135 U.S. 685 (1890), Mcgahey v. Commonwealth of Virginia

Citation:135 U.S. 685, 10 S.Ct. 972, 34 L.Ed. 304
Case Date:May 19, 1890
Court:United States Supreme Court

Page 662

135 U.S. 662 (1890)

10 S.Ct. 972, 34 L.Ed. 304
















In re BROWN.






GREENHOW, Treasurer.

United States Supreme Court.

May 19, 1890

In error to the supreme court of appeals of the state of Virginia.

Appeal from the circuit court of the United States for the eastern district of Virginia.

In error to the circuit court of the United States for the eastern district of Virginia.

In error to the supreme court of appeals of the state of Virginia.


[10 S.Ct. 973] Wm. L. Royall and D. H. Chamberlain, for plaintiffs in error and appellant.

R. A. Ayers and J. R. Tucker, for defendants in error and appellee.


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These cases, like the Virginia Coupon Cases, decided in April, 1885, and reported in 114 U.S. 269, 5 S.Ct. 903, 923, 924, 925, 928, 931, 932, 962, 1020, and like Barry v. Edmunds and other cases argued at the same time, decided in February, 1886, and reported in 116 U.S. 550, etc., 6 S.Ct. 501, arise upon certain tax-receivable coupons attached to bonds of the state

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of Virginia, issued in reduction and liquidation of the state debt under the acts of March 30, 1871, and March 28, 1879. The present appeals are a continuation of the controversy arising upon said coupons as receivable and tendered in payment of taxes and other state dues. The origin of these bonds and coupons has been fully explained in former cases; but the proper disposition of the cases now to be considered will be greatly facilitated by presenting a connected résumé of the legislative acts relating to and effecting the said securities, and of the decisions heretofore made in reference to said acts.

The state debt of Virginia amounted, prior to the late civil war, to more than $30,000,000. After the war, it became a matter of great importance to arrange this debt in such manner as to bring it within the control and means of the state. West Virginia had recently been separated from the parent state, and had participated in the advantages of the money raised by the issue of the state securities. It was supposed by those who were best qualified to know the facts that at least one-third of the state resources was lost by this excision of territory, and the legislature of Virginia deemed it nothing more than equitable that the new state should bear one-third of the state debt. A proposition was therefore made to the bondholders of the state to receive two-thirds of the amount due them in new bonds, payable 34 years after date, with coupons, attached thereto, receivable, after becoming due, in payment of taxes and other claims and demands due to the state. This scheme was formulated by the act of March 30, 1871, entitled 'An act to provide for the funding and payment of the public debt,' and was acquiesced in by the public creditors, or the great majority of them, who accepted and received the bonds provided for in the act, which were looked upon as a favorite security, in consequence of the value attached to the coupons as legal-tender instruments in the payment of taxes and public dues. The act, among other things, provided as follows: 'Sec. 2. The owners of any of the bonds, stocks, or interest certificates heretofore issued by this state, which are recognized

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by its constitution and laws as legal, [except certain specific securities named,] may fund two-thirds of the amount of the same, together with two-thirds of the interest due or to become due thereon to the first day of July, 1871, in six per centum coupon or registered bonds of this state, * * * to become due and payable in thirty-four years after date, but redeemable * * * after ten years, the interest to be payable semi-annually on the first days of January and July in each year. The bonds shall be made payable to order or bearer, and the coupons to bearer, and registered bonds payable to order may be exchanged for bonds payable to bearer, and registered bonds may be exchanged for coupon bonds, or vice versa, at the option of the holder. The coupons shall be payable semi-annually, and be receivable at and after maturity for all taxes, debts, dues, and demands due the state, which shall be expressed on their [10 S.Ct. 974] face. * * *' Provision was made in the third section of the act for the issue of certificates for one-third part of the debt which was not funded in said bonds, the payment of which certificates, it was declared, would be provided for in accordance with such settlement as should thereafter be had between the states of Virginia and West Virginia in regard to the public debt of the state existing at the time of its dismemberment. By the fourth section the treasurer was authorized and directed to cause to be prepared, engraved, or lithograped, registered bonds, and bonds with coupons, and certificates of the character mentioned in the second and third sections, and, when prepared, to commence the issuance of the same. It was further enacted that the bonds and certificates should be signed by the treasurer, and countersigned by the auditor; that the coupons should be signed by the treasurer, or that a fac simile of his signature should be stamped or engraved thereon. The bonds were to be issued in series, and those of each series to be numbered from 1 upwards, as issued; and the coupons, in addition to the number of the bond to which they were attached, were to be numbered from 1 to 67. The surrendered bonds were to be canceled, and deposited in the office of the state treasurer.

