BOARD OF COM'RS OF HENDERSON COUNTY, N. C., v. TRAVELERS' INS. CO., 128 F. 817

SIMONTON, Circuit Judge. This case comes up on writ of error to the Circuit Court of the United States for the Western District of North Carolina. The cause below was heard by the court without the aid of a jury. Judgment was entered for the plaintiff below. The defendant sued out the writ of error, and the cause comes before this court on the errors assigned. The pleadings are voluminous, and their substance will appear in this opinion. The Travelers’ Insurance Company, a corporation of the state of Connecticut, brought this action against the board of county commissioners of Henderson -county, N.

C., as the owner and holder of coupons of the value of $5,580, cut from the bonds of the denomination of $1,000, issued by the defendant, 62 of which were held by plaintiff. These 62 bonds were part of an issue of 97 bonds of said defendant on or about 1st July, 1895.

In each of the bonds, and as part thereof, is the following recital: “This bond Is one of a series of ninety-seven bonds of like date, tenor, amount and effect as this, numbered consecutively from 1 to 97, both inclusive, said bonds being issued pursuant to, and in accordance with, the power and' authority given to the Board of Commissioners of Henderson County by

an act of the General Assembly of the State of North Carolina, entitled ‘An act to authorize the Commissioners of Henderson County to issue bonds,’ ratified the 2nd day of February, 1892, and in accordance with the provisions of

an act, amendatory thereof, ratified March 13th, 1895.

It is hereby certified that no provision of the Constitution or of the laws of North Carolina is in any wise violated by the issue of said bonds, and it is further certified and declared that all acts, requirements and conditions precedent or otherwise to the issue of said bonds have been duly and fully complied with; that the said bonds are in all respects legal, and that the public faith and credit of the said ■county of Henderson is hereby pledged for the payment and redemption of the same, and all interest coupons thereon as the same respectively fall due.” The coupons on said bonds had been duly paid semiannually from January 1, 1896, to January 1, 1901.

Thereafter payment was refused. Plaintiff avers that it is the bona fide purchaser for value before maturity, in open- market, of these bonds. The defendant filed .its answer, denying the validity of these bonds, averring that they were unlawfully issued. - On this question the case turns. - - The issue of 97 bonds, of 62 of which plaintiff below is the holder, was made under the authority of

an act of the Legislature of North ■Carolina, ratified February 2, 1893 (Pub.

Apts 1893, p.- 69, c. 70), enti-' tied “An act to authorize the commissioners of Henderson county to issue bonds.” This act recites that the comity of Henderson, by order of her board of commissioners, had entered, in pursuance of law, in the year 1874, an ordinance authorizing an election, by votes of the county, on the question of issuing bonds in aid of tbe Greenville & French Broad Railroad Company, afterwards called the Spartanburg & Asheville Railroad; that the election was held, and subscription authorized and bonds issued in aid of said railroad to the sum of $100,-000, interest at the rate of 7 per cent., payable semiannually, the bonds to mature on ist July, 1895 ; and that it was desired to fund said bonds in accordance with law.

The act then goes on and authorizes the issue of bonds for that purpose, not exceeding $100,000, payable in 30-years, interest not exceeding 7 per cent, per annum. The second

section (page 70) is as follows: "That the bonds in this act provided for. being intended to be deemed and held ¡1 continua (ion of rhe liability of Iieuderson county, created by the riro-visions of the law. order and election abort' recited, which authorized the issue of the bonds in aid of the aforesaid railroad, the same' shall not be taken, coi)¡-.¡ mod. deemed nor held as the crea (ion of a new debt nor liability, but as a continuation of the said debt now existing.” The fifth

section (page 701 authorizes the levy of a tax to pay the-interest as it accrues. It is contended that the bonds issued tinder this act were invalid, because it was not passed in compliance with

section 14, art 2, of the Constitution of North Carolina, which is in these words: “No law shall be passed to raise money on tlie credit, of (lie state or to pledge* tbe faith of the state directly or indirectly for the payment of any debt o-r to impose any nix upon the people of the state, or to allow counties, cities or towns to <lo so. unless tlie bill for the purpose shall have been read three! several times in ouch house of the General Assembly and passed three several readings, which readings shall be on three different days and agreed to by each house respectively and unless the yeas and nays on the second and third reading of the bill shall have been entered on the journal.” This act of February 2, 1893. was not passed in this way.

