEC. 4. All bonds issued during any one year shall be dated on
the first day of January of that year."
"SEC. 5. Said companies or corporations may pay said sinking
fund in cash or in the like character of bonds that may have been
issued or endorsed by the state for said company at their face or
par value."
"SEC. 6. If paid in money, the commissioners shall invest it
immediately in the bonds of the state, and shall have the same
cancelled and filed as heretofore provided. Such bonds are to be of
the same character as those issued to such company or
corporation."
"SEC. 7. The sinking fund, when paid, in all cases shall be
passed directly to the credit of said company or corporation and be
a release to said company or corporation from that amount due by
them to the state. The commissioners shall issue a receipt to each
company or corporation for such payment, retaining a duplicate in a
well bound book kept for that purpose."
"SEC. 8. Each and every railroad company or city corporation
shall provide the interest semiannually, as now provided by law, on
the amount of bonds unpaid at the time said interest falls due, and
not on the original amount issued to or endorsed by the state for
said company as heretofore provided."
"SEC. 9. The Comptroller of the state shall keep a regular
account against each company or corporation, charging them with the
amount of bonds originally issued to or endorsed for
Page 114 U. S. 675
said company or corporation by the state and crediting them by
the amount of sinking fund paid, and shall furnish the Treasurer of
state a statement of the amount due by each company or corporation
on the first of June and December of each year, that he may know
how much interest each company or corporation has to pay."
"SEC. 10. The Commissioners of the Sinking Fund shall cancel all
bonds of the state as soon as paid in or purchased by cutting out
the Governor's and Secretary of State's names, and so defacing each
coupon that it cannot by possibility be used or circulated, and
shall file the same in the Secretary of State's office."
"SEC. 11. This law shall be in full force from and after its
passage, and shall repeal all laws in conflict with it, but shall
not be so construed as otherwise to affect any law on the subject
of the sinking fund or the payment of interest due on state or
endorsed bonds."
Under these statutes, state bonds were from time to time issued
to the several enumerated railroad companies in the following
form:
"
$1,000 $1,000"
"
No. ___ UNITED STATES OF AMERICA No. ___"
"Know all men by these presents that the State of Tennessee
acknowledges to owe to , or order, one thousand dollars of the
lawful money of the United States of America, which the said state
promises to pay in the City of New York, on the ___ day of _____,
18__, with interest thereon at the rate of six percent per annum,
according to the tenor, and upon the presentation, of the coupons
hereunto attached. For the payments of said sums of money, and the
interest thereon at the times and places, and in the manner
aforesaid, the faith of the said State of Tennessee is irrevocably
pledged, this bond being issued in pursuance and by authority of an
Act of the General Assembly of said state passed February 11, 1852,
to establish a system of internal improvements in said state."
"In testimony whereof and in pursuance of the acts
aforesaid,
Page 114 U. S. 676
I, _____ _____, Governor of the State of Tennessee, have
hereunto subscribed my name officially and caused the same to be
countersigned by the Secretary of State, with the great seal of the
state affixed."
"[ ] Done at the Executive Department in the City of Nashville
this __ day of _____, 18__."
To which was attached the following form of coupon:
"
30 THE TREASURER OF THE STATE OF TENNESSEE 30"
"Will pay the bearer THIRTY DOLLARS, in the City of New York, on
the __ day of ______, 1877, being the semiannual interest then
falling due on bond No. _____."
"J. C. SUTTRELL 30"
"
Comptroller"
Upon the issue of the bonds, receipts were executed by the
companies, respectively, in the form required by the statute, in a
well bound book deposited in the office of the Secretary of State.
The bonds, after their delivery, were sold in the market by the
respective companies in conjunction with the state commissioner,
and the proceeds used in the way contemplated by the statute.
No complaint is now made of any default on the part of the
several companies whose roads are involved in these suits prior to
the late civil war. After the beginning of the war, however, but
few payments were made, and various expedients were resorted to
from time to time for relieving the companies from their
embarrassments. In 1866, another act was passed authorizing a
further issue of state bonds under which some of the bonds embraced
in these suits were put out. In this act, the provisions as to the
lien for the security of the payment of the bonds was substantially
the same as in the act of 1852. None of these devices, however,
accomplished the purpose the state had in view, and on the 25th of
February, 1869, "An act to liquidate the state debt contracted in
aid of railroad companies in the State of Tennessee" was passed.
That act is as follows:
Page 114 U. S. 677
"Whereas under the general internal improvement laws of the
state passed from time to time, aid has been granted to various
railroad companies by the loaning of the six percent bonds of the
state to enable said companies to iron, equip, build, and bridge,
and for other purposes, which is now secured to the state by a
first mortgage or lien on the franchise, property, and fixtures of
respective railroad companies, and"
"Whereas it is desirable for the general welfare of the state
that the state shall be reimbursed such amounts as have been
advanced to the different railroad companies as fast as may be
practicable, therefore,"
"SECTION 1.
Be it enacted by the General Assembly of the
State of Tennessee that the respective railroad companies, or
either of them that have created indebtedness to the state, are
hereby authorized to repay any amount of the principal of such
indebtedness as they have respectively created in the bonds of the
state in such amount and at such times as may be practicable,
provided however that nothing in this act shall be so
construed as to release said railroad companies from any lien which
the state may have on the same for any unpaid interest now due on
said bonds of the state, authorized to be surrendered by this
act."
"SEC. 2.
Be it further enacted that any railroad
company or companies repaying any indebtedness due the state under
the provision of this act are authorized to issue bonds of equal
amount and denomination with the bonds of the state paid and
delivered up for cancellation, as hereinafter provided, which said
railroad bonds, so issued in lieu of any equal amount of state
bonds, shall be certified to by the Comptroller and entered in a
book to be kept for that purpose, with date, number, and amount,
and shall be a lien,
pro rata in amount and of equal
validity and effect with the unretired part of the state
indebtedness, upon such railroad, and all its property, franchises,
fixtures, and material."
"SEC. 3.
Be it further enacted that, in order to
facilitate the railroad companies that may wish to avail themselves
of the provisions of this act in repaying the indebtedness due to
the state respectively, they or any of them are hereby
authorized
Page 114 U. S. 678
to consolidate their property, in whole or in part, with other
railroad companies and issue bonds and stock as provided for in the
second section of this act, and may adopt the corporate franchise
of either of the roads as the stockholders may elect, and each
railroad company paying its indebtedness, and such railroad
companies as may consolidate under the provisions of this act are
hereby authorized to determine by a vote of the stockholders of
said company or consolidated companies the number of directors of
such company and elect the same under the new organization, and
that the said directors, so elected, shall, according to the bylaws
and rules of said corporation, elect one of their number president
of said company."
