McCreary v. State

Gregg, J.

Under the act of the Legislature of January 16th, 1861, the State of Arkansas filed her bill of complaint against the east half southwest quarter, and west half southeast quarter of section twenty, in township thirteen south of range twenty-nine west, in which she alleges that under the act of the State Legislature of October 26, 1836, the State issued two -millions of dollars in her bonds, bearing interest at five per cent., and payable at twenty-five years, to the order of the Heal Estate Bank, and transferrable by indorsement; and that it was further provided in said act that said bank was to pay the interest, and when due, the principal of said bonds; that stock should be first subscribed to the amount of §2,250,000, and such subscription secured by mortgages on real estate, conditioned for the payment of all moneys recei ved from the bank and the final payment of the bonds of the State, which mortgages were the base of the capital of the bank; that afterwards the interest upon the bonds, by-act of the Legislature, was increased to six «per cent., and that on the first day of January, 1838, the Governor issued fifteen hundred and thirty of such bonds, each for one thousand dollars, which were indorsed and, in September of that year, sold five hundred of them to the - Secretary of the United States Treasury, and one thousand to Joseph 1). Beers, and thirty to R. M. Johnson, but that the present holders are unknown; that under the act of the Legislature of 1838, to establish a western branch bank, five hundred bonds, of like conditions, amounts and terms, were issued on the first of Januaiy, 1840, upon similar subscriptions of stock and mortgages, which stock, bonds and mortgages were transferred to the State and the holders of her- bonds, as an indemnity for the payment of the State bonds.

It is further alleged that these five hundred bonds were hypothecated for $121,336 59, without authority of law, and that the State is not bound to pay them.

It is alleged that Thomas B. Hayne, on the 10th day of June, 1837, having subscribed for forty shares, gave his stock bond for $4000, payable to the bank, or order, with five per cent, interest, half yearly, and due 26th of October, 1861; and that he, on said 10th day of June, executed his mortgage to said Real Estate Bank, conditioned as aforesaid, on the cast half southwest quarter, aiid west half southeast quarter section twenty, township 13 south of range twenty-nine west; that afterwards, on the 16th day of September, 1837, thirty-eight shares of stock (valued at $100 each), were awarded said Ilayne, and he became a stockholder to that extent, and that he has not paid off’ said stocK bond, nor has he paid so much of the bonds of the State issued to said bank, etc.

It is also alleged that said Real Estate Bank, on the second day of April, 1842, by deed of assignment, conveyed to Henry L. Biscoc and others, as trustees, all the property and effects of said bank, in trust to pay off her liabilities' in the order therein stated, who took charge of said effects and ad ministerecl said trust until the second day of April, 1844; that in ■ July, 1844, upon quo warranto before the Supreme Court of this State, the charter of said bank was declared forfeited, and it ceased to exist as a corporation; that by a decree of the Chancery Court, rendered, on the 20th day of April, 1855, upon a bill against the residuary trustees, charging fraud and waste in the administration of said trust, said trustees were removed, and a receiver appointed to take charge of all the assets of said bank, to administer the same, make reports, etc.; that to secure the 22,500 shares of stock awarded under the act of 1836, mortgages had been executed upon 127,-829 65-100 acres of land, valued at $2,603,922 72-100; that to secure the 5640 shares awarded stock-holders under the act of 1838, to establish the Western Branch Bank, one hundred mortgages were executed to said Beal Estate Bank upon 60,290 24-100 acres of land valued at $776,840 6-100; that by the receiver’s report of October, 1866, there were outstanding- and unredeemed 888 of the 1530 bonds, on which Ayas due of' principal $888,000, and of interest $1,066,000, that there was. also unpaid the sum of $121,336 59, obtained by the hypothecation of said five hundred bonds, and interest on said sum-from the 7th of September, 1840, to the date of said report, amounting to $189,750 27, and of notes out, in circulation, $12,755; and that the-total available assets at that date were' $512,341 31, and therefore the liabilities over the assets were $1,771,500 59, and that the condition of said assets remain as then, and she prayed for a foreclosure of the said mortgage for her protection, as .well as for the benefit of the holders of the bonds of the State and the creditoi-s of the bank, to enforce the payment of said bonds and the interest thereon, Avhich she is bound to pay to preserve her faith, etc., and that if payment of such proportional sum as may be chargeable upon the lands, aboA'e described, be not paid, that they be sold, etc.

Under the act of the Legislature, first referred to, the appellant appeared in the Chancery Court and claimed to be the owner of tlie lands proceeded against, and by order of that court he was made a party and allowed to defend the action; whereupon he -interposed a demurrer to the bill, in which were eleven specifications.

The first was a general denial of equity on the face of the bill.

