Ketchum v. St Louis

• Decision Date: 01 October 1879
• Citation: 25 L.Ed. 999,101 U.S. 306
• Parties: KETCHUM v. ST. LOUIS
• Court: U.S. Supreme Court

101 U.S. 306

101 U.S. 306

25 L.Ed. 999

KETCHUM v. ST. LOUIS.

October Term, 1879

APPEAL from the Circuit Court of the United States for the Eastern District of Missouri.

The facts are stated in the opinion of the court.

Mr. Melville C. Day and Mr. James O. Broadhead for the appellants.

Mr. Philip Phillips, Mr. Henry A. Clover, Mr. Britton A. Hill, Mr. Leverett Bell, and Mr. Frank J. Bowman, contra.

MR. JUSTICE HARLAND delivered the opinion of the court.

The present appeal brings before us for examination a decree of the Circuit Court rendered April 25, 1877, adjudging that the county of St. Louis had an equitable lien or charge upon the earnings of the Pacific Railroad of Missouri, to whomsoever the same may be transferred or conveyed, prior and paramount to any mortgage or other lien thereon, to the extent of $4,000 per month, payable monthly, from the first day of April, 1876, and $1,000 payable in each month of December, to meet the interest upon $700,000 of bonds issued by the county of St. Louis in the year 1875, and by it loaned to the Pacific Railroad Company, such payments to continue until the bonds are fully paid by the company.

The decree declared the lien to exist, and to be enforceable on the railroad property and franchises, against the funds in the hands of the receiver in this suit as well as the purchaser under the mortgage foreclosure sale to be hereafter referred to.

The learned judge who heard this cause in the Circuit Court rested the decree upon the proposition of law that 'if a debtor by a concluded agreement with a creditor sets apart a specific amount of a specific fund in the hands, or to come into the hands, of another from a designated source, and directs such person to pay it to the creditor, which he assents to do, this is a specific appropriation binding upon the parties and upon all persons with notice who subsequently claim an interest in the fund under the debtor.'

Was there an agreement of the character indicated in this statement?

That is the first question to which we shall direct our attention.

The Pacific Railroad Company was incorporated by the legislature of Missouri in the year 1849, with power to construct a line of railway from St. Louis to Kansas City, a distance of nearly three hundred miles. For the purpose of aiding in the construction of the road, the State from time to time loaned its bonds to the company. They amounted in the year 1855 to more than $7,000,000, and were secured by a first mortgage upon the property, franchises, and income of the company, with power of sale upon default in meeting the interest and principal of the bonds. Less than two hundred miles of the road was completed at the beginning of the recent civil war, and during its continuance but little progress was made in the work of construction.

By an act approved Feb. 10, 1864, the company was authorized to borrow money 'for the completion of the main road to Kansas City,' and, for that purpose, to issue its bonds to the amount of $1,500,000, 'to be secured by a first mortgage on the main line of the road west of Dresden,'—so much of the bonds as were necessary to be applied to the completion of the road from its then terminus to Kansas City, and to no other purpose. For that object, and to that amount and extent only, the State, by the express words of the act, relinquished her first mortgage lien and right of forfeiture upon the road west of Dresden, retaining, however, a second lien and mortgage thereon,—such second lien and mortgage to become forthwith, upon the payment in full of the principal and interest of the bonds authorized by that act, the first lien and mortgage, in every respect and as fully as those held by the State.

The act created the office of fund commissioner, to be filled by appointment of the governor, subject to confirmation by the Senate. It declared that such office should 'continue until the bonds issued for the completion of the road, and the State bonds loaned to said railroad company, with interest thereon, are fully paid out of the earnings, or exchanged for the first-mortgage bonds of said road,' as thereinafter provided. The fund commissioner became entitled, and it was made his duty, to take possession of the $1,500,000 of bonds authorized to be issued, negotiate the same, and their proceeds, together with the gross earnings of the road, from whatever source, to control and apply as directed in the act.

Without referring to other provisions of the act, it is sufficient to say that the State, through the fund commissioner, acquired for its security, complete control of the earnings and income arising from the property.