"SEC. 4.
Be it further enacted that the Comptroller of
the state shall receive from the railroad companies, or any of
them, bonds of the state in such amounts as may be presented, and
cancel the same in the presence of the officer or agent of the
railroad company paying them in, and execute to the said railroad
company or companies duplicate receipts for the amount and number
of said bonds so paid in, and it shall further be the duty of the
Comptroller to certify on the bonds of any railroad company or
companies, repaying indebtedness due to the state, that the same
has been paid, and that the so certified [bonds] are secured by
first mortgage,
provided that said railroad companies
shall liquidate their indebtedness prior to the maturity of the
bonds that have caused said indebtedness;
and be it further
provided that said bonds, when executed by the respective
railroad companies or either of them, shall be deposited with the
Comptroller of the state, whose duty it shall be to deliver said
bonds, or any number of them, to the president and directors of the
company on the deposit by said president and directors or
authorized agent of an equal amount of the six percent bonds of the
State of Tennessee with unpaid coupons attached, and the company's
first mortgage bonds, authorized to be issued by this act, shall
have no validity or value except the Comptroller's certificate is
affixed on the face of each bond that said bond is executed, and
issued, and by virtue of law takes the place of a bond of the
state, and is the first mortgage bond. "
Page 114 U. S. 679
"SEC. 5.
Be it further enacted that the Comptroller
shall be entitled to a fee of one dollar on each thousand dollars
of the bonds certified as aforesaid to be paid by the railroad
company for which the same is done, and it shall be lawful for the
Comptroller to discharge the duties imposed by this act by and
through an agent in the City of New York, and all the provisions of
this act shall attach to and become a part of the charter of any
railroad company or companies acting under it."
"SEC. 6.
Be it further enacted that by and with the
consent of the board of directors of any railroad company in this
state under the general improvement law passed the 11th of
February, 1852, and all the amendments thereto, that any person or
corporation may, by paying the indebtedness of such railroad
company to the state in the bonds of the state, as provided for by
law, be, and they are hereby, substituted and entitled to all the
liens against said company for the payment of said debt that the
state had or has by law, and the Governor and Secretary of State
shall give such party or parties paying such indebtedness a
certificate showing the facts, which shall be evidence against said
company of such indebtedness to said individuals or
corporations."
"SEC. 7.
Be it further enacted that any person or
persons may, with the consent and approbation of any railroad
company which is indebted to, and for which the State of Tennessee
holds a lien, pay the said debt, so far as the state is concerned,
in the bonds of the state or any coupons of bonds at par, and the
person or persons so paying the debt of any railroad company with
the consent of such railroad company shall, upon filing with the
Treasurer of this state the written assent of said railroad company
under the corporate seal of said railroad company, be entitled to
have and hold all the lien or liens which the State of Tennessee
had or has upon said railroad or its property, and shall have the
same right to enforce the same which the State of Tennessee had,
the object and intent being to place the person or persons so
paying with the consent of said railroad company in the same
position and with the same rights which the State of Tennessee
had
Page 114 U. S. 680
previous to and before the said payment, and with full power to
enforce the same."
"SEC. 8.
Be it further enacted that any person or
persons who may, with the consent and approbation of any railroad
company, pay any part or portion of the indebtedness of such
company, as provided in sec. ___, shall have, hold, and [be]
subrogated in all the rights, privileges, and lien or liens of the
state to the extent of and in proportion to the amount of such
indebtedness, with the same rights and privileges the state now
has, to the extent of such payment or payments,
provided
the passage of this act shall not decrease the lien of the state
upon any railroad of the state until the entire claim of the state
is fully liquidated, or affect the interest of the present
bondholders of the state,
provided that railroad companies
which have issued second mortgage bonds availing themselves of the
provisions of this act shall file with the Comptroller bonds of the
same series as those loaned to such company, for which the state
holds a first mortgage lien,
provided the bonds to be
issued by the company under the provisions of this act shall not
have a longer time to run than the bonds of the state thus released
and cancelled."
"SEC. 9.
Be it further enacted that this act shall take
effect from and after its passage."
At the next session of the General Assembly, January 20, 1870,
this act was amended as follows:
"
AN ACT FOR THE PAYMENT OF THE STATE DEBT"
"SEC. 1.
Be it enacted by the General Assembly of the State
of Tennessee that an act entitled 'An act to liquidate the
state debt, contracted in aid of railroad companies in the State of
Tennessee,' passed February 25, 1869, be, and the same is hereby,
amended so as to allow any railroad company which may be indebted
to the state by reason of the bonds of the state loaned to said
railroad company to pay into the state, in liquidation of the
principal of said indebtedness, any of the legally issued six
percent bonds of the State of Tennessee outstanding, without regard
to series or number, and such
Page 114 U. S. 681
payment shall, to the extent made, be a full and perfect
discharge of the lien which the state holds upon the property of
such railroad company, held by virtue of the bonds of the state
issued to such railroad company, whether they be the same bonds or
the same series of bonds issued to said company under the act
passed February 11, 1852, and acts amendatory thereof, or not."
"SEC. 2.
Be it further enacted that railroad companies
issuing their own mortgage bonds under the provisions of the act
which this is intended to amend be allowed to fix the rate of
interest which the said bonds of the railroad company are to bear,
and all laws in conflict are hereby repealed,
provided
that when said railroad companies owe interest already due, coupons
past due shall be taken by the Comptroller or Treasurer in
discharge of such indebtedness for interest."
"SEC. 3.
Be it further enacted that when any company,
under the provisions of this act, shall pay into the Treasury of
the state bonds which have been issued by the state to said
company, the said bonds shall be cancelled; but should any company,
in discharge of its own debts, pay into the Treasury any bonds that
were issued to other companies that may still be indebted to the
state, such bonds so paid in shall not be cancelled, but shall be
held by the state as purchased bonds, retaining a lien for the
state upon the road to which said bonds were originally issued
until the debt of said road to the state shall be fully discharged
when the bonds so held shall be cancelled,
provided that
the provisions of this act shall not be so construed as to allow
the payment and satisfaction of debts created by bonds issued by
the state, and upon which the state is secondarily liable, nor to
the payment of the sinking fund, now required by law, of the
railroad companies of this state."
"SEC. 4.
Be it further enacted that this act shall take
effect from and after its passage."