Does this make the bond issue of (895 invalid? We must keep in mind that "tuc rights of the holders of county bonds are determined in the federal courts by the law of the siaie as it was declared by the state court to he at the time the bonds were made and put on tlie market.” Wilkes Co. v. Coler, 180 U. S. 506, 21 Sup. Ct. 458, 45 L. Ed. 642. These were bonds to refund a debt. An issue of bonds to refund a debt is not the creation of a new debt, it is simply a change of form, renewing and extending a debt already existing. City of Pierre v. Dunscomb, 106 Fed. 617, 45 C. C. A. 499: Rollins & Long v.

County Commissioners, 49 U. S. App. 411, 80 Fed. 692, 26 C. C. A. 91; Hughes Co. v. Livingston, 104 Fed. 306, 43 C. C. A. 553. This doctrine has been recognized by the courts in North Carolina. In Blanton v. Commissioners of McDowell Co., 101 N. C. 532, 8 S. E. 162, Smith, C.

J., for the court, says: “It is perfectly manifest that in the issue, of the new bonds in the place of those that had matured, it was not intended to surrender any security which the erediior had for the debt by a novation of tlie one for the other, but to maintain the indebtedness as essentially one and The same in tlie different forms assumed. * * * The mere renewed recognition of a subsisting liability in the issue of a new bond, declared in the very act which authorizes the issue ‘to be a continuation of the liability’ resting iipon the county, cannot, upon any sound reasoning, be deemed the creation of a new debt in the sense of its falling under the restrictions applicable to new contracts of indebtedness, with the deprivation of the pre-existent means of enforcing performance by the levy of the necessary taxes.” This case concerned bonds issued to refund other bonds issued in aid of the Western North Carolina Railroad.

So, also, in Broadfoot v. Fayetteville, 128 N. C. 529, 39 S. E. 20, it was held that funding bonds created no new indebtedness or liability when the rate of interest was not increased. And in Smathers v. County Commissioners of Madison County, 125 N. C. 487, 34 S. E. 554, it was held that bonds could be issued to fund necessary expenses of the county, and that they did not come within the provisions of

section 14, art. 2, of the Constitution. If, therefore, the original issue of bonds, for the funding of which the act in question provided, was valid, then this act cannot be said to have been passed in violation of this

section 14,' art. 2, of the Constitution. ' Were the bonds originally issued a valid debt on Henderson county? On February 13, 1855 (Priv. Laws 1854-55, p. 269, c. 229), the Legislature of North Carolina passed

an act to incorporate the Greenville & French Broad Railroad Company. The first

section of the act declared that for the purpose of establishing a communication by railroad from some of the railroads now built or in course of construction in' South Carolina along the French Broad valley, across the western part of this state, so as to effect a direct communication between one of said roads in 'South Carolina and the .East Tennessee &' Virginia Railroad in East Tennessee, the formation of said company is hereby authorized, which, when formed, shall have corporate existence in each of the states aforesaid, and have all the rights, privileges, and immunities hereafter granted.

Then follow 27 other sections, defining and declaring the rights and powers of said company, and a last section, declaring it to be a public act. On February 2, 1857 (Priv. Laws 1856-57, p. 72, c. 77), this act was amended so as to authorize said company to construct the northern portion of said road, extending from Asheville, or some convenient point within two miles thereof, to the state of Tennessee. On February 16, 1859 (Priv.