Following the course of events in the history of this railroad, we find that in September, 1864, the State of Missouri was invaded by insurrectionary forces, which destroyed much of the property belonging to the company, including bridges, depots, machine-shops, and track. The cost of repairing the injury thus done and of completing and putting the road in successful operation was estimated by the board of directors at the sum of $700,000. These facts were communicated to the county court of St. Louis County by a committee of the board, in a memorial, stating: 'This sum we have lost as the result of the invasion. This amount we want the county to provide by issuing to the company the bonds of the county (under authority to be given by the legislature), bearing seven per cent interest, the same to be a loan to complete the road, the company to refund to the county the principal and interest as the same matures.'

The memorial concluded in these words: 'If completed, we believe that the earnings of the road will soon furnish all the equipments required for the increased business, pay off the $1,500,000 mortgage, provide for the payment of the county bonds now asked for, and in six or seven years commence paying on the bonds issued by the State for our benefit. But should the financial success of the enterprise not equal our expectations, the importance of the road as a great artery of trade and commerce will justify the expenditure asked for.'

The justices composing the county court seem to have concurred in the propriety of the loan, but differed as to the conditions upon which it should be made. One of their number presented for adoption an order reciting the conditions which, in his judgment, should be embodied in any law authorizing bonds to be issued, viz. that the State should relinquish so much of its mortgage upon the road as covered the rolling-stock, which should then be mortgaged by the company to the county as security for the $700,000 of bonds to be issued; that the company should pay into the county treasury, at least thirty days prior to the maturity of the interest, the full amount thereof, in default of which the whole debt should become due, with power in the county to foreclose the mortgage; and, finally that the proposed act should be submitted for acceptance or rejection to the actual tax-payers of the county.

Another member of the county court offered as a substitute the draft of an order embodying, among other things, an act to be submitted to the legislature authorizing the proposed issue of bonds. This substitute declared that, in view of the importance of the completion of the road to the tax-payers of the county, the court would concur (in case application should be made by the company) in the propriety of the passage of an act 'securing the completion of said road and the interest of the county of St. Louis in the said bonds.' The proposed act contained this provision:——

'Said bonds to be issued under such conditions as may be agreed upon between said county court and the board of directors of the Pacific Railroad; and the fund commissioner of the Pacific Railroad Company shall pay every month $4,000, and $1,000 additional each month of December, to the treasurer of St. Louis County, to meet the interest on the above seven hundred bonds; said payments to continue until said bonds are paid by the Pacific Railroad Company.'

The substitute was adopted by the county court, and, being submitted to the legislature of Missouri, that body, on the 7th of January, 1865, passed an act containing additional provisions. It is here given at length, since the case depends mainly, if not altogether, upon the construction which may be given to its provisions:——

'SECT. 1. The county court of St. Louis County is hereby authorized to issue seven hundred county bonds of the denomination of $1,000 each, having twenty years to run, and bearing interest at the rate of seven per cent per annum, payable semi-annually, the principal and interest payable in the city of New York, and loan said bonds to the Pacific Railroad Company for the completion of said road; said bonds to be issued under such conditions as may be agreed upon between said county court and the board of directors of the Pacific Railroad Company, such conditions to be binding on the parties, but shall not impair or affect the validity of the bonds after they are issued.

'SECT. 2. The fund commissioner of the Pacific Railroad, or such person as may at any time hereafter have the custody of the funds of said railroad company, shall, every month after said bonds are issued, pay into the county treasury of St. Louis County, out of the earnings of said Pacific Railroad, $4,000, and $1,000 additional in each month of December, to meet the interest on the said seven hundred bonds; said payments to continue until said bonds are paid off by the Pacific Railroad.

'This act to take effect and be in force from and after its passage.'

This act was accepted by the railroad company. It expressly agreed to comply with all its provisions. In conformity therewith bonds were issued by the county and delivered to the railroad company as follows: One hundred bonds on 20th February, 1875, two hundred bonds on 7th March, 1875, and four hun dred bonds on 5th May, 1875. Th...