Under these statutes, the companies whose roads are involved in
the present suits against the Memphis and Charleston Railroad
Company, the Louisville, Nashville and Great Southern Railroad
Company, the Nashville and Decatur Railroad Company,
Page 114 U. S. 682
the Nashville, Chattanooga and St. Louis Railroad Company, the
East Tennessee, Virginia and Georgia Railroad Company, the Chicago,
St. Louis and New Orleans Railroad Company, the Memphis and
Tennessee Railroad Company, and the Mobile and Ohio Railroad
Company, by the use of substitution bonds or otherwise, obtained
from the state a discharge of the liens upon their property under
the Act of February 11, 1852, and the acts amendatory thereof, so
far as the state had the right to execute such a discharge. In
doing so, however they used to some extent, other state bonds than
those which were issued to them originally under the provisions of
the act. The bonds so issued and not returned to the state
constitute the causes of action on which these suits are brought
against the companies above named.
To provide for cases where the companies failed to meet their
obligations to the state under the act of 1852 and did not comply
with the provisions of the acts of 1869 and 1870, an Act of
December 21, 1870, was passed, in which, after reciting as
follows:
"
Whereas, in the recent attempt to sell the state's
interest in said roads, various legal questions arose, presenting
serious obstacles to a sale under the act of 1870, which it is
deemed expedient and necessary to obviate before the interest of
the state in said roads shall be again offered for sale,
and
whereas, by the act of 1852, c. 151, section 12, the right is
expressly reserved to the state to enact all such laws in the
future as should be deemed necessary to protect the interest of the
state, and to secure the state against any loss in consequence of
the issuance of bonds under the provisions of said act, in such
manner as not to impair the vested rights of stockholders of the
companies,"
provision was made for a summary proceeding to foreclose the
lien vested in the state, under the act of 1852, and the several
amendatory acts, by filing a bill in equity in the Court of
Chancery at Nashville against the delinquent companies to obtain a
decree for the sale of the interest of the state in their property.
In this act it was provided that the purchase money might "be
discharged in any of the outstanding legal bonds of the state," and
that upon the sale of any of the franchises of either of the
companies,
"all
Page 114 U. S. 683
rights, privileges, and immunities appertaining to the
franchises so sold under its act of incorporation and the
amendments thereto, and the general improvement law of the state
and acts amendatory thereof, shall be transferred to and vest in
such purchaser, and the purchaser shall hold said franchise subject
to all liens and liabilities in favor of the state, as now provided
by law, against the railroad companies."
Under the provisions of this act, the liens on the roads
involved in the suits against the Memphis, Clarksville, and
Louisville Railroad Company, the Nashville and Northwestern
Railroad Company, the McMinnville and Manchester Railroad Company,
the Winchester and Alabama Railroad Company, the Cincinnati,
Cumberland Gap, and Charleston Railroad Company, and the Knoxville
and Kentucky Railroad Company were all foreclosed and the property
sold under decrees which reserved the lien of the state referred to
in the statute
"as far as may be necessary to secure the purchase money as
aforesaid, and the other rights of the state under the decree in
this cause and the said acts of the legislature."
Payments of the purchase money were made in bonds of the State
of Tennessee without distinction. Bonds of the state, issued to the
companies that constructed the foreclosed roads, not taken up at
these sales or otherwise by the state, are the causes of action
embraced in the suits against the last-named companies, and the
defendants in those suits now claim the property under the
purchases at the foreclosure sales, free of all liens in favor of
the state or its bondholders.
The circuit courts dismissed the bills in all the suits, and
these appeals were taken from the several decrees to that
effect.
Page 114 U. S. 685
MR. CHIEF JUSTICE WAITE delivered the opinion of the Court.
After stating the facts as above recited, he continued:
The question which lies at the foundation of all these suits is
whether the statutory lien with which the State of Tennessee was
invested upon the issue of its bonds to railroad companies under
the internal improvement Act of February 11, 1852, and the several
acts amendatory thereof, bound the property of the company to which
the issue was made for the payment of the bonds so issued and the
interest thereon to the several holders thereof, or only to the
state, for if to the state alone, it is conceded the lien has been
discharged, and is no longer operative. The precise point of the
inquiry is for whose benefit the lien was created. Was it the
state, or the bondholders, or both the state and the
bondholders?
The lien which was vested in the state was as security for the
payment by the company of "all of said bonds issued to the company,
as provided in this act, and for the interest accruing on said
bonds." This is the language of the provision for the final lien
which was to attach, on the completion of the whole road, to "all
the property owned by the company, as incident to, or necessary
for, its business." Section 4. To whom this payment was to be made
is nowhere stated in express terms. In the absence of anything to
the contrary, the implication would undoubtedly be that it must be
to the holder of the bond, as he was the person to whom the bond,
as a bond, was payable; but if, on an examination of the whole
statute in the light of surrounding circumstances, and interpreting
it with reference to the subject matter of the legislation, it
appears that the intention was to secure only a payment to the
state of the debt incurred by the company on the loan of the bonds,
there is nothing in the language employed to express the
legislative
Page 114 U. S. 686
will, which necessarily extends the operation of the statute
beyond what is required to give effect to such an intention. It may
be that the legislature used the phrase "payment of the bonds and
the accruing interest thereon" to express the idea of "payment to
the state for the bonds," and, if it did, the statutory lien will
stand only as security for such a payment.
The liability of the companies to the bondholders, if any there
be, rests alone on the statute, which contemplated loans by the
state of its own bonds to the several companies in aid of the
public works they were respectively engaged in constructing. The
bonds were to be "coupon bonds of the State of Tennessee." This
implies state bonds with coupons for interest attached, in the
ordinary form then in use, whereby the faith of a state of the
United States was pledged for their payment. Such must have been
the understanding of all parties at the time, for the bonds
actually issued were of that kind, and on their face bound only the
state. The law made no provision for naming, either in or upon a
bond, the particular company in whose favor it was issued. Neither
did the bonds themselves, as issued, contain by endorsement or
otherwise any obligation whatever on the part of the companies.
They were state bonds, pure and simple, "issued in pursuance and by
authority of an act of the General Assembly of said state, passed
February 11, 1852." They were not even made payable to the
companies to which they were respectively issued, but went on the
market as coupon bonds of the State of Tennessee, payable to the
bearer thereof, and apparently nothing else. In this form, they
were bought and sold by dealers and investors in public securities.