Laws 1858-59, p. 212, c. 166), this act was further amended so as to authorize any of the counties through which said road is intended to pass to subscribe to the capital stock of said company any sum or sums that may be determined on by the court of pleas and quarter sessions of said county, a majority of the justices of the peace of said county being present, and approved by a majority of the lawfully qualified voters of such county, to be ascertained as thereafter provided. Then follow directions how the vote of the people shall be had. The third

section authorizes the court, if the majority of the voters of the county approve the subscription, to issue bonds bearing interest not exceeding 7 per cent, per annum, and to levy a tax to meet the interest as it accrues, and to liquidate the principal as it falls due, as they shall judge expedient.

No action was taken under this last amendment until 21st July, 1873, when the county commissioners of Henderson county, by an order reciting that they are acting under this amendment of 1858-59» recommended to the voters of Henderson county that they authorize a subscription to the capital stock of this company, then and thenceforward known as the “Spartanburg & Asheville Railroad Company.” The election was held on 7th August, 1873, and the result of the vote was in favor of the subscription.

Thereupon the board directed their chairman to rnalre the subscription, and the bonds were issued to the extent of $100,000, bearing interest at 7 per cent, per annum, the bonds being payable 1st July, 1895, and each reciting that it was issued in aid of the Spartanburg & Asheville Railroad Company. It is true that the bonds were to be issued as a subscription to the Greenville & French Broad Railroad Company. This company afterward consolidated with a railroad in South Carolina, and the name of the consolidated company became the Spartanburg & Asheville Railroad Company.

The statutes of North Carolina (chapter 138, p. 186, Pub. Laws 1871-72) authorized a consolidation of this character, and, among other things, provided (section 61) that on such consolidation “all stock subscriptions and other things in action belonging to either of said corporations shall be taken and deemed to be transferred to and vested in such new corporation without further act or deed.” The consolidation is admitted in the agreed statement of facts in the record. The statute of North Carolina is in accord with the general law. County of Livingston v. The Bank, 128 U. S. 102, 9 Sup. Ct. 18, 32 L.

Ed. 3591 Scotland County v. Thomas, 94 U. S. 688, 24 L. Ed. 219. The railroad passed through Henderson county. Under a Constitution of the state of North Carolina adopted in 1868, a board of county commissioners was established in each county, which took the place of and succeeded to all the powers and duties of the court of pleas and quarter sessions. Belo v. Commissioners of Forsythe, 76 N. C. 489; Wilkes County v. Coler, 180 U. S. 506, 21 Sup. Ct. 458, 45 L. Ed. 642.

At the time of the passage of the amendment of 1858-59 there was no constitutional provision limiting and qualifying the power of the Regis-lature in the passage of

an act like this. Unless the act was repealed or superseded, it remained in full force and effect when in 1873 the election was ordered and in pursuance thereof the bonds were issued. There is no act on the statute book repealing this amendment in terms. But it is said that this act was repealed by

article 2, § 14, of the Constitution of North Carolina adopted in 1868, and set out supra. It will be noticed that the language of this

section of the Constitution is in the future. 'No law “shall” be passed, etc. The courts uniformly refuse to give to statutes a retrospective operation, whereby rights previously vested are injuriously affected, unless compelled to do so by language so clear and positive as to> leave no doubt that such was the intention of the Regislature. Chew Heong v. United States, 112 U. S. 536, 5 Sup. Ct. 255, 28 L. Ed. 770; Harvey v. Tyler, 2 Wall. 328, 17 L. Ed. 871.

The Supreme Court of the United States has held that a change in a state Constitution, relating to municipal subscriptions, is not retroactive so as to have any controlling application to laws in existence when thd Constitution was adopted. It does not destroy a vested right of a corporation to receive bonds of a municipal corporation although they are not issued. Dallas Co. v. McKenzie, 110 U. S. 686, 4 Sup. Ct. 184, 28 L. Ed. 285; County of Ray v. Vansycle, 96 U. S. 675, 24 L. Ed. 800; County of Schuyler v. Thomas, 98 U. S. 169, 25 L. Ed. 88. In the County of Scotland v. Thomas, 94 U. S. 688, 24 L.

