Board of Liquidation Et Al v. Comb

• Court: United States Supreme Court
• Citation: 23 L.Ed. 623,92 U.S. 531
• Parties: BOARD OF LIQUIDATION ET AL. v. McCOMB
• Decision Date: 01 October 1875

92 U.S. 531

23 L.Ed. 623

BOARD OF LIQUIDATION ET AL. v. McCOMB.

October Term, 1875

APPEAL from the Circuit Court of the United States for the District of Louisiana.

Mr. J. A. Campbell and Mr. J. Q. A. Fellows for the appellants.

Mr. Thomas J. Semmes and Mr. Robert Mott, contra.

MR. JUSTICE BRADLEY delivered the opinion of the court.

The decree appealed from in this case was for a perpetual injunction to restrain the Board of Liquidation of the State of Louisiana from using the bonds known as the consolidated bonds of the State, for the liquidation of a certain debt claimed to be due from the State to the Louisiana Levee Company, and from issuing any other State bonds in payment of said pretended debt.

The decree was made upon a bill filed by the appellee, McComb, a citizen of Delaware, in which he alleges that he is a holder of some of these consolidated bonds, and that the employment of the bonds for the purpose proposed, namely, the payment of the claim of the Levee Company, will be a violation of the pledges given by the act creating the bonds, and will greatly depreciate their value. The bill sets out the circumstances of the case, and prays for an injunction. The defendants demurred; and, the demurrer being overruled, they declined to answer, and stood upon the supposed defects of the plaintiff's case. Thereupon the decree appealed from was rendered; and the question is, whether the injunction ought to have been decreed upon the statements made by the bill.

It appears that, by an act of the legislature of Louisiana, passed the 24th of January, 1874, called the Funding Act, the governor of the State, and other State officers, were created a board of liquidation, with power to issue bonds of the State to an amount not to exceed $15,000,000, or so much thereof as might be necessary for the purpose of consolidating and reducing the floating and bonded debt of the State, and to be called 'consolidated bonds of the State of Louisiana;' which bonds were to bear date the 1st of January, 1874, and to be payable in the year 1914, with interest at seven per cent per annum. The act provided that these bonds should be exchanged by the board for valid outstanding bonds of the State and valid warrants of the auditor issued prior to the passage of the act (except warrants issued in payment of constitutional officers of the State), at the rate of sixty cents in consolidated bonds for one dollar in outstanding bonds and warrants; and that they should be used for no other purpose. An annual tax of five and a half mills on the dollar of the assessed value of all the property of the State was levied, and directed to be collected, to pay the interest on these bonds, and to purchase and retire them. Other provisions were added, making it penal for the officers to divert the funds thus provided, or to obstruct the execution of the act, or to fail in the performance of any of the official duties required by it; and it was declared that no court or judge should have power to enjoin the payment of the bonds or the collection of the tax provided therefor. The eleventh section further declared, that each provision of the act should be a contract between the State and each and every holder of the bonds issued under the act: and section thirteen provided that the entire State debt, prior to the year 1914, should never be increased beyond the sum of $15,000,000 authorized by the act, it being declared to be the intent and object thereof, and of the exchanges to be effected under it, to reduce and restrict the whole indebtedness of the State to a sum not exceeding $15,000,000, and to agree with the holders of the consolidated bonds that said indebtedness should not be increased beyond that sum during said period. On the day of passing this act, the general assembly passed another act, proposing to the people of the State an amendment to the constitution of the State, which was adopted at the ensuing election; and provided that the issue of the consolidated bonds authorized by the funding act should create a valid contract between the State and each holder thereof, which the State should not impair; prohibited the issue of any injunction against the payment of the bonds or levy of the tax; directed that the latter should be levied and collected without further legislation; and declared that, whenever the debt of the State should be reduced below $25,000,000, the constitutional limit should remain at the lowest point reached, until it was reduced to $15,000,000, beyond which it should not be increased.

The language of this clause is explained by the fact that, in 1870, a constitutional provision had been adopted limiting the State debt to $25,000,000; and the further fact, stated in the bill, that in 1874, when the funding act was passed, the outstanding bonds and valid warrants fundable under the act equalled this amount; so that, at sixty cents on the dollar, the debt to be funded would require the issue of the whole $15,000,000 of consolidated bonds. Besides these classes of debts, others to a considerable amount were then outstanding, as will appear further on.

The board of liquidation created by the funding act entered upon the performance of their duties, and, up to the commencement of proceedings in this case, they had issued a little over $2,000,000 under the act.

On the 2d of March, 1875, the general assembly passed an act authorizing the board to issue a portion of the above-mentioned consolidated bonds to the Louisiana Levee Company, in liquidation of a debt claimed to be due it under a contract made with the State in 1871, by which that company was to reconstruct and keep in repair the levees on the Mississippi River and its branches and outlets. The act of 1871, in and by which this contract was made, had provided and set apart certain taxes to be levied and collected throughout the State, to meet the payments which would accrue to the company. But it seems that these taxes had failed to reach their destination, as a committee appointed by the act of 1875, to investigate the subject, reported that there was $1,700,000 still due the company, which had accrued prior to October, 1873, and which the act authorized the board of liquidation to pay in the said consolidated bonds. This debt was not one of the debts to fund which the consolidated bonds had been created. It was not represented by outstanding bonds of the State, nor by valid warrants of the State auditor; and the complainant in this case, in his bill, insists that it is not a debt of the State at all, being provided for by the special taxes appropriated for its payment. Another objection made to the proposal to fund it is, that it is to be paid in full, whilst the funding act authorized the payment of only sixty cents on the dollar of the debts to be replaced by the issue of the consolidated bonds,—the great object of the act being to effect a reduction of the State debt within manageable limits. It is insisted that the act of 1875, authorizing the appropriation of consolidated bonds to the payment of the levee debt, defeats this scheme, and impairs the validity of the contract made with those who have accepted the bonds according to the terms of the Funding Act, and is therefore void. The plaintiff, being a holder of these bonds, filed his bill for an injunction to prevent the consummation of the wrong which he alleges will be committed by carrying out the act of 1875.

The decree of the court below is sought to be sustained on several grounds. In the first place, the appellee contends, that, in consequence of the provisions of the Funding Act, and the constitutional amendment adopted in confirmation of it, the State debt cannot be increased, whereas the assumption of the levee debt (which, it is contended, is not a debt of the State) will directly increase it. As a part of the same proposition, it is contended that the State has deprived itself of the right to issue any bonds at all, except the consolidated bonds created by the Funding Act, to be exchanged for outstanding debts already existing.

We are not prepared to say that the legislature of a State can bind itself, without the aid of a constitutional provision, not to create a further debt, or not to issue any more bonds. Such an engagement could hardly be enforced against an individual; and, when made on the part of a State, it involves, if binding, a surrender of a prerogative which might seriously affect the public safety. The right to procure the necessary means of carrying on the government by taxation and loans is essential to the political independence of every commonwealth. By the internal constitution of a government, it...