So that the point to be determined from an examination of the
statute is whether a state, when lending its own bonds and taking
back security for their payment, intended to protect those who
might afterwards become the holders of the bonds against the
consequences of its own repudiation or inability to pay or only to
indemnify itself against loss by reason of the loan of its credit
to those who were engaged in constructing its great works of
internal improvement. To say the least, the strong presumption is
that in such a transaction the purpose of a state would be to
protect
Page 114 U. S. 687
itself, and not to secure its own pledge of faith to the
bondholders by a mortgage from those to whom its credit was
loaned.
Such being the subject matter of the legislation, we proceed to
inquire what the payment was which the state intended to secure by
the statutory lien with which it was to be invested. It was to be a
payment. This implies a debt from him who pays to him who
is to receive, and that when the payment is complete the debt will
be discharged. It is not claimed that a borrowing company was to
incur two debts by accepting a loan under the statute -- one to the
state and the other to those who might become the purchasers or
holders of the borrowed bonds. The obligation was to pay the bonds
once, not twice, and the payment was to be made at the time and in
the way provided by the law. Who, then, became the creditor of the
borrowing company when it incurred its debt for the borrowed bonds?
Was it the state or the bondholders?
Much stress was laid in the argument on the provision in section
3, "that so soon as the bonds of the state shall be issued . . . ,
they shall constitute a lien," etc., and it was insisted that, as
the bond constitutes the lien, and the lien is but an incident of
the debt, the lien must continue and follow the bond in the hands
of the holder thereof until it is finally paid and taken up by the
company. From this it was argued that the bondholder must be the
creditor within the meaning of the statute, and that a payment
would not be complete so as to discharge the debt of the company
until it was made to him. Similar language was used in a statute of
South Carolina, passed December 20, 1856, to aid in the
construction of the Charleston and Savannah Railroad, under which
the state guaranteed, by endorsement, the bonds of the railroad
company, and it was provided "that so soon as any such bonds shall
have been endorsed as aforesaid . . . they shall constitute a
lien," etc. This, it was held by the supreme court of that state in
Hand v. Savannah & Charleston Railroad Co., 12 S.C.
314, vested in the state a lien not merely for its own protection
against the guarantee, but also for the
Page 114 U. S. 688
better security of the bonds themselves, into whosesoever hands
they might fall. But, as this Court had occasion to say in
Railroad Companies v. Schutte, 103
U. S. 140,
"Contracts created by or entered into under the authority of
statutes are to be interpreted according to the language used in
each particular case to express the obligation assumed. . . . Every
statute, like every contract, must be read by itself, and it no
more follows that one statutory contract is like another than that
one ordinary contract means what another does. . . . It must be
determined from the language, used in each particular case what has
been done or agreed to be done in that case."
Under the South Carolina statute, the primary liability for the
payment of the bonds to the respective holders thereof rested on
the company, and the state was bound only as surety. This was shown
on the face of the bonds themselves, and the language of the
statute was therefore to be construed with that as the subject
matter of the legislation -- that is to say, a guarantee by the
state of the obligations of the railroad company. Here, the state
is the primary obligor, and the legislation is with reference to a
loan of state bonds, on which the railroad companies are in no way
to appear as bound. The liability of the companies grows out of the
borrowing of state bonds, to be sold in the market as state bonds,
and apparently nothing but state bonds. The loans were to be by the
state to the companies, and the object was to secure the payment of
the loans. It may well be that the same language when applied to
one class of securities means one thing, and when applied to
another class something else. The question now is what does it mean
in this case?
The fact which establishes the lien is the issue of bonds by the
state to a company -- that is to say, the delivery of bonds by the
state to a company under the contract of loan. The lien attaches as
soon as the delivery is complete, and when there is no obligation
on the part of the company to the holders for the payment of the
bonds, because the company is itself the holder, and there can be
no obligation of payment by itself to itself. But the delivery of
the bonds by the state to and their acceptance by a company created
at once an obligation
Page 114 U. S. 689
on the part of the company to pay the loan or, what is the same
thing, pay the bonds to the state. That it was the purpose of the
statute to secure the performance of this obligation on the part of
the company is shown by the fact that from the moment of the
delivery of the first bond to the company, and before the bond
could be negotiated by a sale or transfer to a third person, a lien
was vested in the state by the very act of delivery upon all the
property of the company then acquired or thereafter to be acquired
superior to any other lien or encumbrance which could be created by
the company afterwards. This is the express provision of the last
paragraph in § 4, and while it is said once in the entire act that
the bonds shall constitute the lien, it is repeated again and again
that upon the issue of the bonds the state shall be invested with a
lien, etc. The only place where it is stated that the bonds shall
constitute a lien is that in which provision is made for the issue
on the completion of the first section of thirty miles, and before
the sentence in which this expression appears is completed, it is
declared that the lien is to vest "upon the issuance of the bonds
and by virtue of the same." But when the whole road is completed
and the lien is established on all the property owned by the
company as incident to and necessary for its business, the language
is:
"And when the whole of said road shall be completed, the State
of Tennessee shall be invested with a lien . . . for the payment of
all of said bonds issued to the company as provided in this act,
and for the interest accruing on said bonds."
This shows unmistakably that the state attached no special
importance to the particular phraseology of § 3 with reference to
the issue for the first thirty miles of the road. The evident
purpose of the whole provision was to vest in the state a lien to
secure the obligation which the company assumed in consideration of
the state bonds issued to it in aid of works of internal
improvement to be constructed for the benefit of the public. If
that obligation was to pay the bonds to the several persons who
might become the holders thereof, then the security would run with
the bond; but if the obligation was to pay the state for the bonds,
the security would inure only to the benefit of the state, and
be
Page 114 U. S. 690
subject to the control of the state, without regard to the
bondholders.
The lien was to be "for the payment of all of said bonds issued
to the company, as provided for in this act, and for the interest
accruing on said bonds." It was, as has been seen, to begin as soon
as the bonds were put into the hands of the company, for it was
then and by that act that the liability of the company under the
statute was created. At that time, no one but the state could be
interested in the security, and at that time clearly the lien
operated only as security for the payment of the loan of the bonds.
This could be made by a return of the bonds themselves, or in any
other way provided in the statute. A return of the bonds to the
state would not technically pay the bonds, but it would pay the
loan, and thus cancel the obligation of the company to the state
and discharge the lien. This brings us to the inquiry whether
provision was made in the statute for payment by the company in
some other way than by taking up the bonds from the several holders
thereof, and if so, to whom and how.
