Court Opinion

ID: 8629449
Source: CourtListenerOpinion
Date Created: 2022-11-24 19:35:20.545099+00
Date Added: 2024-06-11T16:55:43.057210
License: Public Domain

DILLON, Circuit Judge.
The plaintiff, who was a contractor on certain railroads, to which the state originally gave the benefit of the land grant of congress, holds bonds of the state of Minnesota, issued pursuant to the constitutional amendment of April 15, 1858, to the amount of half a million of dollars, upon which no interest has been paid since 1859, and which, by the expunging amendment to the constitution of 1860, if valid, the state legislature is disabled from paying or making provision to pay, until a law for that purpose shall be approved by a popular vote. These bonds were endorsed by the original companies to which they were issued, and which, as between them and the state, are the principal and primary debtors. The present defendants, the St. Paul & Sioux City B. B. Co., and the Southern Minnesota B. B. Co., are not the companies with which the plaintiff contracted and for which he did work, but are companies created by the state in 1864, and to which the state then re-granted the lands and property, which it had obtained by foreclosure or forfeiture, or both, from the old *420or original companies. Tire bill proceeds up. on the theory that the plaintiff’s bonds are legal and subsisting obligations of the state; that the companies to which they were issued are the principal debtors, and the state their surety; that the lands, particularly the first 120 sections to each road, became by the act of the legislature of May 22, 1S57, the property of the companies; that the only interest the state afterwards acquired in these lands, was the right to hold them to secure itself against loss by reason of its issue of state bonds; that the plaintiff, a creditor of the main debtor, has a right in equity to be subrogated to the rights of his surety (the state) in respect to all securities belonging to the principal debtor, and that the present companies not being bona fide purchasers of the lands for value and without notice, are open to the same trusts which might have been fastened upon them had they still remained in the hands of the state. That the bonds held by the plaintiff are the legal obligations of the state, and binding upon it in law, honor and justice, I have no doubt. Indeed, counsel have not seriously contended that these bonds were not valid. They were issued pursuant to an amendment of the constitution of the state, adopted by a popular vote of about 35,000 for, to 8,000 against the project; and have been repeatedly recognized as valid by subsequent legislation of the state, and by the foreclosure proceedings. Under these circumstances, the fact that it does not appear that the acting governor signed the bill, providing for the submission to the people of the loan amendment to the constitution, is a matter of no consequence. In the amendment to the constitu. tion “the faith and credit of the state are pledged for the payment of the interest and the redemption of the principal” of the bends; they are signed by the governor and bear upon their face the seal of the state; they were issued to the plaintiff and others for grading and work actually done upon the roads at the rate specified in the constitutional amendment, and the state obtained the benefit of the securities it took for its indemnification, and re-granted the property it acquired, free from all liens, to the present companies; under these circumstances, if the state were suable in the courts, there can be no doubt that the bonds would be legally enforceable against it. Justice and honor alike, require the state to recognize these bonds as binding upon it, and in the end the court cannot doubt that the people of the state will so ordain. A state with such a future before it as the state of Minnesota, cannot afford to bear the odium of repudiation, and if there are no other difficulties in the plaintiff’s way, except the suggested one that his bonds are invalid, he will be entitled to the relief demanded.
The main purpose of the bill is to charge the first 120 sections of land granted by the state to the original companies, and by the act of 1864 re-granted to the present companies, with an equitable trust in favor of the plaintiff, for the payment of his state bonds endorsed by the old companies. It is admitted that the old companies, after doing a large amount of grading, became insolvent, and that they never completed any part of their line of road, and hence under the act of congress never became entitled to any lands, unless it may be the first 120 sections to each of the roads. These, the plaintiff contends, the state, under the act of congress of March 3, 1S57, making the grant,, had a right to sell in advance of construction; that the act of the territorial legislature of May 22, 1857, was a sale of the 120 sections to the companies, by force, whereof, they became absolutely their property by a title not subject to be divested by their subsequent failure to build the roads; that being the property of the companies they had a right'to pledge them to the state to indemnify it against liabilities it assumed for them; and that the plaintiff has the right to follow these lands into the hands of the state or its grantees, with notice, and subject them to payment of his bonds. The lands granted to the state by congress were held by it in trust to be “exclusively applied to the construction of the road for and on account of which such lands were granted, and the same should be applied to no other purposes whatsoever.” Said lands “shall be disposed of,” says the act of congress, “by the state only, in the manner following, that is to say, that a quantity of land not exceeding 120 sections for each of said roads and branches * * * may be sold; and when the governor shall certify that any twenty continuous miles of any said roads, etc., is completed, then a quantity not exceeding 120 sections * * * for each of said roads, may be sold,” and so on. This comprised the extent of the power of the state over these lands. The state was a trustee whose powers were strictly limited by the congressional enactment. The state might, I am inclined to think, have sold the 120 sections in advance of construction, and conveyed a good title; but I doubt whether the act of the legislature of May 22, 1857, was a sale to the original companies so as to confer a title not subject to be defeated, if they failed to construct the roads as required by the act of congress; and I am clear, that under the act of congress it was not competent for the state, acting as a trustee, to acquire any lien on or right in these lands, inconsistent with the unfettered execution of its trust duties-under the act of congress. The state sustained to the old companies a double relation, one as trustee under the land grant act of congress; the other as the sovereign which had created these companies, and was undertaking to aid them in their enterprise by a loan of its own credit. Now it is clear *421that if the state became a creditor of these companies, it could not lawfully stipulate for security out of lands which it held in trust, if this would be inconsistent with its duties under the act of congress.
