BOARD OF LIQUIDATION & CV LOUISIANA, 179 U.S. 622 (1901)
BOARD OF LIQUIDATION & CV LOUISIANA, 179 U.S. 622 (1901)
BOARD OF LIQUIDATION & CV LOUISIANA, 179 U.S. 622 (1901)
622
21 S.Ct. 263
45 L.Ed. 347
account to the city for the expenditure. It was recited ( 16) 'that all of the
substantial provisions of this act are hereby declared to be a contract
between the state of Louisiana, the city of New Orleans, the taxpayers of
said city, and each and every holder of the said constitutional bonds.' The
law ( 8), after limiting the purposes to which the funds arising from the 1
per cent tax should be primarily disbursed by the board of liquidation,
contained the following:
'After making, in each year, the provisions above required, and after
deducting the expenses incurred by such board, and after paying any
deficiency in the interest fund of any previous year, one half of the surplus
of said tax shall be passed to the credit of a special fund, to be known as
the 'permanent public improvement fund,' to be disposed of as hereinafter
provided. The other half of said surplus shall be paid over to the school
board of the city of New Orleans, in addition to any fund appropriated by
said city out of other funds, to be used in the maintenance and support of
the public schools in said city.'
It was further provided ( 10):
'That the permanent public improvement fund, above provided for, shall
be used exclusively for the construction of permanent public
improvements in the city of New Orleans, such as levees, canals, drainage
stations, pavements, public buildings, public parks, and bridges; and an
ordinance passed by the said council, to be paid out of this fund, shall first
be approved by said board of liquidation, who shall not draw any check on
said fund unless they are convinced, upon proper inquiry, that said
ordinance covers the construction of a permanent public improvement
within the purview of this act. The true intent and meaning of this clause
is not to give said board any authority to say to what permanent public
improvement any fund shall be applied, but only to see that said funds
shall be applied exclusively to the construction of improvements that are
permanent.'
The Constitution of the state of Louisiana, at the time the foregoing law
was passed, contained restrictions upon the authority both of the
legislature and the city of New Orleans, with which many of the
provisions of the refunding law were in conflict. It was consequently
provided that the main provisions of the law should not go into effect until
they were ratified by the adoption of a constitutional amendment, which
was submitted by an act passed at the same session at which the refunding
law was adopted. This amendment to the Constitution was ratified at a
general election in 1892. The amendment to the Constitution, however,
was not soley confined to an approval of the refunding act, but contained a
provision empowering the city of New Orleans 'to examine into and
assume the payment of the claims or obligations of the board of school
directors for the city and parish of Orleans due for the years 1880, 1881,
1882, 1883, and 1884, now in the hands of original owners, who have in
nowise parted with their rights of ownership, or pledged the same, as may
be found to be equitably due by said board for services rendered, labor
performed, or materials furnished by authority of said board.' The power
of the city to exercise the discretion thus conferred depended upon the
adoption of the amendment to the Constitution, because the school board
was a distinct corporation from the city of New Orleans, and its debts
were not debts of the city; and without the amendment the legislature
could not have empowered the city to assume to pay a sum which it did
not owe, because the amount was soley due by another and distinct
corporation.
After the adoption of the amendment the city of New Orleans contracted
for various works of public improvement, and the cost of these works, it
was either expressly or impliedly agreed, should be paid out of the
permanent public improvement fund, to arise from one half the surplus of
the 1 per cent tax, as provided in the amendment of 1892 and the
refunding law.
In July, 1895, a plan for the drainage of the city of New Orleans was
devised by the municipality. In 1896 a law was enacted creating the
drainage commission of New Orleans, with authority to execute the
aforestated plan of drainage, with such modifications as might be deemed
necessary for its successful accomplishment. The law provided ( 6), in
order 'to raise funds for the purpose of doing such work speedily and on
an extensive scale, said drainage commission of New Orleans shall have
power to issue and dispose of its negotiable bonds to an amount not
exceeding $5,000,000. . . . All moneys and funds dedicated and applied by
this act to the purposes thereof are consecrated to the payment of the
principal and interest on said bonds.' The funds thus referred to were
enumerated in the act ( 3), and consisted of the moneys in the hands of
the board of liquidation derived from one half the surplus of the 1 per cent
tax levied after January 1, 1898. In other words, as the city had, prior to
1896, contracted for public improvements payable out of the surplus, so
much of the surplus fund as accrued from taxes levied prior to January 1,
1898, was not transferred to the drainage commission, but was left to be
applied to the discharge of the sum due on the contracts which the city
had theretofore made on the faith of the surplus fund. In addition, the act
also 'dedicated and applied' to the purposes of the drainage commission
'all moneys and funds now under the control of the city of New Orleans,
and hereafter to be received, arising from the sale of street-railroad
franchises and other franchises.' In 1898 the law just referred to was
amended in various particulars, one of these amendments reducing the
amount of bonds which the drainage commission was authorized to issue
from $5,000,000 to $1,500,000.
The board of liquidation received from the city of New Orleans the series
of ten millions of constitutional bonds, and sold or otherwise issued
$8,998,500 thereof, leaving in its hands bonds amounting to $1,001,500.
There yet remained, however, certain outstanding debts subject to be
refunded or retired, amounting to about $137,050.
