UNITED STATES CIRCUIT AND DISTRICT COURTS, FOR THE FOURTH CIRCUIT. U. S. Circuit Court, Eastern District of North Carolina. SWASEY v. NORTH CAROLINA RAILROAD CO. AND OTHERS.* * Where a State of the Union is a party in interest but not a party to the record, the jurisdiction of the United States Circuit Court attaches where that court has jurisdiction of the State's agent who has charge of the property as a trustee, and where the property which is the subject of the suit is stock or shares in a railroad company, held by it in pledge for the security of a debt due to the complainant, for which a lien has been given by the State "in addition" to the pledge. Where stock in a corporation has been pledged for the "redemption of certificates of debt," and the certificates bound the debtor for the payment of "the sum therein mentioned and the interest thereon," the stock is bound for the payment of the interest itself, and a foreclosure may be decreed on default in payment of any instalment of interest. ALL the necessary facts are stated in the opinion of the court delivered by WAITE, C. J.-The North Carolina Railroad Company was incorporated by an act of the General Assembly, passed January 27th, 1849, to construct a railroad to commence at the Wilmington and Raleigh Railroad, and proceed to Charlotte. To aid in building the road, the Board of Improvement was, by the act of incorporation, authorized to subscribe on behalf of the State $2,000,000 to the capital stock of the company. *This case is also reported in 71 N. C. Reports, 571. Opinion of the court. Sections 38 and 41 of the act are as follows: "SEC. 38. That in case it shall become necessary to borrow the money by this act authorized, the public treasurer shall issue the necessary certificates, signed by himself and countersigned by the comptroller, in sums not less than one thousand dollars each, pledging the State for the payment of the sum therein mentioned, with interest thereon at the rate of interest not exceeding six per cent. per annum, payable semi-annually, at such times and places as the treasurer may appoint; the principal of which certificates shall be redeemable at the end of thirty years from the time the same are issued, at any one time there may be sufficient to meet the instalment required to be paid at that time." "SEC. 41. That as security for the redemption of said certificates of debt, the public faith of the State of North Carolina is hereby pledged to the holders thereof, and in addition thereto, all the stock held by the State of North Carolina Railroad Company, hereby created, shall be and the same is hereby pledged for that purpose, and any dividends of profit which may from time to time be declared on the stock held by the State as aforesaid, shall be applied to the payment of interest accruing on said certificates; but until such dividend of profit may be declared, it shall be the duty of the treasurer, and he is hereby authorized and directed, to pay all such interest as the same may accrue out of any moneys in the treasury not otherwise appropriated." The authorized subscription was made and certificates of debt. issued to the amount of $1,858,000, on which the money was borrowed to meet the payments. By these certificates it was "certified that the State of North Carolina justly owes or bearer, $1000, redeemable in good and lawful money of the United States, at, etc., on the 1st day of July, 1884, with interest thereon at the rate of 6 per cent. per annum, payable half yearly at, etc., on, etc., until the principal be paid on surrendering the proper coupon hereto annexed." On the 14th of February, 1855, the General Assembly passed another act, entitled "An Act for the completion of the North Carolina Railroad," by the terms of which the public treasurer was authorized and instructed to subscribe for $1,000,000 more to the capital stock of the company, and to make payment therefor by issuing and making sale of the bonds of the State, under the same provisions, regulations, and restrictions prescribed for the sale of the bonds theretofore issued and sold to pay the State's original subscription, and the same pledges and securities were thereby given Opinion of the court. for the faithful payment and redemption of the certificates of debt then authorized, as were given for those issued under the direction of the first act. This stock was by the terms of the act to be a preferred stock. The subscription was made, and certificates of debt, in the same general form as the first, issued to provide the means of pay ment. The plaintiff is the owner of five certificates of the first issue and two of the second. The interest on the first, payable January 1st, 1869, and after, and on the second, payable April 1st, of the same year, and after, was unpaid when this suit was commenced. This action is prosecuted for the benefit of all bondholders who may come in and make themselves parties. About $1,800,000 of the indebtedness is now represented. No certificate for the stock, upon either of the subscriptions, had been issued by the company at the time of the commencement of this action. Since that time, upon the order of the court, the proper certificates have been issued, and placed in the hands of a receiver, appointed in this cause, who has collected the dividends thereon as they have from time to time been declared and paid. These dividends as far as received have been applied to the payment of interest, but there is still a large amount in arrears, and the plaintiff now asks that a sufficient amount of the stock may be sold to pay what is past due. It is first insisted by the defendant that the State of North Carolina is in fact a party defendant, and consequently that this court cannot entertain jurisdiction of the cause. The State, although directly interested in the subject-matter of the litigation, is not a party to the record. The eleventh amendment to the Constitution of the United States provides that no suit can be prosecuted in this court against a State, by the citizens of another State, or by citizens or subjects of a foreign State. It has long been held, however, that this amendment applies only to suits in which a State is a party to the record, and not to those in which it has an interest merely. It is next urged that if the State is not actually a party to the suit, it is a necessary party in whose absence the cause cannot Opinion of the court. proceed, and that as a State cannot be brought into court, no relief should be granted upon the case made. If the State could be brought into court, it undoubtedly should be made a party before a decree is rendered, but since the case of Osborn v. The Bank of the United States, reported in 9th Wheaton, 738, it has been the uniform practice of the courts of the United States to take jurisdiction of causes affecting the property of a State in the hands of its agents without making the State a party, when the property or the agent is within the jurisdiction. In such cases the courts act through the instrumentality of the property or the agent. The real question, therefore, presented for our determination is whether the court has jurisdiction of the property which it is sought to charge, or of the agent of the State having it in possession. The property consists of shares in the capital stock of a corporation. At its inception it became charged as security for the payment of the debt of the State contracted on its account. This was part of the law of its creation. It has always been pledged. The property of a corporation represents its stock. This property the corporation holds for its stockholders. A stockholder's share of the stock is equal to his share of the corporate property. The railroad company, therefore, in this case, holds the share of its property represented by the stock subscribed by the State in trust, as well for the stockholders as for the State. The charter made the company the depositary of the pledge to hold it for both parties according to their respective interests. Consequently a suit which seeks to charge the stock as security, and brings the corporation in to represent it, may be maintained in the absence of the State as a party. This was evidently the understanding of the parties when the pledge was made. It was then the case as now, that a State could not be sued, but that its agents could, and that property in the hands of its agents could be controlled and disposed of by the courts in proper cases, notwithstanding the ownership by the State. The faith of the State had been pledged. This pledge the courts could not enforce. The stock to be obtained with the money borrowed could not be |