Source: https://www.law.cornell.edu/supremecourt/text/133/233
Timestamp: 2019-04-22 02:13:58+00:00

Document:
CHRISTIAN et al. v. ATLANTIC & N. C. R. Co. et al.
J. B. Batchelor and S. F. Phillips, for appellants.
R. H. Battle, for appellees.
The state of North Carolina, by virtue of an act of its legislature, passed 12th February, 1855, and through its board of internal improvement, subscribed for $1,066,600 of the capital stock of the Atlantic & North Carolina Railroad Company, a corporation created by act of the legislature of said state for the purpose of building a railroad from Beaufort to Goldsborough. In order to raise money to pay for this stock, the board of internal improvement, by virtue of the same act, issued the bonds of the state, signed by the governor and countersigned by the public treasurer, each for the sum of $500, and in the following form, to-wit: '$500.00. $500.00.
'It is hereby certified that the state of North Carolina is justly indebted to _____, or bearer, five hundred dollars, redeemable in good and l wful money of the United States, at the Bank of the Republic, in the city of New York, on the first day of January, eighteen hundred and eighty-six, with interest thereon at the rate of six per cent. per annum, payable half-yearly, at the said bank, on the first days of July and January in each year from the date of this bond until the principal be paid, on surrendering the proper coupon hereto annexed. In witness whereof, the governor of the said state, in virtue of power conferred by law, hath signed this bond, and caused the great seal of the state to be hereunto affixed, and her public treasurer hath countersigned the same at the seat of goverment of the said state, this first day of January, eighteen hundred and fifty-six. Signed THOMAS BRAGG, GOVERNOR. Contersigned D. W. COURTS, Public Treasurer. Issued under an act to amend an act entitled 'An act to incorporate the Atlantic & North Carolina Railroad Company and the North Carolina & Western Railroad Company, chapter 232."
The great seal of the State of North Carolina.
The prayer of the bill, so far as relates to the stock held by the state in the railroad company, and to the dividends thereon, is substantially as follows, to-wit: (1) That the bonds or certificates of debt held by the complainant and others may be decreed to be a lien upon the said stock and dividends until paid or redeemed; (2) that all dividends on said stock may be paid to the complainant, and the other bondholders who may join him in the suit; (3 that, if said dividends prove insufficient for this purpose, a sale of said stock, or so much thereof as may be necessary to pay said certificates, may be made under the decree of the court; (4) that an account may be taken of the amount due for interest, etc.; (5) that a receiver may be appointed to take possession of the dividends hereafter payable to the state; (6) that the officers of the railroad company may be enjoined from paying to the state treasurer, or to any other person, on behalf of the state, any dividends which may accrue to the state; and that the treasurer may be enjoined from receiving the same.
To this bill, Simmons, the proxy of the state stock, and Worth, the state treasurer, filed a joint answer separate from the other defendants, admitting the material statements of the bill, so far as relates to the origin and character of the stock and bonds referred to, but denying that any dividends were, or could be, made on the stock, in consequence of the expenses and legitimate obligations of the railroad company. The concluding averment of their answer is as follows, to-wit: '(7) These defendants, further answering, say that two certificates of stock one for one thousand and sixty-six shares, and the other for two hundred shareshave been issued to the state of North Carolina by the defendant company, which certificates, together with the stock represented thereby, are the property of the state, and are in her possession, and have been for a long time before the commencement of this suit, with authority in no one to part with the same except by the direction of the general assembly of the state; and these defendants are advised that, so being the property of the state and in her actual possession, they cannot be taken therefrom, or in any wise be affected by any decree rendered in a cause to which the state is not a party; and these defendants rely upon the fact that the state is not a party to this suit, as if the same had been specially pleaded.' The other defendants also filed answers to the bill; but it is unnecessary to refer to them, or to other incidental proceedings which took place in the cause. The important facts on which relief is claimed are as above recited from the statements of the pleadings. The bill was dismissed by the court below, and from that decree the present appeal was taken.
