Board of Com'rs of Henderson County v. Travelers' Ins. Co.

• Decision Date: 02 February 1904
• Docket Number: 501.
• Citation: 128 F. 817
• Parties: BOARD OF COM'RS OF HENDERSON COUNTY, N.C., v. TRAVELERS' INS. CO.
• Court: U.S. Court of Appeals — Fourth Circuit

128 F. 817

BOARD OF COM'RS OF HENDERSON COUNTY, N.C., v. TRAVELERS' INS. CO.

No. 501.

United States Court of Appeals, Fourth Circuit.

February 2, 1904

H. S Henderson and O. V. T. Blythe, for plaintiff in error.

Charles Price, Victor S. Bryant, and J. Crawford Biggs (William Bro Smith and R. B. Boone, on the briefs), for defendant in error.

Before SIMONTON, Circuit Judge, and MORRIS and McDOWELL, District judges.

SIMONTON Circuit Judge.

This case comes up on writ of error to the Circuit Court of the United States for the Western District of North Carolina. The cause below was heard by the court without the aid of a jury. Judgment was entered for the plaintiff below. The defendant sued out the writ of error, and the cause comes before this court on the errors assigned.

The pleadings are voluminous, and their substance will appear in this opinion. The Travelers' Insurance Company, a corporation of the state of Connecticut, brought this action against the board of county commissioners of Henderson county, N.C., as the owner and holder of coupons of the value of $5,580, cut from the bonds of the denomination of $1,000 issued by the defendant, 62 of which were held by plaintiff. These 62 bonds were part of an issue of 97 bonds of said defendant on or about 1st July, 1895. In each of the bonds and as part thereof, is the following recital:

'This bond is one of a series of ninety-seven bonds of like date, tenor, amount and effect as this, numbered consecutively from 1 to 97, both inclusive, said bonds being issued pursuant to, and in accordance with, the power and authority given to the Board of Commissioners of Henderson County by an act of the General Assembly of the State of North Carolina, entitled 'An act to authorize the Commissioners of Henderson County to issue bonds,' ratified the 2nd day of February, 1893, and in accordance with the provisions of an act, amendatory thereof, ratified March 13th, 1895. It is hereby certified that no provision of the Constitution or of the laws of North Carolina is in any wise violated by the issue of said bonds, and it is further certified and declared that all acts, requirements and conditions precedent or otherwise to the issue of said bonds have been duly and fully complied with; that the said bonds are in all respects legal, and that the public faith and credit of the said county of Henderson is hereby pledged for the payment and redemption of the same, and all interest coupons thereon as the same respectively fall due.'

The coupons on said bonds had been duly paid semiannually from January 1, 1896, to January 1, 1901. Thereafter payment was refused. Plaintiff avers that it is the bona fide purchaser for value before maturity, in open market, of these bonds. The defendant filed its answer, denying the validity of these bonds, averring that they were unlawfully issued. On this question the case turns.

The issue of 97 bonds, of 62 of which plaintiff below is the holder, was made under the authority of an act of the Legislature of North Carolina, ratified February 2, 1893 (Pub. Acts 1893, p. 69,c. 70), entitled 'An act to authorize the commissioners of Henderson county to issue bonds. ' This act recites that the county of Henderson, by order of her board of commissioners, had entered, in pursuance of law, in the year 1874, an ordinance authorizing an election, by votes of the county, on the question of issuing bonds in aid of the Greenville & French Broad Railroad Company, afterwards called the Spartanburg & Asheville Railroad; that the election was held, and subscription authorized and bonds issued in aid of said railroad to the sum of $100,000, interest at the rate of 7 per cent., payable semiannually, the bonds to mature on 1st July, 1895; and that it was desired to fund said bonds in accordance with law. The act then goes on and authorizes the issue of bonds for that purpose, not exceeding $100,000, payable in 30 years, interest not exceeding 7 per cent. per annum. The second section (page 70) is as follows:

'That the bonds in this act provided for, being intended to be deemed and held a continuation of the liability of Henderson county, created by the provisions of the law, order and election above recited, which authorized the issue of the bonds in aid of the aforesaid railroad, the same shall not be taken, construed, deemed nor held as the creation of a new debt nor liability, but as a continuation of the said debt now existing.'

The fifth section (page 70) authorizes the levy of a tax to pay the interest as it accrues.