Ed. 219, the court construed a

section of the Constitution of Missouri in these words: “The General Assembly shall not authorize any county, city, or town to become a stockholder in or to loan its credit to any conrpany, association, or corporation, unless,” etc. As to this the court says: “This provision, it will be observed, is against the Legislature authorizing municipal subscriptions or aid to private corporations. It does not purport to take away any authority already granted.

It only limits the power of the Legislature in granting such authority for the time to come.” The Constitution of 1868 (article 4, § 19) declared the laws of North Carolina not repugnant to this Constitution or the Constitution of the United States shall be in force until legally changed, unless inconsistent with the provisions of this Constitution. There are two cases in the Supreme Court of North Carolina which tend to show that this

section 14, art. 2, of the Constitution, was not intended to supersede previous legislation. The convention which adopted the Constitution had, previous to its adoption, passed an ordinance on 9th March, 1868, authorizing a subscription in aid of the Northwestern North Carolina Railroad Company by the county of For-sythe. The election under that ordinance took place 4th April, 1868. The Constitution was ratified April 24, 1868. The subscription pursuant to the election was made in June, 1878. The validity of the subscriptions and of the bonds was tested in Hill v. Commissioners of Forsythe County, 67 N.

C. 367, and they were sustained. Thus the Constitution was held not to have superseded the previous legislation. The same point was decided in Belo v. Commissioners of Forsythe County, 76 N. C. 489. These cases were decided in 1872 and 1877, respectively, and were not questioned at the time of the issue of tlie bonds for which the bonds in this suit were funded. It is contended, however, that the áct of 1858-59 conflicts with the Constitution in that it provides that the stock subscription must be authorized by a majority of' the qualified voters, whereas the act required a majority of the votes cast.

It is admitted, however, that the original bonds were voted for by a majority of the qualified voters. In Wood v. Oxford, 97 N. C. 228, 2 S. E. 653, Rigsbee v. Town of Durham, 98 N. C. 81, 3 S. E. 749, and Rigsbee v. Durham, 99 N. C. 341, 6 S. E. 64, it is decided that, if the fact appear that the subscription was voted for by a majority of the qualified voters, the defect in the law is cured. It is also said that the act was repealed by Battle’s Revisal. This revisal was approved by Act Feb. 20, 1873. In

section 8 of the re-visal (page 862, c. 121) it is provided: “No act of a private or local nature; no act containing a grant of corporate privileges or imposing duties 011 any pártioular county inconsistent witli tbe general provisions of law, shall be construed to be repealed by tbe second

section of. this chapter.” Again, the repeal is to be of force from aud after 1st January, 1874. The election in 1 lenderson count}- was provided for 21st July, 1873, was held August, 1873, and subscription made November, 1873. So rights had accrued. It would seem, therefore, that the validity of the original issue of bonds can be sustained under the amendment of 1858-59. In addition to this, the authority to make the subscription to this railroad can be found in

section 2, c. 171, p. 417, of the Public Laws of North Carolina, brought forward as

section 1997 of the Co.de of North Carolina 1883, as follows: “The board of commissioners of any county proposing to take stock in any railroad company shall meet and agree upon the amount to be subscribed, and if a majority of the board shall vote for the proposition, this shall be entered upon the record, which shall show the amount proposed to be subscribed, to what company and whether in bonds, money or other property, and thereupon the board shall order an election to he held on a notice not less Ilian thirty (Lays for the purpose of voting for or against the proposition to subscribe the amount of stock agreed on by the board of county commissioners.

And if a majority of the qualified voters of the county shall vote in favor of the proposition, the board of county commissioners, through their chairman, shall have power to subscribe the amount of stock proposed by them and submitted to the people, subject to all the rules, regulations andweslrictions of other stockholders in such company.

