Chaffraix v. Board of Liquidation

• Decision Date: 01 March 1882
• Citation: 11 F. 638
• Parties: CHAFFRAIX v. BOARD OF LIQUIDATION and others. [1]
• Court: U.S. District Court — Eastern District of Louisiana

11 F. 638

CHAFFRAIX v. BOARD OF LIQUIDATION and others. ^[1]

United States Circuit Court, E.D. Louisiana.

March, 1882

Henry C. Miller and Thomas Gilmore, for complainant.

J. C Egan, Atty. Gen., John A. Campbell, W. B. Spencer, E. D White, and James McConnell, for defendants.

PARDEE C. J.

The bill in this cause is brought by the complainant, a citizen of France, against the defendants, as members of the state board of liquidation, to prevent the diversion of certain funds, collected by taxation under the consolidated bond acts of 1874, to pay the coupons of the consolidated bonds falling due January 1, 1880, which funds are now in the hands on deposit of one of the defendants. It is alleged that these funds are 'trust funds,' and that the defendants threaten to divert them under authority of the third article of the state-debt ordinance, adopted with the constitution of 1879, reading: 'That the coupon of said consolidated bonds falling due the first of January, 1880, be and the same is hereby remitted, and any interest taxes collected to meet said coupon are hereby transferred to defray the expenses of the state government;' and under act No. 3 of the legislature of 1881, approved January 4, 1882, entitled 'An act to provide for the funding of the interest fund now in the hands of the fiscal agent of the state and to accrue, into bonds of the United States government, and to provide for the payment of the reduced interest due or to become due on the bonds of the state,' and which act transfers the fund collected to pay the January, 1880 coupons of the consolidated bonds to a reduced interest fund. It will be noticed that this last act is in direct conflict with the third article of the debt ordinance, as the latter transfers the fund to pay the general expenses of the state government, while the former transfers the fund 'to pay the reduced interest that is or may become due on state bonds converted or stamped under the ordinance of the constitution of 1879, in reference to the state debt. ' The said article of the debt ordinance of the constitution, and the said act No. 3 of 1881, are alleged by the bill to be in violation of section 10, article 1, of the constitution of the United States, as impairing the obligations of the contract under which complainant's bonds were issued. The bill prays for a receiver and an injunction.

The question necessary to pass upon at this time is merely whether, under the showing made in the bill, an injunction may issue pending the suit; the only objection urged being that the state of Louisiana is the real party defendant, and that, therefore, the court is without jurisdiction by reason of the eleventh amendment to the constitution. This question has been settled in this court of McComb v. Board of Liquidation, 2 Woods, 48, and affirmed by the supreme court, 92 U.S. 531, which was a case arising under the very same act, amendment, and contract as the case under consideration. In that case the defendants sought shelter under the sovereignty of the state as a cover to execute an unconstitutional law of the state; but the courts held that an injunction would lie against them as individuals and as officials of the state, notwithstanding the law or the interest of the state, to prevent them from violating the contract of 1874, and that to such a suit the state was not a necessary party.

If the court has jurisdiction to prevent the defendants from violating the contract between the state and the bondholders by issuing bonds at par, to the detriment of the bondholders' security, what doubt can there be of the jurisdiction of the court to prevent the defendants from diverting the entire security.

No case yet decided in this court denies the jurisdiction to restrain the defendants as individuals from impairing the obligations and securities of the funding acts of 1874.

For my own part I have no doubt that the courts of the United States, if proper cases are made, can prevent any agent of the state, as well as any individual, from diverting a dollar from the fund actually collected under the act and amendment of 1874.

The difficulty is and has been, what use is there in merely tying up the funds? If the bondholders cannot have their dues, why hinder the money from going to pay the expenses of the state? As there is some force in these objections, it is necessary to examine further into the purposes of the present bill.

Every case that has been brought heretofore has been on the theory that the court should compel the levying and collection of the 5 1/2-mill tax provided by act of 1874, or should reach into the treasury of the state and take the moneys of the state and apply them to the payment of the bonded debt of the state, or that the court should by mandatory process carry into full effect the act and amendment of 1874, levy and collect the tax, and pay the bondholders.

