Nos. 114, 119.
Argued December 4, 5, 1900. Decided January 7, 1901.
Without implying that the reasoning of the state court by which the conclusion was reached that under the statute of Louisiana both the Board of Liquidation and the Drainage Commission occupied such a fiduciary relation as to empower them to assert that the enforcement of the provisions of the constitution of the State would impair the obligations of the contracts entered into on the faith of the collection and application of the one per cent tax, and of the surplus arising therefrom, this court adopts and follows it, as the construction put by the Supreme Court of the State of Louisiana on the statutes of that State, in a matter of local and non-Federal concern. The proposition that the judgment of the Supreme Court of the State of Louisiana rests upon an independent non-Federal ground, finds no semblance of support in the record. Considering the many, and in some respects ambiguous statutes of the State of Louisiana, this court concludes, as a matter of independent judgment, that the contract rights of the parties were correctly defined by the Supreme Court of that State. This court's affirmance of the judgment below is without prejudice to the right of the Board of Liquidation and the Drainage Commission to hereafter assert the impairment of the contract right which would arise from construing the judgment contrary to its natural and necessary import, so as to deprive the Board of Liquidation of the power, in countersigning the bonds, to state thereon the authority in virtue of which they are issued.
The Drainage Commission intervened in the cause, and after asserting its right to protect its own interest so far as the further issue of bonds was concerned, and to champion the interest of those to whom bonds had been issued and with whom contracts had been made, specifically charged that the provision of the new constitution was in violation of the contract clause of the Constitution of the United States and the Fourteenth Amendment upon grounds substantially identical with those which had been alleged in the return of the Board of Liquidation.After hearing, the trial court dismissed the intervention of the Drainage Commission, because it concluded that the commission had no capacity to stand in judgment for the purpose of protecting either its own right to further issue bonds or in order to protect the rights of the holders of drainage bonds already issued, and those who had contracted to do the drainage work. On the merits, the trial court held that the return made by the Board of Liquidation was insufficient, and it therefore allowed a peremptory mandamus commanding the Board of Liquidation to sell a sufficient quantity of the constitutional bonds to provide the means for paying the sum of the certificates held by the relators, with five per cent interest thereon from the date of the application for mandamus. Both the Board of Liquidation and the Drainage Commission prosecuted appeals to the Supreme Court of the State of Louisiana.That court, in deciding the appeals, delivered an elaborate opinion. After holding that the school board was a distinct corporation from the city of New Orleans, and, therefore, the debts of the school board were not those of the city, the court determined that it was within the power of the constitutional convention to impose the duty on the city of assuming debts of a different corporation. Having reached this conclusion, the court approached the consideration of the power of the convention to direct the Board of Liquidation to sell a sufficient number of constitutional bonds to pay the debt thus assumed. It considered this question, first, from the aspect of the authority of the convention over the Board of Liquidation and the Drainage Commission, without reference to the limitations imposed by the contract clause of the Constitution of the United States, and then passed on the question of contract and its impairment. In the first aspect, it was decided that as the Board of Liquidation and the Drainage Commission were but creatures of the lawmaking power of the State, both these bodies were subject to and controlled by the imperative command of the constitution. That, albeit by the original act of refunding and the amendment which ratified it, the bonds of the constitutional series were only to be issued for particular classes of debt, a subsequent constitutional requirement that certain of the bonds should be sold to pay another class of debts was paramount, and, therefore, must be obeyed by the Board of Liquidation. It was held that although the Drainage Commission, by the act creating it, was empowered to execute a general plan of drainage for the city of New Orleans, its duty in this regard was subject to future control, and hence that it was within the power of a subsequent legislature to modify or wholly suspend the drainage work by discontinuing the duties of the board, and, a fortiori, it was within the power of the constitutional convention to bring about the same result. Having established this premise, the learned court reached the conclusion that, even although the future execution of the drainage work, under the plan originally conceived, might be wholly impeded or seriously diminished by making other charges against the surplus than those originally contemplated, nevertheless it was the duty of the board to comply with the state constitution, because whether or not the drainage work should be continued as first designed was a question of public policy, which the convention had a right to determine.Whilst laying down the foregoing, when the court considered the question of the alleged impairment of contract rights, it held that the propositions which it had previously announced were all qualified and restrained by the contract clause of the Constitution of the United States, and therefore the provision of the constitution requiring the sale of the bonds to produce the funds to pay the school debt would be relatively void if it conflicted with or impaired the contract rights of the following classes of creditors, viz: The holder of the constitutional and of the