The New York herald., 1879-02-10
MILLIONS IN 1T.
Testing the Validity of TenneSsee'S In
ternaI Improvement Bonds.
Important Suit on Behalf OF
the Bondholders.
MEMPHIS. Feb. 6. 1870.

e
MEMPHIS, Feb. 9, 1879.
There has just been fled in this city with the clerk
of the United States Circuit Court for the Sixth Ju.
dicia district of Western Tennessee petition
initiatory step in an important action relating to in
ternal improvement bonds issued by the State OF
Tennessee to the Memphis. Clarksville and Louis
vile Railroad Company. The petition is filed bes
half of Calvin Amory Stevens, of New York, ownef
OF thirty OF the bonds. his and others behalf
owning similar bonds and is signed solicitors and
counsel his behalf by Mr.. Edward L. Andrews. Of
New York. and ex-Judge Hoadley of Cincinnati. with
whom the venerable Charles O'Conor is
siated consulting counsel. The petition. which
8 exceedingly voluminous. sets forth in substance
hat when the Memphis, Clarksville and Louisville
Railroad was about being constructed. in the year
1882 the State Of Tennessee had an act passed
whereby It's credit to be lent to the company to
aid in the construction of the road by the issue by
the State the purchase of rails and the laying of
the same its bonds to be known internal i'm
provement bonds. Such bonds, to the amount Of
$1,582 O00 were issued to innocent holders, among
whom is the petitioner. BY the act authorizing
such issue it was provided that they should be
payable in such place in the United States the
president of the railroad company should designate
that the bonds were issued they should at
once, by operation of law, become lien on all Of the
road then or thereafter completed, without a decd
from the company, such lien becoming thereupon in
vested in the State of Tennessee security the
payment Of the bonds with interest; that at least f
teen days before the interest these should fall due
it would be the duty of the company to deposit in
the Bank of Tennessee at Nashville funds sufficient to
meet the same that should there be fail
urc to make such deposit 1t would then become
the duty Of the Governor of the State to
INN, dafeJ nj
pense of the company to take possession and control
of the road and pay its income toward the lqui
dation Of such interest; that If there should be
failure the part Of the company to pay the prin
cipal Of the bonds the Governor of the State shall
have the right to direct judicial proceedings be in
stitued. and the courts shall thereupon make such
orders and decrees as may be deemed necessary to
secure payment Of the bonds and the State from loss
including the appointment of receiver and sale of
the road if necessary. OF these bonds there
outstanding and unpaid yso. OF the value OF $1,000
each On these there is due up the Ist of january
last three and half consecutive years interest,
amounting in the aggregate to about twenty
late civil the railroad company did not
pay the interest the bonds issued to it, and alter
the still continued in great part in default The
State of 1snnessee had likewise been in default
during the same time. The market value or the
bonds had in the meantime fallen greatly, depre-
ciatng to about fifty per cent OF their par value.
Under these circumstances the proct was conceived
OF avoiding the liabilities OF the COZ orations for the
bling the State to reduce her unsecured debt at the
expense of the holders Of the internal improvement
bonds. That project to bs enforced by treating
the lien the railroads the absolute property the
State without regard to the trust in favor holders
OF the bonds whose moneys the companies had
ceived. The Legislature was to be induced to pro-
ceed on this basls and to sell aud assign the lien
each road, in consideration OF the receipt by the
State OF amount of its bonds from the company
without regard to whether they the bonds
issued to aud the obligNons of the company deliver
ing them and were entitled to the lien its road.
Y.
In July. 1S70 the General Assembly of the State
passed an act authorizing sale of the interest of
Tennessee in the defaultiug railroads for sum equal
to the amount OF the bonds issued to them by the
State. with interest, payment for which could be
issued in ad OF any such railroad for any
other purpose. This price could not be OBJ
tho Legislature passed another act authorizing tho
sale for any amount of bonds OF tho state including
those not secured by liens on the roads, leaving the
bonds secured still outstanding ard unpaid. BY
additional act passed. in 1871 the sales thus pro-
vidcd for, and which included sale OF the Memphis
Clarksvilie and Louisville road. were confirmed. BY
virtue OF such sale the railroad company claims that
the lien Oh its property is satisfied apd discharged
without payment Of the interest principal of the
bonds in suit. But the petition claims that such sale
void in law and fraudulent in fact that the pur
pose of the legislation to the len held in
trust by the State to the States beneit; that
by such ccts an assignment sale of the mort
gage held by the state was violation of the trust
reposed in the State by contract wth'te purchasers
oil the bonds issued by 1t to tine company Its duty
the petition asserts, as trustee of the security.
statute constituting the deed of trust. 1t could not
transfer the security which il held ia trust to
confer title upon another Invested of the trust
The trust embodied in apuolic law and const-
tuted express notice to everybody No sale OF tho
statutory Lien was authorized by the acts constitu
ting it, aud realization enforcement OF the ien
in any manner contemplated, and except tor the
bencnt or the bondhoiders. such Legislative acts
sought to impair the contract with the internal i'm
proveInent boniholders contained in the general
law OF 1862. They were violation Of the federal
constitution, and conferred right authority TO
To
the purchaser, save and except it may be title in
trust for the benefit Of the bonds in suit: Not only
were the acts purporting TO confer jurisdiction OF
JUDICIAL nature In relation to this sale repugnant TO
the constitution OF the United states. but in conflict
For so il is that the constitution OF that State pro-
hibits the passage Of special laws inconsistent with
the general laws OF the land.
OPINION or NASHVILLE JUDGE.
In the year 1870, and about the time of the passage
Of the acts mentioned Edward II. East. then counsel
for the Nashville and Decatur railroad Company
whose road had also been built by aid OF internal
provcment bonds issued by the state. gave opinion
holding that the lien the different for pay
cnt OF these bonds the absolute property OF tao
State. which she could treat in any manner she
lit. without regard to any trust in favor OF the
bondhodcrs Soon thereafter Mr. East became judge
of the Chancery Court ut Nashville and the General
Assembly enacted their law that bill "shaIl be
Immediately filed IN the Chancery Court at Nash
vile." although Nashville was not within the county
wherein the place of business of nearly ali the
the formal judicial proceedings and decree OF |
Chancellor East, whereby consummatcd the |
alleged III v1othtlon ana OF the rights
innocent bondh oIders, the petition asserts and
charges that the acts OF q date subsequent to the |
issu OF the said bonds in far they attempt
may be construed TO have authorized the satsfac-
tio OF the statutory lien established for the benefit
OF the holders OF the internal Improvement bonds OF
Tennessee loaned To the said company by any other
means than payment, impaired or sought to impair |
the obligation OF the contract aforementioned, aud |
were in violation the federal constitution and void
and all acts committed hereunder Illegal and |
NULL Tho petitioner plaintiff in the case
ciudcs his petition by demanding, on the facts |
alleged therein, that the priority oi the sasd |
lien of the internal improvement bonds and /
coupons aforesaid, upon all the railroad equipments.
Incomes. tolls, rights, privileges property ana iran
chises of the Memphis. ClarGsviilo anu Louisville
Railroad Company. within the state of Tcnnossec.
may be established above all other claims and de-
mands ms constituting Tho first anu paramount EN-
cuinbrsnce on said property aud rights; that the
income uf said property, its use III the state be
applied in nent of the interest the outstanding
Improvement bonds. and that the property may DO