Union Bank of Richmond, Va. v. Board of Com'rs of Oxford, N.C.

• Decision Date: 11 November 1898
• Citation: 90 F. 7
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: UNION BANK OF RICHMOND, VA., v. BOARD OF COM'RS OF OXFORD, N.C.

90 F. 7

UNION BANK OF RICHMOND, VA., v. BOARD OF COM'RS OF OXFORD, N.C.

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

November 11, 1898

Shepherd & Busbee and J. S. Manning, for plaintiff.

R. O Burton, for defendants.

PURNELL District Judge.

The facts agreed present the following case: The town of Oxford was a duly-chartered municipal corporation under the laws of North Carolina, authorized to sue and to be sued, etc., as 'the Board of Commissioners of Oxford. ' In 1891 the general assembly of North Carolina passed an act to incorporate the Oxford & Coast Line Railroad Company, which act passed the senate in compliance with the requirements of the constitution; but in the house, it appears by the journal, the bill passed its second and third reading on the same day, and the ayes and nays were not entered on the journal on either reading. This admission is made with the right reserved to the plaintiff of objecting thereto, unless the court should decide that such impeaching testimony is admissible under the circumstances of this case. An election was held under the act (about which no question was raised) at which a majority of the qualified voters voted for a corporation subscription of $40,000 of the capital stock of the railroad company, and bonds to that amount were duly issued. In 1892 suit was brought by the railroad company asking for a mandamus against the commissioners of the town of Oxford commanding that body to levy taxes to pay interest coupons of said bonds. This suit was compromised, and a consent judgment entered at July term, 1892, of the superior court of Granville county. Under the compromise and consent judgment, the board of commissioners issued 20 bonds of the denomination of $1,000 each (in lieu of the $40,000 bonds issued in 1891), setting out the acts of the legislature, the litigation, and the judgment and decree. These bonds were delivered to the officers of the railroad company in August 1892, and 16 sold in Richmond, Va., to the plaintiff, for value, September, 1892. The case has been before the supreme court of North Carolina (116 N.C. 339, 21 S.E. 410, and 119 N.C. 214, 25 S.E. 966), and after the opinion in the latter case, as reported, was certified to the superior court of Granville county, the plaintiff took a nonsuit.

This cause was heard on agreed facts, and, as presented, involves two questions: First, how far the decision of a state court binds the federal court as to municipal bonds held by a nonresident purchaser for value; and, second, whether a municipal corporation, acting by its corporate officers, can be estopped to set up the invalidity of such bonds by a consent judgment of a court of competent jurisdiction. The defendants rest their case upon the ground that the supreme court of North Carolina, in a case between the same parties reported in 119 N.C. 264, 25 S.E. 966, has decided these bonds invalid, because of a failure in the house of representatives to observe the requirements of article 2 of section 14 of the state constitution. The matters involved are res judicata, and the federal courts will respect the opinion of the state court. Strictly speaking, under the facts agreed the matter is not res judicata, for in the facts agreed it is distinctly stated that the plaintiff in the state superior court voluntarily took a nonsuit, and there was no final judgment. This the plaintiff had a right to do. Graham v. Tate, 77 N.C. 120; Tate v. Phillips, Id. 126; Bank v. Board of Com'rs of Town of Oxford, 116 N.C. 340, 21 S.E. 410. Not being res judicata, the question next arises, is this one of those cases in which a federal court should be governed by an opinion delivered by the supreme court of a state? Where there is a well-settled rule of property in a state, or a well-settled line of decisions as to any matter of state law, or the construction of state statutes or state constitutions, the courts of the United States will always respect these decisions, and be governed by them. 'It is a settled rule of these courts,' as said Justice Swayne, in delivering the opinion of the court in Gelpcke v. City of Dubuque, 1 Wall. 175, 'in such cases to follow the decisions of the state courts. But there have been heretofore, as there doubtless will be hereafter, many exceptional cases. We shall never immolate truth, justice, and the law because a state tribunal has erected the altar and decreed the victim. ' The question involved in this case is the validity of certain bonds which the supreme court of North Carolina in a former decision in this identical case (116 N.C. 339, 21 S.E. 410) held to be valid in all essential particulars, and belongs to the domain of general jurisprudence. In this class of cases the supreme court of the United States, in Talcott v. Pine Grove Tp., 19 Wall. 661, says: 'The United States courts are not bound by the judgments of the courts of a state where the case arises. ' The national constitution forbids the state to pass laws impairing the obligation of contracts, and that end can be accomplished no more by judicial decision than by legislation. Were these courts to yield in cases like this, of oscillating opinions, or even decisions of the courts of the respective states, they would abdicate the performance of one of the most important duties with which they are charged, and disappoint the wise and salutary policy of the framers of the constitution in providing for the creation of an independent federal judiciary. The authorities to this effect are numerous and uniform. And in most of the cases cited there was a final judgment in the state court, and the matter was res judicata as far as they could make it so. But in the case at bar there is no final judgment, and nothing to prevent a federal court taking jurisdiction of the matter otherwise properly constituted in such court. In questions belonging to the domain of general jurisprudence, where commercial securities and contracts between citizens of different states are involved, the jurisdiction of the courts of the United States is absolute when sought; and these courts must hear and determine such questions independent of the tribunals of the state in which they arise. If this be so, when there is a final judgment the mere publication of an opinion by a state court in a cause where there is no final judgment will not bind the United States courts, or oust them of their jurisdiction. So, when a question falling under the laws or constitution of the United States-- a federal question-- is presented, the United States courts have a clear jurisdiction, and would fail in the purposes for which they were created, if they did not take jurisdiction, even though their decisions conflict with that of the state court. My conclusion is that there is nothing in the facts agreed to prevent this court hearing and determining the questions involved.

It is well settled that the laws which are in force at the time and place of the making of a contract, and where it is to be performed, enter into and form a part of the contract as much as though they were incorporated in its terms. This principal embraces the acts which affect its validity, construction discharge, and enforcement, or the remedies under the contract. Von Hoffman v. City of Quincy, 4 Wall. 535; Walker v. Whitehead, 16 Wall. 314; Edwards v. Kearzey, 96 U.S. 595; Barnitz v. Beverly, 163 U.S. 118, 16 Sup.Ct. 1042. And this means that the law as understood and construed by the courts where the contract is made and to be performed enters into the contract. Chief Justice Taney, in delivering the opinion of the court in Trust Co. v. Debolt, 16 How. 432,says: 'Indeed, the duty imposed upon this court to enforce contracts honestly and legally made would be vain and nugatory if we were bound to follow those changes in judicial decisions which the lapse of time and the change in judicial officers will often produce; * * * and the sound and true rule is that, if the contract, when made, was valid by the laws of a state as then expounded by all the departments of its government, and administered by its courts of justice, its validity and obligation cannot be impaired by any subsequent act of the legislature, or decisions of its courts, altering the construction of the law. ' Justice Harlan, delivering the opinion in Taylor v. Ypsilanti, 105 U.S. 71,quoting the above opinion with approval, says that this doctrine is no longer open to question in this court. 'It has been recognized for more than a quarter of a century, and is an established exception to the general rule that the federal courts will accept or adopt the construction which the state courts give to their own constitution and laws. ' Several opinions are cited sustaining the view that the construction of the state statute, as far as contract rights acquired under it are concerned, becomes as much a part of the statute as the text itself; and a change of decision is to all intents and purposes the same in its effect on contracts as an amendment to the law by means of a legislative enactment, and the rights of the parties are to be determined...