premium bonds; those who held debts subject to be funded into constitutional bonds, but who had not yet exercised such right; those who had contracted with the city for works of public improvement on the faith of the surplus; those who held the drainage bonds issued by the Drainage Commission; and finally those who had contracted with that commission prior to the adoption of the constitution.In coming to consider the question of impairment the court declared that the contract which had arisen with the holders of the constitutional bonds was that no bonds of that series should be issued for any other than the debts specified in the refunding and retiring act and in the constitutional amendment of 1892; that the surplus fund contemplated by the act and the amendment was not simply the surplus arising after applying the one per cent tax to the payment of a ten million issue of bonds, but was the surplus which might arise from the application of the one per cent tax to the payment of such amount of the ten million issue as had been and would be from time to time required in the refunding or retiring of the debts specified in the act and amendment. It was therefore decided that the sale of any bonds of the series for the purpose of paying any other debts than those specified and originally contemplated would impair the obligation of the contract creditors having a right to payment out of the one per cent tax and of the contract creditors having a right to be paid out of the surplus fund. This impairment, however, it was held could only arise in the event the payment of the bonds provided to be sold to pay the school debts assumed by the city interfered in any way with the funds required to discharge the claims of the contract creditors as above stated. But such interference, the court held, did not and could not arise, inasmuch as the bonds which the constitution provided should be sold would be, when issued by the Board of Liquidation, subordinate to all the contract rights above stated. That is to say, that it was the duty of the Board of Liquidation to sell the bonds, but that when issued they would not be entitled to payment out of either the one per cent tax or the surplus fund, until all the contract rights had been provided for, as above enumerated. Indeed, it was held that if it was necessary for the Drainage Commission to sell the bonds which it was authorized to issue for the purpose of paying for the work contracted for prior to the adoption of the constitution, that these drainage bonds when thus sold would also be entitled to a priority of application of the surplus of the one per cent tax before any part thereof could be used to pay the bonds which the Board of Liquidation was directed to sell for the purpose of the retirement of the school certificates.Whilst it was thus decided that the bonds to be sold for the school purposes would be subordinate to all the contract rights, and therefore, in the nature of things, could not interfere with or impair such contract rights, the bonds in question were yet declared by the court to be entitled to be paid out of any of the surplus fund which might remain after the discharge of the contract claims, with the preference over any rights which might arise from contracts made by the Drainage Commission after the adoption of the new constitution for the further execution of the drainage plan. This being predicated upon the conclusion that the state constitution, whilst it could not impair contract rights, could yet lawfully diminish or change the plan of drainage in so far as its future execution was concerned. In the margin are excerpts from the opinion of the Supreme Court of Louisiana, (51 La. Ann. 1849,) which more elaborately state the conclusions which we have above summarized.
And all the views which the court expounded were based on a ruling by it made that the Board of Liquidation, under the provisions of the statutes of Louisiana, defining the powers of that board, was invested with such a relation to the contract creditors as empowered it to stand in judgment for the purpose of protecting the contracts from impairment, and hence authorized it to plead the defences which it had asserted in its return to the rule for mandamus. The judgment of the trial court was affirmed.The Board of Liquidation applied for a rehearing mainly on the ground that although the views expressed in the opinion of the court had fully recognized the rights of the contract creditors, nevertheless the decree had deprived the contract creditors of the protection to which the opinion acknowledged they were entitled under the Constitution of the United States. This was on the assumption that as the decree of the trial court directed the issue of bonds according to the refunding act, and the amendment of 1892, therefore a compliance with its commands would compel the board to sell negotiable bonds undistinguishable from the other bonds of the same series, and hence put those thus sold on exactly the same footing as the bonds previously issued.The Drainage Commission also applied for a rehearing on grounds substantially identical with those urged by the Board of Liquidation, and upon the further contention that an injustice had been done it, since the court although it, in effect, in its opinion, recognized the right of the commission to intervene, had nevertheless affirmed the judgment of the trial court which dismissed the Drainage Commissioners from the cause upon the assumption that it had no capacity to stand in judgment and champion the rights of the creditors. Both the applicants for rehearing complained of the affirmance of the decree below in so far as it directed the payment of interest on the claims of the certificate holders.The court granted the rehearing to a limited extent, reversed the judgment below in so far as it dismissed the intervention of the Drainage Commission and to the extent that it allowed interest, and in other respects reiterated the affirmance. These writs of error were then prosecuted. At a previous term of this court, motions to dismiss or affirm were made, and their consideration was postponed to the hearing on the merits.