The present bill is brought only in relation to such funds as have been levied and collected from the tax-payers of the state under the act and amendment of 1874, and have passed from the tax collectors to the state treasurer, and from the state treasurer to the fiscal agent of the state, where they are now held as a separate and distinct fund, to the credit of the interest fund created by the act of 1874, and is based upon the following propositions of law and fact:

The act of the legislature of Louisiana of 1874, approved January 24th of that year, and the constitutional amendment of 1874, ratified by the people in that year, created a trust fund of all moneys collected and paid over to the state fiscal agent under the said law and amendment for the purposes therein specified, and of that fund, so coming into his hands, the state treasurer, state auditor, and the board of liquidation became the trustees; the holders of the consolidated bonds, issued under the said law and amendment, became primarily the beneficiaries, the state of Louisiana occupying the position of, and having only the interest of, a debtor who has created a trust for the payment of his creditors, and is not a necessary party to this suit.

These propositions seem to me to have great force and plausibility, and they can be supported by very respectable authority.

That a state, by its legislation, or by its public officers duly authorized, can create a trust, convey property, and appoint trustees, see Perry, Trusts, Sec. 30; Com'rs v. Walker, 6 How. (Miss.) 143; State v. Rusk, 21 Wis. 216. That the trustees may be the officers of the state, see Perry, Trusts, Sec. 47, and cases there cited. That the said act and amendment created a trust, see Perry, Trusts, Sec. 82; Maenhaut v. New Orleans, 2 Woods, 108, and the numerous cases there cited by Judge Woods.

That the state treasurer, state auditor, and the board of liquidation are constituted the trustees, see latter part of section 7 of the act of 1874, and the latter part of the first amendment of 1874.

When the proceeds of the 5 1/2-mill tax, under the act of 1874, reached this board of liquidation, no further act of the state-- no order, no appropriation-- was necessary. No discretion was given. The money was to be paid to the bondholders, and the law made it a felony to divert it. See section 7 of act of 1874, and article 1 of amendment.

The interest of the state, if she have any, is that of a cestui que trust subordinate to the bondholders. If a cestui que trust is entitled to a distinct and aliquot share of an ascertained fund, he may maintain a bill against the trustees for that share without joining the cestuis que trust of the remaining fund. See Perry, Trusts, Sec. 882, and authorities there cited.

The bill shows that the fund sought to be reached is not sufficient to satisfy the legitimate demands of the bondholders, and the conclusion ought to follow that the state has no resulting interest.

If all the members of the board of liquidation were private citizens, as two of them are, not holding any state office, what doubt could there be among lawyers as to the fiduciary relation of the board to the bondholders? And, under the authority of a number of adjudicated cases, the fact that the trustees are officials of the state creating the trust would seem to make no difference.

In Com'rs v. Walker, 6 How. (Miss.) 143, the commissioners of the sinking-fund were held to be trustees of that fund, and liable to sue and be sued, although officers of the state.

In State v. Rusk, 21 Wis. 216, the bank comptroller of the state was declared the trustee of the securities in his hands, although he was an official of the state, sworn and bonded.

It is elementary that particular formality is not required in the creation of a trust. Any agreement or contract in writing made by a person having the power of disposal over property, whereby such person agrees or directs that a particular parcel of property, or a certain fund, shall be held or dealt with in a particular manner for the benefit of another, in a court of equity, raises a trust in favor of such other person against the person making such agreement, or any other person claiming under him, voluntarily or with notice.

And it is said that 'equity loves a trust,' and that 'equity will never allow a trust to fail for want of a trustee.'

Now, if the foregoing propositions in regard to the character of the funds levied and collected under the funding acts of 1874, and now in the hands of the defendants, are correct, there would seem to be no doubt as to the power of the court to grant the relief sought in the bill-- first, by preserving the funds until an account can be taken, and then by a receiver, as prayed in the bill, distributing the funds to their proper owners.

But there is a broader view that may be taken of the...