Provided that the counties, in the manner aforesaid, shall subscribe from time to time such amounts either in bonds or money as they may think proper.” The record shows, by extract from the minutes of the county commissioners of Henderson county, that on 21st July, 1873, they unanimously resolved to recommend to the qualified voters of Henderson county the subscription of .$100,000, in county bonds and coupons attached, to the capital stock of the Greenville & French Broad Railroad Company, for which an annual tax was to be levied, the bonds to mature at the end of 20 years, and to bear 7 per cent, interest.

The board of county commissioners ordered that the question of subscription be submitted to the vote of the people of the county. The election was regularly held, the subscription approved by the people, and the subscription made.

The conditions of the subscription were that 110 bonds be issued until all the stock of the road was subscribed; that the whole subscription be expended for work and labor done in Henderson county, and not elsewhere; that no bonds be issued until the road is let out and in progress of construction in said county; that the road should run through the town of Hendersonville, and a depot be located within the corporate limits; aud that the bonds be issued as the exigencies of the case required.

Certain cases decided by the Supreme Court of North Carolina recently have held that neither this act of the Legislature, nor the sections of the Code, in which it was incorporated, authorized subscriptions of this character. But the Supreme Court of the United States, and this, court in Wilkes County v. Coler, 180 U. S. 531, 21 Sup. Ct. 458, 45 L. Ed. 642, Stanley County v. Coler, 190 U. S. 437, 23 Sup. Ct. 811, 47 L. Ed. 1126, and Commissioners v. Coler, 113 Fed. 705, 51 C. C. A. 379, and Id., 113 Fed. 725, 51 C. C.

A. 399, have held that these later decisions do not control the -validity of. bonds issued prior to their rendition which were valid under previous decisions of North Carolina of force when they were issued. These recent cases above referred to are Wilkes County v. Call, 123 N. C. 308, 31 S. E. 481; Commissioners v. Payne, 123 N. C. 432, 31 S. E. 711; Commissioners v. Snuggs, 121 N. C. 394, 28 S. E. 539. The reason is obvious. The federal courts sustained the subscriptions made under decisions of the Supreme Court of North Carolina unreversed and in force at their date.

It was held that the contracts made under these circumstances could not be invalidated by subsequent decisions. Burgess v. Seligman, 107 U. S. 20, 2 Sup. Ct. 10, 27 L. Ed. 359; Folsom v. Ninety-Six, 159 U. S. 624, 16 Sup. Ct. 174, 40 L. Ed. 278. We lay no stress upon the case of Henderson County v. Williams, decided very recently in the superior court of Henderson county, N. C., holding these bonds invalid. No bondholder was a party to this suit. It was wholly between county officers, and cannot be treated as res judicata.

The same rule applies to the original bonds issued by Henderson county, to- refund which the bonds in question in this • case were issued.

These original bonds each bear this statement: “The Commissioners of the County of Henderson regularly represent the body of the county aforesaid, having made a corporate subscription to the capital stock of the Spartanburg & Asheville Railroad Company, which stock, with the dividends accruing thereon, is in the hands of trustees for the holders of said bonds and pledged for the payment of the said bonds and having ascertained the sense of the qualified voters thereof to favor a corporate subscription to the capital stock of the said railroad company by an election duly held for that purpose, having caused these bonds to be issued to meet the in-stalments due upon the county subscription to said company, and the whole is done under the authority conferred and in conformity with the Constitution of the State of North Carolina, and by the authority of the acts of the General Assembly of said State.” These recitals are conclusive, constituting an estoppel in pais upon the county which issued them.

