Coler v. Board of Com'rs of Stanly County

• Decision Date: 12 August 1898
• Docket Number: 42.
• Citation: 89 F. 257
• Parties: COLER et al. v. BOARD OF COM'RS OF STANLY COUNTY et al.
• Court: U.S. Court of Appeals — Fourth Circuit

89 F. 257

COLER et al. v. BOARD OF COM'RS OF STANLY COUNTY et al.

No. 42.

United States Circuit Court, W.D. North Carolina.

August 12, 1898

Charles Price, for complainants.

Benj. F. Long, D. Scheck, Jr., A. C. Avery, and J. E. Shepherd, for respondents.

SIMONTON Circuit Judge.

This is an application for an injunction to be directed to the board of commissioners of Stanly county, and I. W. Snuggs treasurer of the county. The case arises in this way: The Yadkin Railroad Company is a corporation created under the law of the state of North Carolina, authorized to construct a railroad from Salisbury south to Norwood, a point in the county of Stanly. The corporation was created by an act of assembly in 1870, and the charter was amended by an act passed in 1887. Under the provisions of the amended act, the county of Stanly was expressly authorized to subscribe to the capital stock of this railroad. The question having been duly submitted to a popular vote of the people of this county, by an overwhelming majority a subscription was authorized of $100,000, to be made in coupon bonds, some in the denomination of $1,000, and some in that of $500, bearing interest at the rate of 6 per cent. per annum, payable on the 1st of July in each year. The county commissioners, in accordance with this authorized subscription, prepared and issued $100,000, face value, of bonds, delivered them to the railroad company, and received certificates of stock to the amount thereof, which certificates are still held for the county. The bonds were placed on the market, and were all sold to bona fide purchasers for value,-- among others, to the trustees of the University of North Carolina. Each of these bonds on its face declares that it is one of a series issued by authority of an act of the general assembly of North Carolina ratified the 3d of March, 1887, and of sections 1996-1998 of the Code of North Carolina, and authorized by a majority vote of the qualified voters of Stanly county at an election regularly held for that purpose the 15th of August, 1889, duly ordered by the board of county commissioners,-- issued to pay the subscription made by Stanly county to the capital stock of the Yadkin Railroad Company. Under the terms of the act a tax was to be levied each year to pay the coupons on these bonds. In accordance therewith such tax was duly levied each year for four successive years, and the coupons paid from the proceeds thereof. The tax for the fifth year was duly levied and collected, and is in the treasury of the county. The county commissioners, having become convinced that the bonds were illegally issued, instituted proceedings in a state court of North Carolina against the treasurer of the county, praying that he be enjoined from paying any more coupons on these bonds. This injunction was thereupon issued by said court on the ground of the invalidity of the bonds to which said coupons belonged, and its action in the premises was confirmed by the supreme court of North Carolina. 28 S.E. 539. The complainants, citizens and residents of the state of New York, are the owners and holders of 48 of these Stanly county bonds, of the denomination of $1,000 each, and of 33 of the same bonds of the denomination of $500 each. All of these were purchased in open market for value before maturity. Upon these there are due and unpaid coupons for one year on said bonds,-- the year for which the tax was levied and collected. The prayer of the bill is that the county commissioners and the treasurer of the county be enjoined and restrained from using this money proceeds of the tax so levied and collected, for any other purpose than the payment of the coupons on said $100,000 of bonds subscribed as aforesaid, including therein coupons held by complainants, and that they be instructed and directed to pay from said proceeds of said tax the said coupons on said bonds.

Before any examination into the merits of this case can be made, two preliminary questions must be met and decided. The defendants deny the jurisdiction of this court sitting as a court of equity, because, as they allege, the complainants have a plain, adequate, and complete remedy at law. They also claim that this court will not go into an investigation of the validity of these bonds and the coupons thereof, because this is a matter already concluded, with respect to the identical bonds, by the supreme court of North Carolina, and is not only res judicata, but is the construction of a court of last resort of a state of its own constitution and statutes.