The second was that the State had no right to sue in behalf of herself and the creditors'and bond-holders.

The third, that the State does not show that she has paid or secured the debt.

Fourth. That the State has failed to bring the bond-holders before the court.

Fifth. That the State does not bring into court the claims or debts for which she seeks a foreclosure, nor does she show that she has control of them.

Sixth. That the State fails to show what disposition has been made of the funds she seized as assets of the bank.

Seventh. The State fails to offer to turn over such assets.

Eighth. That the law under which suit is brought is unconstitutional.

Ninth. That the demand is stale.

Tenth. That the State’s rights were equitable only, and she should have proceeded to foreclose when she seized the assets and had a receiver appointed.

Eleventh. That there was no State of Arkansas when this suit was bfbught.

"We propose a short review of these several causes of demurrer, mainly in their inverse order.

The last cause assigned, that Arkansas was not a State needs no comment.

The ninth and tenth assume that the State is barred by lapse of time and her. neglect to sue. The record discloses the fact that the mortgage sought to be foreclosed fell due in October, 1861; until that time it would not have been proper for any party to have brought a bill to foreclose this mortgage. The legal presumption is that a mortgagor will pay his debt and relieve Ms property before a forfeiture of the right of redemption. At all events he should not have been harrassed by suits, and taxed with attorney’s fees, etc., until in default by the terms of his contract. Therefore, the right to sue properly accrued in October, 1861, at which time the State was in rebellion, and this action was brought in 1867; not an unreasonable time after the close of the war, anddience it is not necessary to pass upon the question mooted by counsel, us to whether or not in such case time runs against the State.

The eighth assignment challenges the constitutionality'Of the act of the Legislature of 1861. It is not controverted that a law which merely changes or regulates the remedy is not unconstitutional, although it affects the enforcement of •existing as well as future obligations. Nor can it be controverted that an act of the legislature which impairs the obligation of a contract, or which cuts off or so modifies the remedy that it cannot be made effective, is unconstitutional .and void, and the validity or invalidity of the act in question depends upon how it classifies under these definitions. From the whole object and scope of this act, it was clearly intended to furnish a remedy different from that which existed when these obligations were entered into; the matters of expected litigation appeared so complicated and extensive that the will of the Legislature seemed to be to abridge the pleadings, to narrow down and simplify the issues so as to reach the end •of litigation by the shortest practicable way. And all this is within the power of legislation, if the acts do not infringe upon existiug rights.

The State assumed a large liability. To indemnify her the bank promised to pay off her bonds, and the mortgagors "bound themselves to pay off their stock bonds with all the interest that might accrue, or to pay such an amount of the bonds of the State, issued in favor of the bank, equal to the amount of stock granted to them respectively or their equity of redemption was subject to foreclosure.

Now the act in question does not lessen the time for, or increase the amount of -payment to be made by the mortgagor, nor does it change the funds required or the manner of payment. It only regulates or prescribes the mode of obtaining judgment and sale and, in this, it cuts off’ no defense, but allows the mortgagor, and all others who claim any interest, to appear, defend and maintain such rights as they may have, and although the manner of commencing the action, serving notice and proceeding to judgment, is not the same as when the obligation was entered into, yet, while the obligor is secured in all his rights under the contract, where he is liable to pay no more than formerly and within no less time than stipulated, and no new conditions added, it is but a regulation of the remedy and does not impair the obligation of the contract.

The sixth and seventh causes allege that the State has not turned over, or shown what disposition has been made of the -funds seized and placed in the hands of the receiver; -while this is not done with as much particularity and fullness as might have been done, yet, by examination of certain reports refered to, among other things, containing a statement of the amount of these assets, in October 1866, with an allegation that the condition of these assets remain as then, it seems tons that they are sufficiently accounted for to enable the claimant to form an issue upon this allegation, or, if it be conceded, to estimate the amount thus paid, by the offer of the State to deduct those available assets by her so received.

The fourth cause of demurrer is that the State has not brought the bond-holders before the court; and the fifth, that she has not the bonds or claims before the court.

The Act of 1861, which we have shown was not unconstitutional, expressly provided for prosecuting such suits, as this, without making profert of the State’s bonds, or paying them off. The suit is being prosecuted in the interest of the holders of the State’s bonds as well as that of the State, and the bill alleges that they are unknown, too numerous, etc., to be brought before the court, but they may be satisfied, if not under this law, they have a perfect right to come in and set up any equity they may have, and by the terms of this Act, they have been notified of the pendency of this suit, and if they are content, we see no good reason or law requiring this defendant to here complain for them, and his future interests, under the decrees that. may be in this cause, are fully protected by the faith and credit of the State; and we must recognize some difference between a proceeding carried on by a sovereign State, and one' by an individual man. The sovereignty must be presumed capable of protecting every interest of all her citizens, while the promise and solvency •of an individual, in equity, are so far questioned that he is required to perform all his equitable obligations beforb his opposing suitor will be decreed to perform his part of the •agreement.