Moran v. Miami Co., 2 Black, 722, 17 L. Ed. 342. “Where bonds of a county on their face import a compliance with the law under which they were issued, the purchasers are not bound to look further for evidence of a compliance with the conditions annexed to the grant of power to issue them, and the county is estopped to deny, as against bona fide purchasers, that such conditions have been complied with.” Knox County v. Aspinwall, 21 How. 539, 16 L. Ed. 208, followed by a long line of decisions down to Northern Bank of Toledo v. Porter Township, 110 U. S. 608, 4 Sup. Ct. 254, 28 L. Ed. 258.

The only duty of a bona fide holder is to see that there is legislative authority to issue the bonds. Douglas County v. Bolles, 94 U. S. 104, 24 L. Ed. 46; Rogers v. Burlington, 3 Wall. 654, 18 L. Ed. 79. It is objected that the act of the session of 1868-69, ratified April xo, 1869, was not passed in conformity with the Constitution. The parts of the journals of the two houses are in the record. These journals show that on the second and third readings of the bill the ayes and nay's were taken and recorded as required by the Constitution.

But it is said that the journals do not show that the bill had a first reading. The bill was entitled “A bill to authorize the several counties in the .state to subscribe to stock in railroad companies.” This is the copy of the House journal: “Mr. Malone introduced a bill to authorize the several counties in the state to subscribe to stock in railroad companies, February 17, 1809, referred to committee on counties and townships.” On February 27, 1869, on motion of Mr. Malone, the rules were suspended, this bill taken up, and passed its second reading by aye and riáy vote recorded.

On March 1, 1869, on motion of Mr. Malone, the rules were suspended, and this bill taken up and passed its third and final reading by a recorded aye and nay vote. The Senate Journal, 4th March, 1869, shows that this bill was received from the House, read a first time, and referred. It was reported favorably on 6th March, and passed its second reading on 13th March, by a recorded aye and nay vote. On 29th March, 1869, it passed its third reading by a recorded aye and nay vote.

No one having even a slight acquaintance with parliamentary proceedings but knows that, when a bill is introduced and referred, it must have had at least one reading. Beside this, this act was duly ratified, and the certificate of the presiding officers shows that it has had three readings in each house. The journal shows that it has had a second reading. The conclusion is inevitable that it must have had a first reading. In Black v. Commissioners, 129 N. C. 126, 39 S.

E. 819, the court says: “As to tho manner of its passage, it appears that the ayes and nays were <luly entered on the journals upon the second and third readings, on two several ua.vs in each house, as required by Const art 2, § 14. The ratification is conclusive evidence that it was read three several times in each house.” Carr v. Coke, 116 N. C. 223, 22 S. E. 16, 28 L. R. A. 737, 47 Am. St Rep. 801. Tt is gravely contended by the counsel for plaintiff in error that, when this journal states that the rules were suspended, it is meant that the rules were suspended which required a full reading of the bill.

There is nothing to sustain, this assumption. The journal states that thereafter the bill received a second reading. The presumption that bodies like a legislature have followed the law always exists. The contrary must be proved.

When it is considered that the original bonds were issued in 1875; that their coupons were regularly paid for 20 years; that the bonds were called in and funded in the bonds in question in this suit, the coupons of which were paid regularly until ist January, 1901; that the money derived from the sale of the bonds was expended in work and labor done in Henderson county; that this road was completed through that county qjid its county scat, Hendersonville, putting this remote mountain village and county in touch with the world; and that this town and county have been enjoying all these advantages for over 30 years — we can see no merit in the defense.

The language of Mr. Justice Peckham in Tulare District v. Shepard, 22 Sup. Ct. 534, 46 L. Ed. 773, is not inappropriate: “In tlie ease of Douglas County v. Bolles, 94 U. S. 104 [24 L. Ed. 46], this court said: ‘Common honesty demands that a debt thus incurred should bo paid.’ That statement has lost no force by the lapse of time, and we think it applies in its full strength in this case. Unless there is some settled rule of law which prevents recovery in this action, the judgment under review should he affirmed.” The judgment of this court is that the judgment of the Circuit Court be affirmed.