The drainage commission, as it was authorized to do, caused to be
prepared 1,500 bonds of $1,000 each. Five hundred of these bonds were
sold in June, 1898, realizing $505,238. There was paid over to the
commission the proceeds of the sale of certain street-railroad franchises,
amounting to $579,582.12. Between May, 1897, and the 12th of May,
1898, the commission made contracts for the work of draining the city to
the amount of 1,834,465.35, and prior to May 12, 1898, had paid on
account of these contracts, as the work progressed, $797,363.06, leaving
due the sum of $1,037,102.29, which was payable as the work proceeded.
In 1896 a convention to frame a new constitution for the state of Louisiana
was assembled, and the instrument which that body adopted was,
subsequent to May 12, 1898, declared to be the Constitution of the state
without submitting the provisions thereof for ratification by a vote of the
people. By article 314 of this Constitution the constitutional amendment
adopted at the election of 1892, relating to the retirement or the refunding
of the city debt, was reiterated. The discretion, however, which had been
conferred upon the municipal government of the city of New Orleans by
the constitutional amendment of 1892, to assume payment of certain
claims against the school board, apparently not having been availed of,
article 315 of the new Constitution imposed a positive duty on the city to
examine specified debts due by the school board, and to issue certificates
of indebtedness to the amount found to be due. These debts the
Constitution provided for in article 317, as follows: 'The funds requisite to
pay said claims shall be provided by said board of liquidation, by the sale
of a sufficient number of the constitutional bonds of the city of New
Orleans of the issue provided for by act No. 110 of the general assembly
for the year 1890, and by the amendment to the Constitution of the state
submitted to the people by said act and adopted at the general election in
1892.'
That this decrease in the amount of the surplus would impair the
obligations of the contracts existing in favor of the following classes of
creditors: First, those who had contracted with the city to execute certain
works of public improvement on the faith of the surplus. Second, those
bondholders who the drainage commission upon the faith of kthe drainge
commission upon the faith of the surplus fund. Third, those who had
contracted with the drainage commission in reliance upon the surplus
fund. The return in addition alleged that the sale of the bonds as prayed
would injuriously affect the sale by the drainage commission of the
$1,000,000 bonds which that board had not yet disposed of, and therefore
would further impair the obligation of the contracts existing in favor of all
the creditors of the drainage commission, as such creditors had contracted
with the commission upon the faith of the undiminished and unimpaired
power to sell the bonds as originally provided for. It was besides alleged
that, as one half of the surplus had been consecrated to the school board,
the diminution of the surplus which would be occasioned by the sale of
bonds for any other debts than those originally provided for would impair
the obligations of the contract which had been engendered in favor of the
school board as the result of the provision dedicating the one half of that
surplus to that board.
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 14th 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 5 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.
While 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, while 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, 26 So. 679), 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 defenses 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 indistinguishable from the other
bonds of the same series, and hence pur 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 commission 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
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
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 pairment of contract rights, arising from which, it is alleged, has been
impaired, arises Seligman, 107 U. S. 34, 27 L. ed. 365, 2 Sup. Ct. Rep. 10, '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.'
5
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
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.
8
Affirmed.
and claims such as were provided for by the act No. 110 of 1890 and the
constitutional amendment of 1892, without any conflict with the bonds ordered
to be sold by article 317 of the Constitution of 1898, the former, of course,
would have no cause of complaint; but if from any cause the amount of the tax
collected would be insufficient for that purpose, we do not think the holders of
these latter bonds could force the former to pro rate with them the amount in
hand.
'This condition of things is not existing. It may never arise, and should it arise
the board of liquidation would doubtless have taken steps to distinguish bonds
issued under article 317 from those which had been otherwise issued.'
Again the court said (Ibid, p. 1872, So. p. 688).
'There is no constitutional objection to the convention's ordering the board of
liquidation to sell bonds to take up the relators' certificate, but there would be
constitutional objection to be urged if the effect of the issuing of such bonds
would be to place the holders thereof on an equality with the holders of bonds
issued to take up the bonds and claims provided for as to their funding and
payment by act No. 110 of 1890, act No. 114 of 1896, and the constitutional
amendment of 1892. Duperier v. Police Jury, 31 La. Ann. 710; Shields v. Pipes,
31 La. Ann. 765.'
Yet further, in analyzing the rights of the drainage bondholders and contract
creditors, the court said (Ibid, p. 1871, So. p. 688):
'We do not take the same view that relators do as to what was meant and
intended to be conveyed by the 'surplus' referred to by act 110 of 1890, act 114
of 1896, and the constitutional amendment of 1892. We think the lawmakers
intended that any portion of the 1 per cent tax provided for in act 110, not
needed for the payment or retirement of the particular bonds or claims therein
specially provided for as to payment or retirement, should constitute the surplus
of the tax. That it was not contemplated, when these laws were passed or the
amendment of 1892 adopted, that in order to exhaust any portion of the
$10,000,000 originally expected to be needed to pay the existing bonds and the
existing claims therein
specially enumerated, which might not be necessary for the purpose, new
classes of claims should or would be thrown under the provisions of the
original funding law.
'We think the 'surplus' was intended to connect at once and follow immediately
behind, as to its appropriation, the amount beyond that actually needed to carry
out the plan as originally mapped out and planned. The surplus was