The obligation under the statute is to pay the bonds and the
interest accruing thereon. This clearly means payment of the bonds
and the interest in the way provided by the statute, if there be
any. As the liability of the company to pay at all grows out of the
statute, it follows that if a particular mode of payment is
provided for in the statute, payment in that mode is all the
company can be required to make. Looking, then, to the statute, we
find that provision is made in one part for the payment of interest
and the enforcement of that obligation of the company, and in other
parts for the payment of principal.
1. As to interest. § 5 makes it the duty of a company to deposit
in the Bank of Tennessee, at least fifteen days before coupons for
interest on any of the bonds issued to that company fall due, an
amount of money sufficient to pay such interest, including exchange
and necessary commissions, or satisfactory evidence that it has
been paid or provided for. The Bank of Tennessee was established by
the Act of January 19, 1838, "in the name and for the benefit of
the state," and "the faith and credit of the state" were "pledged"
for its support.
Page 114 U. S. 691
The state was its only stockholder, and was entitled to all the
profits of its business. It was the fiscal agent of the state, and
was practically the treasury in which all public moneys were kept.
The state treasurer held none of the state funds in his own hands,
but deposited them all in the bank, where they were placed to the
credit of the "Treasurer of Tennessee," and subject to his checks
drawn according to law, and countersigned by the comptroller. Other
accounts connected with the financial business of the state were
kept in the books of the bank, headed "Interest on state Bonds,"
"Interest paid on state Bonds," "Railroad Companies for Interest,"
and otherwise. The entries made in the books showed the amount
which each railroad company paid in for interest, but the payments
were all passed to the credit of the state, either in the
treasurer's general account or in the account headed "Interest on
State Bonds." The bank paid the interest on all state bonds without
reference to the purpose for which they were issued. It had
correspondents in New York and Philadelphia through whom such
payments were made, and these agents took up the coupons when
presented and forwarded them to the bank, by which they were handed
over to the proper state officers. The moneys paid in by railroad
companies for interest were sent with other moneys of the state to
the New York and Philadelphia agents, by whom they were paid out
upon coupons, no distinction being made as to the different kinds
of bonds. The agents kept no accounts with the companies, and
neither they nor the bank knew what bonds had been issued to any
particular company. No attempts were made, either by the bank or
its agents, to classify or identify coupons, when paid, as being
coupons from bonds issued to one company or another.
In the books of the treasurer of state there was an account
headed "Bank of Tennessee," the reverse of that kept by the bank in
the name of the treasurer. There was also an account headed
"Interest on Capitol Bonds," in which was shown the interest paid
on bonds issued for the statehouse. Besides this, there was an
account headed "Interest on Internal Improvement Bonds," showing
the gross amount paid out on such
Page 114 U. S. 692
bonds, but not by whom the money was furnished nor the numbers
or character of the bonds on which the interest was paid. No
separate accounts were kept in the treasurer's books with the
different railroad companies, and, with the exception of the
distinction between capitol and internal improvement bonds on his
books, the treasurer paid no attention to the different kinds of
bonds, but treated all as equally the obligations of the state.
This was the way in which the business was done by all the
companies, the bank, and the treasurer of the state, as long as the
bank was in operation.
Under these circumstances, it is difficult to see how a deposit
in the bank by a company of the money to pay interest can be
treated otherwise than as, within the meaning of the statute, the
payment by the company of the accruing interest on the bonds which
the company had bound itself to make. The deposit was made to
enable the state to meet its own obligations. It was not placed,
neither by the statute was it required to be placed, to the credit
of the company, but of the state. The bank did not take the money
for the company, but for the state, and consequently the deposit
was accepted and kept as and for state funds. Neither the bank nor
the state was bound either to the companies or to the bondholders
to use the deposits made by a particular company to pay the
interest on bonds issued to that company. The bank is nowhere made
by the law the agent of the company. It was to take, keep, and pay
out according to law, for the state, all moneys deposited or set
apart for the liquidation of accruing interest. If the deposits
made by the various companies were not enough for that purpose, it
was the duty of the comptroller to draw from the treasury, on his
own official warrant, a sufficient amount to make up the
deficiency. No special provision was made in the statute as to the
way in which coupon-holders were to be paid. That was all left to
be determined by such regulations as might from time to time be
adopted for the government of state officers and state agencies in
the payment of state debts. The money, when deposited, became at
once the money of the state, and was in no way thereafter subject
to the control of the depositor. When used to pay maturing
interest, it was
Page 114 U. S. 693
paid by and on behalf of the state, through its own agencies, to
redeem its own pledges of faith to the holders of its own
obligations. The company performed its whole duty to the state when
it deposited in bank, subject to the control of the state, a
sufficient amount of money to meet the interest which was to accrue
on the state obligations fifteen days thereafter, and the expenses
incident to such payment. It is true, an option was given the
company to pay the interest instead of making the deposit, but this
was clearly intended for the convenience of the company, and not
because of any obligation the company was supposed to be under to
the bondholders. Payment, therefore, by a company into the bank of
a sufficient amount of money to enable the state to meet its
accruing interest was, and was intended by the legislature to be,
not only a payment of the interest on the bonds by the company, but
the payment, and the only payment, of interest the lien created by
the statute was to secure. To hold otherwise would be to decide
that the legislature, while providing for a loan of the bonds of
the state to corporations engaged in works of internal improvement,
required the corporations to secure by liens on their own property
not only the payment to the state of the interest on the loan, but
also the redemption by the state of its own pledges of faith to the
future holders of the state bonds that were lent. Certainly no such
construction will be given to the statute unless it is imperatively
demanded, and when provision is made in express terms for a payment
to the state, no second payment of the same debt will be presumed
to have been in the contemplation of the parties in the absence of
some positive requirement to the contrary. The lien must be held to
be for the security of the payment which is expressly provided for,
and no other.
But the correctness of this view of the statute is made still
more apparent by another important provision of the same § 5, to
the effect that if a company failed to deposit the interest at the
time required or furnish the necessary evidence that payment of the
interest had been made or otherwise provided for, the governor
should appoint a receiver to take possession, and run and manage
the railroad of the company until a sufficient
Page 114 U. S. 694
sum was realized from the earnings to discharge such "unpaid
interest." The failure of a company to make its deposit did not
relieve the state from the obligation to keep its faith and pay the
interest to its bondholders at maturity. Consequently, the "unpaid
interest" here referred to must have been the interest for which a
deposit had not been made, and this clearly implies that the
deposit was section the payment which the lien was intended to
secure. Interest on the lent bonds deposited for was paid within
the meaning of the statute, and that not deposited for was unpaid.
A receiver was to be appointed and possession taken only when there
was default on the part of the company in making its deposit.