The remaining causes of demurrer go to the right of the State to sue without first paying the bonds, etc. We have ■already expressed the opinion that the Act of 1861 is constitutional, and it authorizes the State to proceed in this matter.

Whether or not profert of instruments sued on shall be made, and what papers shall be filed at the commencement or during the pendency of a suit, are matters of practice and subject to legislative discretion; and whether or not the evidences of liability are filed and made of record, does not affect the rights of a litigant, so he is fully protected against fui’ther recovery upon the settlement of what he justly owes. And under the Act of 1861, the sovereignty of the State is pledged for his protection; by a solemn enactment of law she vouches, upon her faith and credit, that the lands redeemed, or by her sold and conveyed, shall be forever saved and protected from any further liability on account of these stock mortgages. As a court, we cannot impute improper motives ■or charge bad faith upon the State; we must presume she will fulfill her obligations and make good all her pledges. Equity practice may require individuals, not primary in interest, who seek contribution or protection, to make sure their offers by payment or other satisfaction, before appealing to a court to seize funds held by another as indemnity. But when the government assumes the liability, the presumption is that she will in good faith carry out her agreements, and therefore the reason ceases for enforcing such rule as applies-to individual citizens.

In this case the appellant bound himself to pay and when such payment extinguishes his liability and protects him against all further suit or demand, and to this extent he is protected by the law and the absolute guarantee of his government, he cannot complain that injustice has been done him,, and he ought not to complain at being required to fulfill his own contract. But he says the State ought not to sue. "Who then, by the terms of his contract, was to be plaintiff, upon the ultimate failure to pay the amount of these stock bonds- and mortgages ? By the law, Section 14, Act of October 1836,. which was a part of the contract, all the bonds and privileged mortgages, executed for stock, were transferred to the State and the holders of the bonds to bo insured by the State as a guarantee of the State’s bonds, and these mortgages were all so executed and transferred before the State executed her bonds. Now, why were these bonds and mortgages, by a provision of law before that time enacted and agreed to, thus transferred to the State, if she was not to sire in case the obligors did not fulfill their agreement? It was the State and not the bondholders that took these steps, and for her own protection incorporated these provisions in her contract. Yet it is urged that these mortgages were to the bank and not to the State, notwithstanding this solemn provision of law -that up'on their execution they were to be transferred to the State, and it is altogether clear that the parties contracting never contemplated a foreclosure of these mortgages by the bank, because the bank was to go out of existence the very day the stock-bonds and mortgages fell due; hence, it seems clear that they intended some other, and not the bank, should enforce these claims.

But it is urged that the receiver, appointed by tlie chancellor, to take charge of the assets of the bank, should have brought this suit. If we grant that he could have done so, if he, an individual, could thus act for the State and the bondholder, under the law, could she not likewise act for herself and the bond-holders when expressly empowered by an Act of tlie Legislature? Is not the wealth and honor of the sovereign State security to the claimants, and the bond-holders, of as high a grade as the bond of a trustee with such surety as he could command? And the will of the people, when properly expressed by the Legislature, if not in conflict with the Constitution, is the rule of action for both State and citizen. "We see no sufficient reason in law to estop the State from maintaining such suit. If she cannot sue, no suit can be maintained, and this would present a legal anamoly of most deliberate contracts, involving millions of dollars gain to one party and a corresponding loss to the other, and no right of recovery.

The Solicitor of the State is certainly in error in attempting to proceed in this form of action to recover the amounts received upon the five hundred bonds, hypothecated for funds to establish the western branch bank. At and before this time, the Legislature had assumed that these bonds were illegally disposed of, and that the State was not liable for their payment, and they and the mortgages to secure the State therefor, were not embraced within the provisions of the Act of 1861, and a suit under that Act, so far as they are concerned, cannot be maintained. But as she had the right to proceed for the amount of tlie 1530 bonds, her claim for an additional sum, not collectable by such proceeding, should have been otherwise met and was not the subject of demurrer.

Upon the whole case, taking the bill as confessed, it appears to us that the appellant has only been decreed to pay what. in duty and law he ought to have paid. And the mortgagor’s inquiries as to whether the State stands in the attitude of surety, acts as trustee, or as principal, need be of but little concern so lie pays no more than he obligated himself to pay, and no more than a just recompense for what he received, and thereupon is exonerated from all further liability.

The decreg of the Chancery Court is in all things affirmed and the cause remanded.