Mr. Branch K. Miller for the Board of Liquidation of the City Debt.
Mr. Chester J. Theard for the Drainage Company. Mr. Arthur McGuirk and Mr. Henry L. Lazarus were on his brief. Mr. William Wirt Howe and Mr. Walker B. Spencer filed a brief for same.
The motion to dismiss is without colorable support. The contention that as public bodies charged with the performance of ministerial duties, both the Board of Liquidation and the Drainage Commission had not the capacity to plead that the provisions of the state constitution impaired the obligations of contracts in violation of the Constitution of the United States, is foreclosed by the decision of the court below. In that court, as we have said in the statement of the case, the want of capacity in both the bodies to urge the defences in question was expressly put at issue and was directly passed on, the court holding that under the statutes of the State of Louisiana both the bodies occupied such a fiduciary relation as to empower them to assert that the enforcement of the provisions of the state constitution would impair the obligations of the contracts entered into on the faith of the collection and application of the one per cent tax and of the surplus arising therefrom. Without implying that the reasoning by which this conclusion was deduced would command our approval were we considering the matter as one of original impression, and without pausing to note the ulterior consequences which may possibly arise from the ruling of the court below on the subject, we adopt and follow it, as the construction put by the Supreme Court of the State of Louisiana on the statutes of that State in a matter of local and non-Federal concern.
Accepting, then, in this regard, the decision of the state court, the proposition now pressed reduces itself to this: Although under the state law both of the bodies in question bore such a relation to the interests involved as to empower them to assert that the contract rights were impaired, nevertheless they do not possess the capacity to prosecute error to a decision if adverse to the contract rights. This, however, is but to say at one and the same time that there was capacity and incapacity to assert and protect the contract rights. The proposition that the judgment of the Supreme Court of the State of Louisiana rests upon an independent non-Federal ground, finds no semblance of support in the record. It is true the court primarily considered the case from the point of view of the duty and rights of the defendant and intervenor as depending on the law of Louisiana irrespective of the contract rights, but these considerations were by the court declared to be merely a prelude to the decision of the fundamental issue, that is, whether, if the relief prayed was allowed there would arise an impairment of the obligations of the contracts as specifically alleged both in the return made by the Board of Liquidation and in the petition of intervention of the Drainage Commission. Indeed, the opinion of the learned court, which we can consider, Eagan v. Hart, 165 U.S. 188, expressly announced that the defences asserted under the contract clause of the Constitution of the United States were the real issues and were essentially necessary to be decided in order to dispose of the cause. The argument that no Federal question is presented because the court below awarded to the contract creditors all the rights to which they were entitled, involves the assumption that jurisdiction to review the decision of a state court, disposing of a Federal question, depends upon the conception of the state court or some of the parties to the record as to the correctness of the decision rendered. This in effect denies the power to review a decision disposing of a Federal question in every case where the state court assumes that such question has been by it correctly disposed of. But this necessarily imports that in no case whatever where a state court has decided a Federal question, can review in this court be had, since in every case it must be assumed that a state court of last resort has decided, according to its understanding, the issues presented to it for determination.
On the merits the errors assigned substantially raise all the controversies which were below decided. They hence embrace some subjects not essential to be considered in order to dispose of the Federal question.
The power of the constituent body to direct the Board of Liquidation to sell the bonds and the right to diminish the fund applicable to the drainage of the city of New Orleans, when viewed apart from the contract rights, involve purely local and non-Federal contentions. When the jurisdiction of this court is invoked because of the asserted impairment of contract rights arising from the effect given to subsequent legislation, it is our duty to exercise an independent judgment as to the nature and scope of the contract. Nevertheless, when the contract, which it is alleged, has been impaired, arises from a state statute, as said in Burgess v. Seligman, 107 U.S. 20, 34, "for the sake of harmony and to avoid confusion, the Federal courts will lean towards an agreement of views with the state courts, if the question seems to them balanced with doubt."
