UNITED STATES SUPREME COURT DECISIONS ON-LINE

The decisions of the highest court of a state upon the question whether a particular act was passed in such manner as to become, under the state constitution, a law should be accepted and followed by the federal courts.

The principle reaffirmed that the recital in municipal bonds of a wrong act as authority for their being issued does not preclude a holder of such bond from showing that independently of such act there was power to issue the bonds.

The rule reaffirmed that the question arising in a suit in a federal court of the power of a municipal corporation under existing laws to make negotiable securities is to be determined by the law as judicially declared by the highest court of the state at the time the securities were issued, and that the rights and obligations of parties accruing under such a state of the law would not be affected by a different course of judicial decisions subsequently rendered any more than by subsequent legislation.

The ultimate question in this case is whether the County of Wilkes, North Carolina, is liable upon certain bonds issued in 1889 in payment of a subscription in its name to the capital stock of the North Western North Carolina Railroad Company.

Each bond was in the usual form of such instruments, was made payable October 1, 1913, and recited that it was

"one of a series of one hundred bonds of the denomination of one thousand dollars each, issued by authority of an act of the General Assembly of North Carolina, ratified the 20th day of February, A.D. 1879, entitled"

"An Act to Amend the Charter of the North Western North Carolina Railroad for the Construction of a Second Division from the Towns of Winston and Salem, in Forsyth County, up the Yadkin Valley, by Wilkesboro, to Patterson's Factory, Caldwell County,"

"and authorized by a vote of a majority of the qualified voters of Wilkes County, by an election regularly held for that purpose on the 6th day of

Page 180 U. S. 507

November, A.D. 1888, and by an order of the Board of Commissioners of Wilkes County made on the first day of April, A.D. 1889. This series of bonds is issued to pay the subscription on one hundred thousand dollars made to the capital stock of the North Western North Carolina Railroad Company by said County of Wilkes."

The question of a subscription by Wilkes County to the extent of $100,000 to the stock of that company, to be paid in bonds, was submitted to a popular vote, and a majority of the qualified voters approved of the proposition. Taxes were imposed and collected for eight years to pay the interest on the bonds, and the amounts collected were so applied, but the county officers refused to pay the interest due and payable April 1, 1896, April 1, 1898, and October 1, 1898, although they had in their hands moneys collected from taxpayers for that purpose. The object of the present suit was to compel those officers to apply the moneys so collected in payment of such interest.

Was the act of 1879, which was recited in the bonds as authority for their being issued, passed by the legislature in such manner as to become a law of North Carolina? Was there power to issue the bonds without the aid of that enactment? These are the principal matters involved in or depending upon our answer to the certified questions.

The material facts upon which the decision of the case depends are as follows:

The Convention that assembled at Raleigh, North Carolina, on January 14, 1868, for the purpose of framing a constitution for that state concluded its labors on March 16 of the same year. The Constitution adopted by that body was ratified April 24, 1868, and was approved by Congress June 25, 1868. 15 Stat. 73, c. 70.

A few days prior to its final adjournments, namely, on the 9th day of March, 1868, the convention passed an ordinance (which, by its terms, was to take effect from its passage) that constituted the charter of the North Western North Carolina Railroad Company. The company was incorporated by the ordinance for the purpose of constructing a railroad of one or more tracks clubjuris

Page 180 U. S. 508

from some point on the North Carolina Railroad between the Town of Greensboro in Guilford County and the Town of Lexington in Davidson County, running by way of Salem and Winston in Forsyth County "to some point in the northwestern boundary line of the state to be hereafter determined."

By the 5th section of the ordinance, it was provided that, after the organization of the company, its officers should proceed

"to locate the eastern terminus of the North Western North Carolina Railroad, and shall proceed to construct said road, with one or more tracks, as speedily as practicable, in sections of five miles each, to the towns of Winston and Salem, in Forsyth County, which portion of said railroad, when completed, shall constitute its first division."

By the 12th section, it was declared that

"all counties or towns subscribing stock to said company shall do so in the same manner and under the same rules, regulations, and restrictions as are set forth and prescribed in the act incorporating the North Carolina & Atlantic Railroad Company, for the government of such towns and counties as are now allowed to subscribe to the capital stock of said company,"

and by section 13 that

"the company shall have power to construct branches of said road, one of which shall run from the towns of Winston and Salem by way of Mount Airy, in Surry County, to the line of the State of Virginia."

The North Carolina & Atlantic Railroad Company referred to in the 12th section was the Atlantic & North Carolina Railroad Company incorporated by an act of assembly approved December 27, 1852. By the 33d section of the charter of that company, it was declared to

"be lawful for any incorporated town or county near or through which said railroad may pass to subscribe for such an amount of stock in said company as they shall be authorized to do by the inhabitants of said town or the citizens of said county, in manner and form as hereinafter provided."

Provision was made (§ 34) in the same act to take the sense of the qualified voters of any town or county upon the question of a subscription by it to the stock of the company, and it was declared (§ 35) that, if a majority of the qualified voters of any county or town voting upon clubjuris

Page 180 U. S. 509

the question were in favor of the subscription, the corporate authorities of the town and the justices of the county should appoint an agent to make the subscription in behalf of such town and county, to "be paid for in the bonds of such town and county, and on such time as shall be agreed on by said town officers and the justices of such county." Laws North Carolina, 1852, pp. 484, 499.