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By section 5, certain assets belonging to the state, when realized or converted into money, were to be paid into the treasury to the credit of a sinking fund created for the purchase and redemption of the bonds issued under the act; and after 1880, inclusive, a tax of 2 cents on $100 of the assessed valuation of all property in the state was to be applied in like manner. The treasurer, the auditor of public accounts, and second auditor were appointed commissioners of the sinking fund.

It has always been contended on the part of the bondholders that this statute created a contract between them and the state, firm and inviolable, which the legislature had no constitutional right to violate or impair; and such was for several years the uniform holding of the supreme court of appeals of Virginia. See Antoni v. Wright, 22 Grat. 833, (November term, 1872;) Wise v. Rogers, 24 Grat. 169; Clarke v. Tyler, 30 Grat. 134. A different view, however, has since been taken by the court of appeals, which now holds that the act of 1871 was unconstitutional from its inception, being repugnant to certain provisions of the contitution of the state adopted in 1869. An elaborate argument to this effect is contained in the opinion of the court rendered in one of the cases now before us. Vashon v. Greenhow, [81 Va. 336,] decided January 14, 1886. In ordinary cases the decision of the highest court of a state with regard to the validity of one of its statutes would be binding upon this court; but, where the question raised is whether a contract has or has not been made, the obligation of which is alleged to have been impaired by legislative action, it is the prerogative of this court, under the constitution of the United States and the act of congress relating to writs of error to the judgments of state courts, to inquire and judge for itself with regard to the making of such contract, whatever may be the views or decisions of the state courts in relation thereto.

The decisions of this court, therefore, in reference to the question whether a valid contract was made by the statute in question between the state of Virginia, and the holders of the bonds authorized by said act, are to be considered as binding

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upon us, although a contrary view may have been taken by the courts of Virginia; and in view of this principle of constitutional law, and of the decisions made by this court, we have no hesitation in saying that the act of 1871 was a valid act, and that it did and does constitute a contract between the state and the holders of the bonds issued under it, and that the holders of the coupons of said bonds, whether still attached thereto or separated therefrom, are entitled, by a solemn engagement of the state, to use them in payment of state taxes and public dues. This was determined in Hartman v. Greenhow, 102 U.S. 672, (decided in January, 1881;) in Antoni v. Greenhow, 107 U.S. 769, 2 S.Ct. 91, (decided in March, 1883;) in the Virginia Coupon Cases, 114 U.S. 269, 5 S.Ct. 903, 923, 924, 925, 928, 931, 932, 962, 1020, (decided in April, 1885;) and in all the cases on the subject that have come before this court for adjudication. This question, therefore, may be considered as foreclosed, and no longer open for consideration. It may be laid down as undoubted law that the lawful owner of any such coupons has the right to tender the same after maturity in absolute payment of all taxes, debts, dues, and demands due from him to the state. The only question of difficulty which can arise in any case is as to the mode of relief which the owner of such coupon is entitled to in case they are refused when properly tendered in making his payment, or as to the cases which may be excepted from the operation of his right; for, almost from the start, the legislature of Virginia has from time to time enacted various laws calculated to embarrass the holders of said coupons in the free use of them for the payment of taxes and other dues. As early as March, 1872, an act was passed prohibiting the officers charged by law with the collection of taxes from...

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