NOTE [from original report]. Construction of acts of congress granting public lands to states to aid in building railroads: Schulenburg v. Harriman [Case No. 12,486]; Rice v. Minnesota & N. W. R. Co., 1 Black [66 U. S.) 358; State v. Southern Minn. R. Co., 18 Minn. 50 [Gil. 21]. To Union Pacific Railroad Co.: Union Pac. R. Co. v. Watts [Case No. 14.385]. Taxation of such lands by the states: Kansas Pac. R. Co. v. Prescott, 16 Wall. [83 U. S.] 603. Lien of state to secure state bonds issued to the companies: Murdock v. Woodson [Case No. 9,942]; Wilson v. Boyce [Id. 17,793]. [NOTE. The plaintiff appealed to the supreme court, which affirmed the decree herein. Chamberlain v. St. Paul & S. C. R. Co., 92 U. S. 299. Mr. Justice Field, in delivering the opinion, held that the act of congress of March 3, 1857, only authorized for each road, in advance of its construction, a sale of 120 sections, and that no further disposition of land along the road was allowable, except as the road was completed in divisions of 20 miles, and, furthermore, that, as to the land conveyed to indemnify the state against losses on the bonds, the bondholders had no enuity to have the land applied to the payment of the bonds which could be enforced against the state, and that the grantees from the state took the property discharged of all claims of the bondholders.]
In this view, I have serious doubts as to the validity of the security for its bonds which the state sought to obtain by the constitutional amendment upon the lands or any of them, which had been granted by congress, and which had never been earned by the completion of the required section of 20 (subsequently reduced to 10) miles of road. But I need not decide the point; for assuming that the 120 sections became the absolute property of the company, it was then competent for the state to take security, upon it for its indemnity, and to provide for the forfeiture thereof to the state in case the roads were not completed as required by the constitutional amendment. The companies made default in the payment of interest, and their rights were foreclosed, and the property purchased by the state. • The companies failed to build and complete the roads, as required by the constitutional amendment; and the legislation of 1864 shows that the state elected to take advantage of the forfeiture. Foreclosure and forfeiture were cumulative and concurrent remedies. The main object of the mortgage was pecuniary indemnity to the state. The principal purpose of the provisions for forfeiture was to secure the completion of the roads by the stipulated time. By foreclosure or forfeiture, or both, the rights of the old companies in those lands. became vested in the state. It need not be denied in this case, that if these bonds were still in the hands of the state, or a voluntary grantee or a purchaser with notice, that the plaintiff, as the holder of unpaid state bonds (to indemnify the state against which the companies had conveyed to it the lands) might fasten an equitable trust upon them. Undoubtedly, he could do this, if these lands were in the hands of the state, discharged of any trusts under the act of congress. But upon the failure of the old companies, the state, in 1S64, in order to secure the completion of the roads, created the present companies, and granted to them all the lands and franchises which had been granted to the old companies, “free of all claims or liens,” and on the faith of this legislation, the new companies have built, completed the lines of road, the one at a cost of $5,000,000 and the other at a cost of $3,000,000. The money to accomplish this was raised upon deeds of trust and mortgages yet outstanding, made by the present companies to secure issues of bonds, preferred stock and land certificates. After all this is done, the present bill is filed, and it would, in my judgment, be inequitable as against the present companies and their creditors, to hold that the plaintiff could subject to the payment of his bonds the land or other property which the defendant companies acquired from the state by the legislation of 1864.
A decree will, therefore, be entered, dismissing the bill with costs. Decree accordingly.