From the foregoing summary of the statements and prayer of the bill, we see that its object and purpose is to obtain, in behalf of the complainant and other bondholders, the adjudication of a lien upon the stock held by the state of North Carolina in the Atlantic & North Carolina Railroad Company, and upon the dividends on said stock, and the enforcement of that lien, by requiring said dividends to be paid to the bondholders in satisfaction of the amount due on their bonds, and, if these are insufficient, by a sale of said stock, or so much thereof as may be necessary, aided by the appointment of a receiver to take possession of said dividends, and an injunction to restrain the railroad company and its officers from paying to the state treasurer, or to any other person, on behalf of the state, and to restrain said treasurer from receiving, any moneys accruing and payable as dividends on said stock. How the dividends due to the state can be seized and appropriated to the payment of the bonds, or how the stock held and owned by the state can be sold and transferred, through the medium of a suit in equity, without making the state a party to the suit, it is difficult to comprehend. The general rule, certainly, is that all persons whose interests are directly to be affected by a suit in chancery must be made parties. Russell v. Clark's Ex'rs, 7 Cranch, 98; Shields v. Barrow, 17 How. 130, 139; Ribon v. Railroad Cos., 16 Wall. 446; Williams v. Bankhead, 19 Wall. 563; McArthur v. Scott, 113 U. S. 340, 5 Sup. Ct. Rep. 652. The exceptions to the rule are pointed out in these cases, and do not touch the present case. The state has a direct interest to be affected b such a proceeding. The proposal is to take the property of the state, and apply it to the payment of its debts due to the plaintiffs, and to do it through the instrumentality of a court of equity. The ground on which it is contended that this may be done is that the property is affected by a pledge, and may therefore be dealt with in rem. But a pledge, in the legal sense, requires to be delivered to the pledgee. He must have the possession of it. He may then, in default of payment of the debt for which the thing is pledged, sell it, for the purpose of raising the amount, by merely giving proper notice to the pledgeor. In the case of stocks and other choses in action, the pledgee must have possession of the certificate, or other documentary title, with a transfer executed to himself, or in blank, unless payable to bearer, so as to give him the control and power of disposal of it. Such things are then called 'pledges,' but more generally 'collaterals;' and they may be used in the same manner as 'pledges,' properly so called. If there is no transfer attached to or accompanying the document, it is imperfect as a pledge, and requires a resort to a court of equity to give it effect. These propositions are so elementary that they hardly need a citation of authorities to support them. Reference may be made, however, to Story, Bailm. § 297 et seq.; Casey v. Cavaroc, 96 U. S. 467. The stock and dividends of the state of North Carolina now in question have nothing about them in the nature of a pledge. The tenth section of the act of 1855, relied on by the complainant for creating a pledge, must be understood as using the word in a popular, and not in a technical, sense. That section declares first that, as security for the redemption of said certificates of debt, the public faith of the state is hereby pledged to the holders thereof. This is no more than a solemn promise on the part of the state to redeem the certificates. The section next, in addition to the pledge of the public faith, declares that all the stock held by the state in the Atlantic & North Carolina Railroad Company shall be pledged for the same purpose, and any dividend of profit declared thereon shall be applied to the payment of the interest on said bonds. This was nothing more than a promise that the stock should be held and set apart for the payment of the bonds, and that the dividends should be applied to the interest. There was no actual pledge. It was no more of a pledge than is made by a farmer when he pledges his growing crop, or his stock of cattle, for the payment of a debt, without any delivery thereof. He does not use the word in its technical, but in its popular, sense. His language may amount to a parol mortgage, if such a mortgage can be created; but that is all. So, in this case, the pledge given by the state in a statute may have amounted to a mortgage, but it could amount to nothing more; and, if a mortgage, it did not place the mortgagee in possession, but gave him merely a naked right to have the property appropriated and applied to the payment of his debt. But how is that right to be asserted? If the mortgagor be a private person, the mortgagee may cite him into court, and have a decree for the foreclosure and sale of the property. The mortgagor or his assignee would be a necessary party in such a proceeding. Even when absent, beyond the reach of process, he must still be made a party, and at least constructively cited, by publication or otherwise. This is established by the authorities before referred to, and many more might be cited to the same effect. The proceeding is a suit against the party to obtain, by decree of court, the benefit of the mortgage right; but where the mortgagor in possession is a sovereign state no such proceeding can be maintained. The mortgagee's right against the state may be just as good and valid, in a moral point of view, as if it were against an individual. But the state cannot be brought into court, or sued by a private party, without its consent. It was at first held by this court that, under the constitution of the United States, a state might be sued in it by a citizen of another state, or of a foreign state; but it was declared by the eleventh amendment that the judicial power of the United States shall not be construed to extend to such suits. New Hampshire v. Louisiana, 108 U. S. 76, 2 Sup. Ct. Rep. 176; Louisiana v. Jumel, 107 U. S. 711, 2 Sup.Ct.Rep. 128; Marye v. Parsons, 114 U. S. 327, 5 Sup. Ct. Rep. 932, 962; Hagood v. Southern, 117 U. S. 52, 6 Sup. Ct. Rep. 608; Ex parte Ayers, 123 U. S. 443, 8 Sup. Ct. Rep. 164.