It is indeed disputable as a matter of independent judgment whether the rights of the contract creditors were as broad as the court below held them to be. Board of Liquidation v. McComb, 92 U.S. 531. Considering the many and in some respects ambiguous statutes of the State of Louisiana which are the sources of the contract rights, and permitting the opinion as to those rights entertained by the Supreme Court of the State of Louisiana to operate upon the doubt which must arise from a review of the statutes alone, we conclude as a matter of independent judgment that the contract rights were correctly defined by the Supreme Court of the State of Louisiana. The question then is, taking the contract rights to be as thus declared, were they substantially impaired by the conclusions reached by the Supreme Court of the State? If the answer to this question is to be deduced from the opinion of that court, a negative response is plainly required, since, in the most explicit terms, the opinion holds that the rights to arise in favor of the purchasers of the bonds which the new constitution directed to be sold, were subordinate in each and every respect, to all the prior contract rights. In the nature of things it cannot be said that subsequent rights which are so limited as to prevent them in any degree from interfering with prior ones, can as a matter of legal conclusion be held to impair such previous contract rights. But it is contended, and this is the controversy most strenuously pressed in the argument at bar, although by the opinion of the Supreme Court of the State of Louisiana the contract rights were protected, the decree of that court in effect brought about the destruction of the identical rights which the opinion held could not be lawfully impaired. This proceeds on the assumption that as the decree of the trial court which was affirmed directed the Board of Liquidation to sell bonds under the refunding act and constitutional amendment of 1892, it therefore imposed the duty of offering bonds for sale exactly in the form required by the prior legislation without affixing any distinguishing statement to them, thereby causing the negotiable bonds, when sold, to be exactly on the same footing of legal right with those previously used for the purpose of retiring or refunding the debt. Under the law of Louisiana, it is asserted, the judgment, and not the reasoning used in the opinion of the court, is conclusive, and therefore the result above indicated must necessarily flow from the judgment which is now under review.
We do not stop to examine the Louisiana authorities cited to sustain the abstract proposition relied upon, as we consider the premise from which the contention is deduced to be unsound. It is to be borne in mind that under the act of 1890 and the amendment of 1892 the city of New Orleans was to issue a series of ten millions of bonds, to be placed in the hands of the Board of Liquidation for the retiring and refunding operations, and these bonds, so delivered to the board for the purposes specified, were required to be countersigned and issued by that body before they became complete and perfect evidences of debt against the city. Now, whilst it is true the mandamus, which was awarded against the board, directed it to sell bonds placed in its hands under the act of 1890, the ground for the allowance of the writ was the duty imposed upon the board to do so by the new constitution. Indeed, the opinion of the Supreme Court negatives the assumption that there was any authority conferred on the board to issue the bonds for the school debt by the act of 1890 or the amendment of 1892. Conceding, arguendo only, that there be as contended an exceptional and narrow rule in Louisiana excluding an examination of the pleadings for the purpose of elucidating the scope of a judgment rendered in a given cause — though the opposite doctrine is upheld by this court, Hornbuckle v. Stafford, 111 U.S. 389, 393 — we do not think there is reason for the assertion that the effect of the judgment below is to preclude the Board of Liquidation, when countersigning the bonds in question for the purpose of sale, from affixing to them a statement that they are issued in virtue of the authority of the new constitution and as a result of the command of the Supreme Court of the State. This being done, beyond peradventure the takers of such bonds would be affected with notice of the legal authority under which they were issued and of the nature of the rights conferred by that authority, and therefore the inconvenience or possible wrong suggested in argument could not in any event arise. It would be beyond reason to assume that a judgment which commanded the performance of a particular act, because of the existence of a legal duty arising from a specified provision of a state constitution, should be construed as excluding the right and duty to refer in issuing the bonds in obedience to its command to the authority by which alone the power exercised could be brought into play. Not only does the reason of things require this conclusion, but so also does the respect which we entertain for the learned tribunal below preclude the possibility of our accepting the impossible and contradictory construction of the effect of the opinion and decree advanced in the argument which we are considering. Of course, if the judgment below was susceptible of the interpretation contended for, in view of the nature of the contract rights as recognized by the Supreme Court of the State and established by the opinion which we have just expressed, it would be our duty to reverse the judgment below rendered.
Our affirmance, however, will be without prejudice to the right of the Board of Liquidation and the Drainage Commission to hereafter assert the impairment of the contract rights which would arise from construing the judgment contrary to its natural and necessary import so as to deprive the Board of Liquidation of the power in countersigning the bonds to state thereon the authority in virtue of which they are issued.
MR. JUSTICE PECKHAM took no part in the decision of this cause.