It is contended that the bonds issued under this act were invalid, because it was not passed in compliance with section 14, art. 2, of the Constitution of North Carolina, which is in these words:

'No law shall be passed to raise money on the credit of the state or to pledge the faith of the state directly or indirectly for the payment of any debt or to impose any tax upon the people of the state, or to allow counties, cities or towns to do so, unless the bill for the purpose shall have been read three several times in each house of the General Assembly and passed three several readings, which readings shall be on three different days and agreed to by each house respectively and unless the yeas and nays on the second and third reading of the bill shall have been entered on the journal.'

This act of February 2, 1893, was not passed in this way. Does this make the bond issue of 1895 invalid? We must keep in mind that 'the rights of the holders of county bonds are determined in the federal courts by the law of the state as it was declared by the state court to be at the time the bonds were made and put on the market. ' Wilkes Co. v. Coler, 180 U.S. 506, 21 Sup.Ct. 458, 45 L.Ed. 642. These were bonds to refund a debt. An issue of bonds to refund a debt is not the creation of a new debt. It is simply a change of form, renewing and extending a debt already existing. City of Pierre v. Dunscomb, 106 F. 617, 45 C.C.A. 499; Rollins & Long v. County Commissioners, 49 U.S.App. 411, 80 Red. 692, 26 C.C.A. 91; Hughes Co. v. Livingston, 104 F. 306, 43 C.C.A. 553. This doctrine has been recognized by the courts in North Carolina. In Blanton v. Commissioners of McDowell Co., 101 N.C. 532, 8 S.E. 162 Smith, C. J., for the court, says:

'It is perfectly manifest that in the issue of the new bonds in the place of those that had matured, it was not intended to surrender any security which the creditor had for the debt by a novation of the one for the other, but to maintain the indebtedness as essentially one and the same in the different forms assumed. * * * The mere renewed recognition of a subsisting liability in the issue of a new bond, declared in the very act which authorizes the issue 'to be a continuation of the liability' resting upon the county, cannot, upon any sound reasoning, be deemed the creation of a new debt in the sense of its falling under the restrictions applicable to new contracts of indebtedness, with the deprivation of the pre-existent means of enforcing performance by the levy of the necessary taxes.'

This case concerned bonds issued to refund other bonds issued in aid of the Western North Carolina Railroad. So, also, in Broadfoot v. Fayetteville, 128 N.C. 529, 39 S.E. 20, it was held that funding bonds created no new indebtedness or liability when the rate of interest was not increased. And in Smathers v. County Commissioners of Madison County, 125 N.C. 487, 34 S.E. 554, it was held that bonds could be issued to fund necessary expenses of the county, and that they did not come within the provisions of section 14, art. 2, of the Constitution. If, therefore, the original issue of bonds, for the funding of which the act in question provided, was valid, then this act cannot be said to have been passed in violation of this section 14, art. 2, of the Constitution.

Were the bonds originally issued a valid debt on Henderson county? On February 13, 1855 (Priv. Laws 1854-55, p. 269, c. 229) the Legislature of North Carolina passed an act to incorporate the Greenville & French Broad Railroad Company. The first section of the act declared that for the purpose of establishing a communication by railroad from some of the railroads now built or in course of construction in South Carolina along the French Broad valley, across the western part of this state, so as to effect a direct communication between one of said roads in South Carolina and the East Tennessee & Virginia Railroad in East Tennessee, the formation of said company is hereby authorized, which, when formed, shall have corporate existence in each of the states aforesaid, and have all the rights, privileges, and immunities hereafter granted. Then follow 27 other sections, defining and declaring the rights and powers of said company, and a last section, declaring it to be a public act. On February 2, 1857 (Priv. Laws 1856-57, p. 72, c. 77), this act was amended so as to authorize said company to construct the northern portion of said road, extending from Asheville, or some convenient point within two miles thereof, to the state of Tennessee. On February 16, 1859 (Priv. Laws 1858-59, p. 212, c. 166), this act was further amended so as to authorize any of the counties through which said road is intended to pass to subscribe to the capital stock of said company any sum or sums that may be determined on by the court of pleas and quarter sessions of said county, a majority of the justices of the peace of said county being present, and approved by a majority of the lawfully qualified voters of such county, to be ascertained as thereafter provided. Then follow directions how the vote of the people shall be had. The third section authorizes the court, if the majority of the voters of the county...