Nonpayment of interest by the state after the deposit created no
such default. As the statutory remedy for the enforcement of the
statutory lien must be presumed to have been intended to be
commensurate with the lien itself, and this remedy was confined to
cases of default in making deposits, there cannot be a doubt that
it was the understanding of the legislature that a deposit for
interest was a payment of interest on the bonds so far as the
company was concerned, and released the company as well as its
property from all further liability to the state or to anyone else
which had been assumed for interest. The pledge of state faith for
the performance of all state obligations under the act constituted
the only security of the bondholders for the prompt payment of the
interest due to them. The liens on the property of the companies
stood only as security for the payment of the interest on the bonds
to the state.
2. As to the principal. This is provided for in three ways: 1,
by the establishment of a sinking fund, (2) by foreclosure if the
company failed to pay the bonds at maturity, and (3) by foreclosure
and proceedings against guilty stockholders, before maturity if an
issue of bonds was obtained by fraud or contrary to the provision
of the act.
The sinking fund was first established by § 7 of the original
act, which required each company at the end of five years after the
completion of its road, to set apart annually one percent of the
amount of bonds issued to such company, and use it in the purchase
of bonds of the State of Tennessee, which
Page 114 U. S. 695
bonds the company was to pay into the treasury of the state,
taking a receipt therefor, and, as between the state and the
company, the bonds so paid in were to be a credit on the bonds
issued. The bonds paid in, and the accruing interest thereon, were
to be held and used by the state as a sinking fund for the payment
of the bonds issued to the company. If in this way a company
repurchased and paid in any of the bonds issued to it, they were to
be cancelled. Should a company fail to comply with these
provisions, it was to be proceeded against, as in § 5, for a
failure to pay or deposit for interest. This provision was changed
by the act of 1856 so as to increase the annual payments to two
percent on the amount of the issue of bonds, and to require them to
be made in money, and to begin at the end of five years after the
dates of the several issues. The money, when paid into the
treasury, was to be invested by a Board of Sinking Fund
Commissioners in bonds of the state, and all accruing interest was
to be reinvested in like securities. If a company failed to comply
with these provisions of the amending act, it was to be proceeded
against as for a default in the payment of the bonds at maturity
under § 6 of the act of 1852. Under the statutes of 1852 and 1856,
the companies were not released from their obligations to provide
semiannually for the payment of the accruing interest on the entire
issue of bonds. That was still to be kept up notwithstanding the
debt of the company to the state had been reduced by the annual
payments required by § 7.
By the act of 1860, other changes were made which increased the
amount of annual payments to two and one-half percent on the
original issues and allowed them to be made in money or in bonds of
a like character with those issued to the company at their face
value. If paid in money, the Sinking Fund Commissioners were to
invest it immediately in bonds of a like character with those
issued to the company, and have them cancelled. By this act also,
the company was released from the obligation under the act of 1852
to provide for the interest on the whole issue of bonds, and
required to deposit only for that which would accrue on the amount
of bonds "unpaid" at the time the interest fell due. What was
here
Page 114 U. S. 696
meant by the word "unpaid" is shown by §§ 1, 2, and 9 of the
act, which provide that all sinking fund payments, in money or
bonds, made before January 1, 1860, with the accruing interest
thereon to that date,
"shall be passed directly to the credit of the party having so
paid the same, and be a release to said party for that amount of
the debt due by them to the State of Tennessee."
The comptroller of the state was also required to open and keep
a regular account with each company, charging it with the total
amount of bonds originally issued to such company and crediting it
with the amount of the sinking fund paid. It was also made his duty
to furnish to the treasurer of state a statement of the amount due
by each company on the first days of June and December in every
year, "that he may know how much interest each company has to pay"
-- that is, deposit -- "as now provided by law, on the amount of
bonds unpaid at the time said interest falls due, and not on the
original amount issued to . . . said company." Act of 1860, §§ 8,
9.
While it is true that neither the act of 1856 nor that of 1860
can change any contracts the companies may have made with
bondholders under the act of 1852 before their passage, they may be
resorted to in aid of construction to show what had been the
legislative understanding, for a long series of years, of the
meaning of the words "payment of said bonds and the accruing
interest thereon" as used in the original act. The provision of § 7
is that the company shall pay the bonds purchased into the state
treasury, and that for the purchased bonds so paid in, a receipt
shall be given and a credit allowed, as between the state and the
company, on the bonds issued. Thus, the company was required to
make a payment to the state, and for this payment the state was to
give a credit on the bonds. This clearly implies that the loan of
the bonds was to create a debt on the bonds by the company to the
state, and that this debt was to be discharged
pro tanto
on the payment annually into the state treasury of the amount
required by the sinking fund section. If there were nothing else in
the statute, no one would doubt that the payment of the bonds which
the company was required to make was a payment
Page 114 U. S. 697
to the state for the bonds at the times and in the manner
provided.
It is contended, however, that as the credit to be secured by
these payments was only "as between the state and said company,"
the liability of the company to the bondholders is not affected by
what may be done by and with the state. This would be true if there
were any such liability to the bondholders, but the very point to
which our inquiries are now directed is as to whether or not that
liability exists. The phrase relied on and quoted above is
undoubtedly suggestive of some other liability of the company on
the bonds than one to the state, but it does not of itself create
such a liability. If it exists at all, it must be by virtue of some
other provision of the statute. As has already been seen, there is
but one debt, and whatever pays that debt cancels all the
obligations of the company upon the bonds. Whenever, therefore, it
appears that payment of the bonds must be made to one, the idea of
a debt on the bonds to another is excluded. Here, a payment to the
state is absolutely required. This obligation to pay is express,
and has not been left to implication. The provision is that the
sinking fund bonds must be bought and paid in at the appointed
times and to the prescribed amount. If this is not done, the
payment is to be enforced by putting the railroad of the company
into the hands of a receiver and running and managing it until the
requisite amount of money is realized by the state from the
earnings. Under the act of 1856, the payments were required to be
made in money, and in case of default, proceedings for foreclosure
and sale were to be instituted to collect the amount to be paid as
in cases of nonpayment of bonds at maturity. If the statutes of
1852 and 1856 stood alone, it would be clear to our minds that
payments into the sinking fund were to be treated as a release
pro tanto of all the liability of the company on or an
account of the bonds. But the act of 1860 shows beyond all question
that such was the legislative understanding at that time of the
operation of this provision of the original act. It is there
declared in positive language that by the loan of the bonds a debt
was incurred by the company to the state, and
Page 114 U. S. 698
that payments to the sinking fund should release and discharge
the companies
pro tanto from their liability on that
debt.