By an act of assembly of August 11, 1868, the ordinance of March 9, 1868, was reenacted, ratified, and confirmed. By the same act also, the commissioners of Forsyth County were invested with authority to levy from time to time such tax as was sufficient to pay the subscriptions made to the capital stock of the North Western North Carolina Railroad Company, and any interest due thereon, or to liquidate any debt created in borrowing money to pay the subscription of stock. At the end of that act as published are the words, "Ratified the 11th day of August, A.D. 1868."

By the first section of the above Act of February 20, 1879, it was declared that

"section 13 of chapter 17 of the ordinance of the Convention of 1868, ratified the 9th day of March, 1868, be amended by adding the words 'and one of which shall be constructed from the Town of Winston and Salem, up the valley of the Yadkin by the way of Jonesville and Wilkesboro, in the County of Wilkes, to Patterson's Factory, in the County of Caldwell, which branch shall be known as the second division.'"

By the first and second sections, the ordinance of 1868 was further amended in particulars that need not be mentioned. By the fourth section, it was provided:

"That any township or city, town, county, or other municipal corporation of this state shall have power and authority to subscribe for and take any number of shares of capital stock of said company that a majority of the voters of such township or city, town, county, or other municipal corporation may elect to take therein."

After prescribing the mode in which the will of the people as to a subsection of stock should be ascertained, that section proceeded:

"If the result of any such election shall show that a majority of the qualified voters of any township or city, town, county, or other municipal corporation, favor the taking of the amount of stock

Page 180 U. S. 510

so voted for in such election, then the authorities who, by this act, are empowered to determine what amount of stock shall be taken shall subscribe the amount of stock so voted for in said company, and shall have power to levy and collect taxes for the special purpose to pay for the said stock in installments as the same may become due, or, in case it shall not be deemed best to collect taxes to pay by taxation such subscription for stock, then such township or city, town, county, or other municipal corporation shall have power to issue bonds for the purpose of raising money to pay for such subscription, and shall provide for the payment of interest upon such bonds, and also for the payment of said bonds when they become due. . . ."

At the close of that act, as published, are these words: "Read three times in the General Assembly and ratified the 20th day of February, A.D. 1879."

Another act was passed March 2, 1881. By that act, the North Western North Carolina Railroad Company was authorized to extend and construct its line of road, or a branch thereof, to commence at or near Winston, in the County of Forsyth, through the Counties of Forsyth, Davidson, Yadkin, Davie, Rowan, and Iredell, or any or either of them, to Statesville, or some other point on the Western North Carolina Railroad, and to build and operate additional branches thereto, or from its present main line, to any important mines or manufactories in any of said counties, or counties adjacent to them, and any corporation, county, city, town, or township interested therein was empowered to subscribe to stock for those purposes, or otherwise contribute to the work in such manner and amount as should be determined by the proper authorities of such corporation, county, city, town, or township, and agreed on with the said North Western North Carolina Railroad Company. At the close of that act as published are the words: "In the General Assembly, read three times and ratified this 2d day of March, A.D. 1881."

The validity under the Constitution of the state of each of the above acts of March 11, 1868, February 20, 1879, and March 2, 1881, was questioned upon grounds presently to be stated. clubjuris

Page 180 U. S. 511

In the circuit court, judgment was rendered in favor of the plaintiffs, Coler & Co., who were found to be bona fide holders for value of some of the bonds. The case was carried to the circuit court of appeals, and is now here upon questions certified under the Judiciary Act of March 3, 1891, 26 Stat. 826, c. 517.

The certified questions are as follows:

"1. Whether, upon the averment of the bill of complaint, answers, replications, orders, exhibits, and other evidence, and matters and things recited herein, the circuit court of the United States was bound in passing upon this case by the decisions of the Supreme Court of North Carolina in the following cases: Wilkes County v. Call, 123 N.C. 308; Bank v. Commissioners, 119 N.C. 214; Commissioners v. Snuggs, 121 N.C. 394; Rodman v. Washington, 122 N.C. 39; Commissioners v. Payne, 123 N.C. 432, considered in connection with prior decisions of said court and the following provisions of the Constitution of said state: Article 2, sections 14 and 16, and article 5, sections 1, 4, 6, and 7, and article 7, section 7."

"2. Whether, if the bonds and coupons in question were issued, put in circulation, and came to the hands of complainants, appellees, in due course of trade, for valuable consideration and without notice, and if there were at that time on decision of the Supreme Court of North Carolina adverse to these bonds or identical bonds issued under similar statutes, the bonds held by complainants are valid bonds."

"3. Whether there was any decision adverse to the validity of these bonds or identical bonds or any construction of the Constitution or law of North Carolina which affected the question of their validity when they came in due course of trade and for valuable consideration and without notice other than such notice as the parties are assumed to have of existing provisions in the Constitution and statutes of the State of their invalidity. "

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