Have the complainants a plain, adequate, and complete remedy at law? The question is not, is there a remedy at law? 'Equity jurisdiction may be invoked, although there is a remedy at law, unless the remedy at law, both in respect to the final relief and the mode of obtaining it, is as efficient as the remedy in equity. ' Kilbourn v Sunderland, 130 U.S. 505, 9 Sup.Ct. 594. This objection being in the nature of a demurrer, these facts must be accepted as true. A special tax has been levied under the act of the general assembly to pay these coupons. This tax has been collected in money, and is now in the hands of the county treasurer, received by him for this purpose, as treasurer of the county, and so under the direction of the county commissioners. Code N.C. Secs. 766, 777. It may well be questioned if an action for money had and received will lie against the treasurer under these circumstances, for he received and holds the money subject to the control of the county commissioners. If such action be brought, and it be discovered that all county funds in the hands of the treasurer had been expended by him under warrants from the county commissioners,-- the mode authorized by law,-- it is by no means clear that a personal judgment, or a judgment binding his bond, could be obtained against him. If this be so, in order to obtain adequate relief an injunction should be issued against any use of the proceeds of this tax,--either against the treasurer, protecting him in disobedience of the warrant of the county commissioners directing other use of this money, or against the commissioners themselves from attempting so to do. Such relief cannot be had at law. Such a remedy might perhaps be found in the practice under the Code. But this will not affect the ancient and well-established jurisdiction of the court of equity. 'The adequacy or inadequacy of a remedy at law for the protection of one entitled on any ground to invoke the powers of a federal court is not to be conclusively determined by the statutes of the particular state in which suit may be brought. ' Smyth v. Ames, 169 U.S. 516, 517, 18 Sup.Ct. 422. The test is, has he a remedy at law in this court? If he has not, then a court of equity has jurisdiction. Besides this, the tax in question was levied upon the county pursuant to the provisions of the act of assembly. Having been once levied and collected, no other tax for the same purpose could be again levied and collected. If, therefore, the county commissioners, in the exercise of rights claimed by them in their view of the invalidity of these bonds, had appropriated and used for other purposes the proceeds of the tax levied and collected for the coupons of the bonds, the holders of these coupons, if perchance they establish the validity of their bonds, will be without remedy against the county. In this view of the case, the taxpayers of the county, having once furnished the money by paying the special levy, cannot be called upon to furnish it again. Therefore an injunction would be appropriate to prevent the use of this fund. Necessarily all this proceeds upon the idea that the fund created for the payment of these coupons is impressed with a trust. Assume now, for the sake of the argument (and at this stage of the case, considering this objection, which is in effect a demurrer, we must assume it), that the act under which the bonds were issued is valid. The act authorized the subscription, to be made in bonds with coupons; also, the levy of the tax to pay the coupons. All these-- the authority to subscribe, the mode of subscription, the tax to meet the terms of the subscription, the collection of the tax, and holding its proceeds-- are the several steps by which the legislature secures the performance of the powers given by it to the county. If the collection and application of the proceeds of this tax to the interest of the bonds so authorized be not secured, the intent of the legislature will not be completed. This being the case, these funds are dedicated to a special object, and cannot be applied to any other. In other words, they are impressed with a trust, and that trust can well be enforced in a court of equity. Willis v. Board, 30 C.C.A. 445, 86 F. 872. This being so, there is not a plain, adequate, and complete remedy at law, such as will prevent the exercise of the established jurisdiction in equity over a trust. See Lamon v. McKee, 159 U.S. 317, 16 Sup.Ct. 11.

The supreme court of North Carolina, in Commissioners v Snuggs, 121 N.C. 394, 28 S.E. 539, held that the bonds issued by Stanly county in aid of this railroad were void. The ground of the decision was that it did not appear affirmatively upon the journals of the two houses that the yeas and nays on the second and third readings of the bill had been entered upon the journal, as required by the constitution, and, further, that it is competent to introduce in evidence the journal of either house of the legislature in order to show that an act duly enrolled and ratified was not passed in compliance with the constitutional requirement. The parties to the suit in which this decision was rendered were the county commissioners, on the one hand, and their treasurer, on the other. No...