It is argued, however, that as these payments under all the
statutes were to be held and used by the state as a sinking fund
for the ultimate redemption of the issued bonds themselves from the
several holders thereof, the obligation of the company to pay the
bonds would not be discharged in that way, and some remarks of this
Court in the
Sinking Fund Cases, 99 U.
S. 725, are cited as authority to that effect. The
decision in that case was that the contributions to the sinking
fund, then under consideration, did not pay the debts of the
several companies by which the contributions were made, because
that fund was established not to secure the payment of the bonds of
the United States which had been lent to the companies, but the
repayment to the United States, in the manner and at the time
required by law, of "the amount of said bonds so issued and
delivered to said company, together with the interest thereon which
shall have been paid by the United States." But here the sinking
fund is to be held and used by the state not to discharge the debt
of the company to the state, but that of the state to its
bondholders. It was established not to secure the state, but to
enable the state to pay its own debts at maturity. In this way, all
payments made by the companies to the state on account of the
principal of the bonds were set apart and laid by under investment,
so that at the appointed time they might be used by the state to
redeem its own obligations. The fund in the treasury belonged to
the state, and was not in any manner subject to the control of the
company or to be used to pay its debt. That debt was discharged by
the payments which, under the law, were put into the fund. All
payments out of the sinking fund were to be made by the state on
its own debts, and not on the debt of the company. A sinking fund
may be, and generally is, intended as a cumulative security for the
payment of the debt with which it is connected. In this case, the
debt to which it belongs is that of the state, and not that of the
company, which was paid so as to furnish the state with the means
to create such a fund.
Page 114 U. S. 699
Reference was made in the argument to the way in which, under
the act of 1852 and perhaps that of 1856, the sinking fund was to
be kept and invested, and it was urged that the fund must have been
intended as security for the payment of the bonds to the
bondholders by the company, because if a bond issued to a
particular company was bought by that company and paid into the
fund, it was cancelled, while all other bonds were kept alive to be
held and used by the state to take up at maturity the bonds issued
to the company, which had not been so paid in. The argument seems
to be that, as the purchase of a bond issued to a particular
company and its payment into the fund by that company would of
itself be a payment of that bond by the company both to the state
and the holder, the special provision for the cancellation of such
a bond, while others are to be kept alive, is indicative of a
purpose not to cancel the obligation of the company under the
statute until the company had not only provided the state with the
means to take up all the other outstanding bonds, but until the
state had itself performed its own obligations and actually taken
them up. This is undoubtedly a circumstance to be considered in
determining what the payment was which the state intended the
company should make and for the security of which the lien was
created, but it is not to our minds enough to overcome the many
provisions found in the other parts of the statute which so clearly
show that there was to be but one creditor of the company on
account of the contemplated loans of the bonds, and that creditor
the state. Whatever, therefore, satisfies that creditor under the
law satisfies the debt. We cannot accede to the proposition, so
much relied on by the counsel for the bondholders, that on putting
out the bonds, the company occupied toward the bondholder the
relation of principal debtor and the state that of surety only
until the company made the prescribed payments to the state, and
that after these payments were made, the relations of the parties
changed so that thereafter the state was principal and the company
a surety only. The debt of the company, whatever it was, continued
the same in its relation to all the parties from the time it was
created until it was paid.
Page 114 U. S. 700
There is nothing in the statute which contemplates any change in
the obligations of the parties to wards each other. There may have
been no good reason for keeping some of the state securities paid
into the fund alive and directing that others should be cancelled,
inasmuch as all were to represent state debts for which the state
was equally bound, but that was the will of the legislature, and it
was consequently so enacted. Afterwards this policy was changed,
and all state bonds of whatever character were cancelled by
mutilation as soon as they were paid in, or bought for the sinking
fund. Act of 1860. In this way, all danger of a misappropriation of
securities in the sinking fund was avoided. As bonds issued to
railroad companies under the act could alone be used for the
investment of the fund under this act, their cancellation did not
affect the liability of the several companies thereon to the state,
because that was to continue until payment was made to the state by
the company to which it was issued. Payment by the state to the
bondholder did not discharge the liability of the company on the
bond so paid.
The provision for a foreclosure in case of the failure of the
company to pay at maturity the bonds issued to it is found in § 6,
which makes it the duty of the governor when such a default occurs
to notify the attorney general, who must thereupon file a bill
against the company in the name of the State of Tennessee in the
chancery or circuit court of the proper county. Upon the filing of
this bill, the court is authorized to make such judicial orders,
including the appointment of a receiver and a sale of the road and
all the property of the company, as may be necessary and proper to
secure the payment of the bonds, with the interest thereon, and to
indemnify the state against loss by their issue. We see no special
significance so far as the present question is concerned in the
direction to the attorney general to file the bill in the name of
the state. Without such a direction, there might be doubt whether
the suit to be instituted should be in the name of the attorney
general or of the state. It was probably unimportant whether the
one form or the other was adopted, for in any event the object
would be to enforce the obligation of the
Page 114 U. S. 701
company and collect the money which was due. The legislature,
however, saw fit to avoid all doubt on this subject and to direct
that the proceeding should be in the name of the state. Taken by
itself, therefore, this section adds little if anything to the
other evidence in the statute as to who the creditor was for whose
benefit the money was to be collected. The proceeds of the
foreclosure were to be used to pay the bonds within the meaning of
the statute, and also to indemnify the state against loss. To whom
the payment was to be made must be determined by looking elsewhere.
There is nothing to show that the author of the statute had the
security of the bondholder in his mind when drafting this section
any more than when drafting the others. Payment of the bonds meant
in this section what it did in the others -- no more, no less. It
is true that here payment of the bonds and indemnity to the state
are both spoken of, but payment of the bonds through a proceeding
for foreclosure might not be enough to indemnify the state against
all loss incident to the loan of the bonds. There might be expenses
incurred in the foreclosure which would not be reimbursed by a
simple payment of the amount of the bonds. Indemnity of this and a
like character was evidently the purpose of this particular
provision in the section. It was, in the language of counsel for
the bondholders, to secure the state against
"a money loss . . . in the way of counsel charges, or receiver's
charges, or betterment expenses, or debts not included in the words
'to secure the payment of said bonds.'"