There is a class of cases, undoubtedly, in which the interests of the state may be indirectly affected by a judicial proceeding without making it a party. Cases of this sort may arise in courts of equity, where property is brought under its jurisdiction for foreclosure, or some other proceeding; and the state, not having the title in fee, or the possession of the property, has some lien upon it, or claim against it, as a judgment against the mortgagor, subsequent to the mortgage. In such a case the foreclosure and sale of the property will not be prevented by the interest which the state has in it, butits right of redemption will remain the same as before. Such cases do not affect the present, in which the object is to take and appropriate the state's property for the purpose of satisfying its obligations. The Siren, 7 Wall. 152, 157; Briggs v. Light Boats, 11 Allen, 158, 173.
It remains true, therefore, that a bill will not lie to effect a foreclosure and sale, or to obtain possession of property belonging to the state; and for the very plain reason that in such a case the state is a necessary party, and cannot be sued. This was distinctly held by this courtin the case of Cunningham v. Railroad Co., 109 U. S. 446, 3 Sup. Ct. Rep. 292, 609. In that case the state of Georgia had indorsed the bonds of a railroad company, taking a lien upon the railroad as security. The company failed to pay the interest of the indorsed bonds; and the governor of the state, under the power vested in him, took possession of the road, and put it into the hands of a receiver, who sold it to the state of Georgia, and made a conveyance to the state accordingly. Thereupon the state, by the governor and other officers and directors, took possession of, and operated, the road The holders of a second mortgage on the same property filed a bill to foreclose their mortgage, and to set aside the sale made by the receiver as invalid, and to have priority of lien, for reasons stated in the bill. They made the governor, the state treasurer, and the state directors of the road, parties defendant. This court held that the bill would not lie, because the state was an indispensable party. Mr. Justice MILLER, delivering the opinion of the court, said: 'Whenever it can be clearly seen that the state is an indispensable party to enable the court, according to the rules which govern its procedure, to grant the relief sought, it will refuse to take jurisdiction.' Again: 'In the case now under consideration, the state of Georgia is an indispensable party. It is in fact the only proper defendant in the case. No one sued has any personal interest in the matter, or any official authority to grant the relief asked. No foreclosure suit can be sustained without the state, because she has the legal title to the property; and the purchaser under a foreclosure decree would get no title, in the absence of the state. The state is in the actual possession of the property, and the court can deliver no possession to the purchaser. The entire interest adverse to the plaintiff in this suit is the interest of the state of Georgia in the property, of which she has both the title and possession.' These remarks are strikingly applicable to the present case. The state of North Carolina is the only party really concerned. The whole proceeding is virtually against her. The object of the suit is to get possession of her proper y; to sequester her dividends, if any there may be, and to compel the payment of them to the complainants; to seize and sell her stock in the railroad, stock of which she is in sole possession. Be it true that the bondholders have a lien on said dividends and stock, it is not a lien that can be enforced without suit, and that a suit against the state.
We are referred to a decision made at the circuit by Chief Justice WAITE in the case of Swasey v. Railroad Co., 1 Hughes, 17, in which, in a case similar to the present, it was held that, inasmuch as the shares of stock belonging to the state were pledged for the payment of the complainants' bonds, they were held by the railroad company as trustee for the bondholders as well as the state; and that if the trustee was a party to the suit it was not necessary that the state should be a party. We are not certain that we are fully in possession of the facts of that case; but, if they were the same as in the present case, with the highest respect for the opinions of the lamented chief justice, we cannot assent to the conclusions to which he arrived. In the general principles that a state cannot besued; that its property, in the possession of its own officers and agents, cannot be reached by its creditors by means of judicial process; and that in any such proceeding the state is an indispensable party,Chief Justice WAITE certainly did express his emphatic concurrence, in the able opinion delivered by him on behalf of the court, in the case of Louisiana v. Jumel, 107 U. S. 711, 2 Sup. Ct. Rep. 128. His views in the Swasey Case seem to have been based on the notion that the stock of the state was lodged in the hands of the railroad company as a trustee for the parties concerned, and was not in the hands of the state itself, or of itsimmediate officers and agents. But, if the facts in that case were as he supposed them to be, the facts in the present case are certainly different from that. No stockholder of any company ever had more perfect possession and ownership of his stock than the state of North Carolna has of the stock in question. There may be contract claims against it; but they are claims against the state, because based solely on the contract of the state, and not on possession.
We think that the state is an indispensable party to any proceeding in equity in which its property is sought to be taken and subjected to the payment of its obligations; and that the present suit is of that character, and cannot be sustained. The decree of the circuit court is affirmed.

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