Proceedings for foreclosure before the maturity of the bonds,
and the liability of guilty stockholders in case of issues of bonds
obtained by fraud or contrary to the provisions of the act are
provided for in § 13. This section makes it the duty of the
governor, as soon as he receives reliable information of such fraud
or irregularity, to notify the attorney general, who must at once
institute a suit in the circuit or chancery court of the proper
county. In such a suit, the court is given authority to order a
sale of the road, and the property and assets of the company, or so
much thereof as may be necessary. When such a sale is made, the
proceeds are to be paid into the
Page 114 U. S. 702
treasury and invested by the comptroller in "the same stocks,
creating a sinking fund, as provided for in the seventh section."
The guilty company is also made to forfeit all its rights and
privileges under the act, and its guilty stockholders are made
individually liable
"for the payment of the bonds so fraudulently obtained by such
company and for all other losses that may fall upon the state in
consequence of the commission of any other fraud by such
company."
This is manifestly for the benefit of the state alone. The
bondholder can have no special interest in such a proceeding. His
rights are in no way affected by the fraud of the company in
obtaining the bond he owns. The state is his debtor, and he has no
right to call for the money owing to him until the maturity of his
bond, which will not be until thirty or may be forty years after
the commission of the fraud which gave the state the right to call
at once on the company and its implicated stockholders for the
payment of the bond he holds. It will hardly be contended that it
was intended to make the stockholder individually liable to the
bondholder, yet his liability is for "the payment of the bonds"
just as is that of the company. If in his case payment of the bonds
does not mean payment to the bondholder, it does not in that of the
company. The language of the act is the same in both cases, and
there is nothing whatever to show that as to one it meant one
thing, and as to the other something else. The evident purpose of
this section was to give the state the power, immediately on the
discovery of a fraud, to demand of the company "payment of the
bonds" -- that is, payment of an amount of money equal to that
called for by the bonds -- and a remedy at once against the company
and its implicated stockholders for the enforcement of such a
payment in case it was not voluntarily made. The money when
collected was to be set apart and invested "as a sinking fund for
the payment of the bonds" by the state.
By § 14, it was made the duty of the governor to appoint an
agent for the state to attend all sales made either under § 6 or §
13 to protect the interest of the state and, if necessary for that
purpose, to buy the road or property in the name of the state. If
bought, it was to be put in the hands of a
Page 114 U. S. 703
receiver to manage and run in the way provided in § 5 until the
next meeting of the general assembly. The receiver was to settle
his accounts with the comptroller semiannually, but no directions
were given in relation to the manner in which the net earnings were
to be used in case of a sale under § 6. He was to take possession
of "the said road and property and use the same as provided for in
the fifth section," and, on the settlement of his accounts with the
comptroller, the balances remaining in his hands would necessarily
go into the treasury, there to be dealt with as the general
assembly should direct. If a purchase was made by the state under §
13, the presumption would be that the earnings must go into the
sinking fund, as such was the provision made for the proceeds of a
sale to another purchaser; but all that would necessarily be under
the control of the general assembly when it met.
Having thus gone over the other sections, we are prepared to
consider § 12 in its bearing on the question which is now under
discussion. This section reserves to the state in express terms the
right to enact
"all such laws as may be deemed necessary to protect the
interest of the state, and to secure the state against all loss in
consequence of the issuance of bonds under the provisions of this
act, but in such manner as not to impair the vested rights of the
stockholders of the companies."
This reservation includes, and was undoubtedly intended to
include, full power in the state, as against everyone except
stockholders, to do whatever might be deemed necessary by the
legislature, with the lien reserved for the security of the
obligations assumed by the companies. Nothing is said about
bondholders. It will, of course, be conceded that if bondholders
actually had any vested right or interest as against the state in
the security created by the statute, nothing could be done under
this section by the state to impair that right. But the same was
probably true of stockholders, and the special care taken to
preserve the rights of stockholders, without referring to
bondholders at all, raises a strong presumption that it was never
intended to vest in them any right which would interfere in the
remotest degree with the free exercise of all the power of the
state to deal with the borrowing companies in reference to
Page 114 U. S. 704
the bonds and the security created therefor, just as might,
under any circumstances that should arise, be deemed most for the
interest of the state and the companies, they being the only
parties to the contract of the companies that were to be at all
interested in what was to be done. As has been seen, the bonds to
be issued were on their face to bind only the state. At that time,
repudiation of state faith was not thought of. No purchaser of
state bonds ever asked whether anything else than the faith of a
state was pledged for their payment promptly at maturity.
Repudiation was looked upon as dishonorable, and something that
would never occur. Security to the state against loss by the loans
of its bonds which were provided for must therefore be presumed to
have been the sole purpose of the liens which were to be created on
the issue of the bonds. Bondholders were never thought of in this
connection, for they had the security of the faith of the state,
and could not have been supposed to look for anything else. Hence
this reservation of power by the state was made broad enough to
allow the state to deal with the securities which were taken from
the companies at its own discretion, and in any way that might be
deemed just. No such power could be exercised if the bondholders
held an interest in the securities adverse to the state. Under
these circumstances, this section is to be looked upon as excluding
any such possible intent, and operating as a standing notice to all
who might, from time to time, become the holders of any of the lent
bonds that the payment of the bonds, and the interest thereon,
which the several companies bound themselves for, was to be made to
the state, and not to them, and that the security which was taken
by the state was for the performance of this obligation, and might
be dealt with by the state in any manner its own legislature should
direct or provide. This reservation of power is entirely
inconsistent with the idea of a debt from the company to the
bondholders on account of the bonds, and if there could have been
any doubt on this subject without § 12, there certainly is none
with it.
This disposes of all the cases, for the state, in the exercise
of its legislative discretion, has released each of the
companies
Page 114 U. S. 705
whose property is involved in these suits from all its
obligations growing out of the original loans and has cancelled the
liens created for their security. The companies have either
voluntarily paid their debts to the satisfaction of the state or
the state has foreclosed the lien which was reserved and sold the
property, free of that encumbrance, either to the present
defendants or to those under whom they claim.
Some reliance was placed in the argument for the bondholders
upon the legislative history of the passage of the act of 1852,
which showed an offer and rejection of certain proposed amendments,
and also upon the construction which had been put on the act by
certain state officers of high authority in the administration of
the public affairs; but we have deemed it unnecessary to add to the
length of this opinion by particular reference to that branch of
the argument because, as we think, the statute contains within
itself unmistakable evidence of its meaning. The same is true of
the reference which has been made to other statutes of Tennessee
and to statutes of the states and of the United States upon the
same general subject. This statute differs in its phraseology from
some and perhaps all of the others, but its own language furnishes
all the aid which is required for its true interpretation.
The decree in each of the cases is affirmed.
