Lord Cecil et al. vs. the Board of Liquidation.

tion with the fourth, fifth, and sixth, in certain cases, and this is one of them.

It is therefore ordered, adjudged, and decreed that the judgment of the lower court is avoided and reversed, and it is now decreed that the bonds held by the plaintiffs and intervenor are not valid obligations of the State of Louisiana, and that they were not issued in conformity to law. It is further ordered that these parties pay the costs of both courts.

Rehearing refused.

CONCURRING OPINION.

MARR, J. There are certain considerations affecting the validity of the bonds in question in this case to which I attach much importance; and which I desire to state more distinctly than my brethren have done in the several opinions prepared by them.

The law relating to commercial paper, bills of exchange, and promissory notes, by which the innocent holder, for value, before maturity, is protected against equities and defenses which might have been available between the original contracting parties, is not applicable to the holders of State bonds or municipal bonds. Every one who purchases such bonds knows that they purport to have been issued in virtue of delegated authority; and that their validity, as obligations of the State or of the municipal corporation, depends upon the nature and extent of the power granted by law.

In Wilson vs. City of Shreveport, 29 An. 678, we had occasion to consider this subject with reference to bonds issued by the municipal authorities of Shreveport; and the views we expressed in that case are equally applicable to bonds issued by the State:

"Those who contract with municipal corporations know that these bodies act validly only within the powers conferred upon them by the special laws by which they are created; and the creditor of a corporation is bound to see that the contract or obligation of which he claims the benefit is within the power which the corporation may lawfully exercise. The fact that the obligation is in the shape of a negotiable instrument, or that it was acquired in good faith for a valuable consideration, before maturity, in no manner enlarges the power of the corporation, or gives any additional force or validity to its unauthorized acts."

It is a great mistake to suppose that the State governments have unlimited power to tax the property of the inhabitants.

In an argument of great force, Mr. Justice Miller, delivering the opinion of the Supreme Court of the United States, in the Loan Asso

Lord Cecil et al. vs. the Board of Liquidation.

ciation vs. Topeka, 20 Wallace, 658, demonstrates that all our governments, State and national, in all their departments and branches, are of limited and defined powers. At page 664, he uses this strong language with respect to taxation in aid of private enterprises :

"To lay with one hand the power of the government on the property of the citizen, and with the other to bestow it upon favored individuals to aid private enterprises, and build up private fortunes, is none the less a robbery because it is done under the forms of law and is called taxation. This is not legislation. It is a decree under legislative

forms."

The suit was on bonds issued by the city of Topeka, in aid of a manufacturing company, in virtue of an act of the legislature of Kansas. The difference between that case and this is, that the bonds were issued by a municipal corporation; and that they were a donation to the company. But if a municipal corporation, under the authority of an act of the legislature could not validly exercise this power, it is simply because the legislature itself had not such power, and, therefore, could confer no such power upon the municipal corporation. And, if it is not lawful to make such a donation in aid of private enterprises, it is equally unlawful to lend the bonds of the State, in aid of such enterprises, to be paid by taxation, as principal and interest become exigible. This is certainly a donation of the use of the money, and of the interest on the sums so advanced. It is compelling the citizens to contribute annually, not for the use of the State, but for the use and benefit of the favored individuals, whose private fortunes are thus built up at the expense of the taxpayers.

Justice Miller lays down the proposition, and demonstrates it, that there can be no lawful tax which is not laid for a public purpose.

Interest had been paid on these bonds; but no importance was attached to that fact, since the payment of the interest was equally unauthorized as was the issuing of the bonds.

Looking into the history of this Boeuf and Crocodile Navigation Company, it will be seen that, in February, 1867, certain individuals in the parish of St. Landry, by notarial act, organized themselves as a corporation, for the purpose of improving the navigation of these bayous; and shortly after the legislature passed an act recognizing this company, and granting it the right to navigate these bayous; to charge certain freight; and to collect tolls at the rate of $2 50 a ton on steamboats, and $1 50 a ton on other water craft, employed by others in navigating these waters, thus creating a monopoly in favor of this company. Among other extraordinary privileges granted to this company was the exemption of its property and franchises from taxation for ten years; so that the other citizens of the State were not only to be taxed to complete this work,

Lord Cecil et al. vs. the Board of Liquidation.

but were to have their annual burdens increased for ten years, up to the taxable value of the property of this favored company thus exempted. See the act of 1867, No. 171, p. 315, approved twenty-eighth March.

There is another, and a fatal objection to these bonds, which, of itself alone, made them void ab initio. The constitution of Louisiana, article 111, provides that

"Whenever the General Assembly shall contract a debt exceeding in amount the sum of one hundred thousand dollars, unless in case of war to repel invasion or suppress insurrection, it shall, in the law creating the debt, provide adequate ways and means for the payment of the current interest and of the principal, when the same shall become due; and the said law shall be irrepealable until principal and interest be fully paid; or, unless the repealing law contain some adequate provision for the payment of the principal and interest of the debt."

The State has no means of paying its debts except by taxation; and the power of the legislature to raise, by taxation, whatever amount may be necessary for the legitimate debts of the State, can not be questioned. The plain meaning of this article 111 is that when the means of the State are anticipated by the contracting of a debt exceeding one hundred thousand dollars, some other ways and means, beyond the ordinary taxes for ordinary purposes, adequate for the payment of the principal and interest, shall be specially provided, appropriated, and set apart for that specific purpose; and, in order to preserve the good faith and credit of the State inviolate, the provision thus made contemporaneously with the contracting of the debt, is placed beyond the legislative power of repeal. It would be a waste of words to enlarge upon the wisdom of this constitutional restriction; but it is not out of place to say, that if it had been faithfully observed, the credit of the State could not have been abused to any great extent; the markets of the world would not have been flooded with its bonds; and strangers, trusting to the honor and integrity of the State, and the assurance of its broad seal, would not have invested their means in these deceptive, unauthorized, illegal, worthless securities.

Turning now to the act approved January 3, 1870, pages 21, 22, we find that it authorized the issue of bonds of the State to the amount of eighty thousand dollars, payable twenty years after date, bearing interest at eight per cent, each bond to be for $1000, with forty bonds for forty dollars each attached, representing the interest to be paid semiannually. That is, the principal of the debt thus contracted was $80,000, and the interest $128,000, making the whole debt thus contracted $208,000. The article of the constitution makes no distinction between the principal and the interest; indeed, it expressly characterizes both as constituting the debt, of which each is merely a separate

Lord Cecil et al. vs. the Board of Liquidation.

part. The expression used in the article, "the principal and interest of the debt," is conclusive; and it is not possible to call the principal sum a debt without characterizing also as a debt the interest on that sum stipulated in the same contract. The debt therefore thus created did exceed $100,000; and it falls within the terms of this article of the constitution.

The act creating this debt does not provide adequate ways and means for the payment either of the current interest or of the principal. It does, indeed, declare, section 3, that all the rights and privileges of the Boeuf and Crocodile Navigation Company are pledged, hypothecated, and specially mortgaged to the State; but the object of this is to secure the refunding, by the company, to the State, at the expiration of the twenty years, "all the sums of money paid by the State upon said bonds," as provided in section 4.

Obviously, therefore, the State undertook to advance and pay, in principal and interest, $208,000 to the holders of these bonds; and in the act creating this debt no provision whatever is made for the means of paying either the principal or the interest.

Of what value is the declaration, in this act, that the rights and privileges of this company are pledged, hypothecated and specially mortgaged to the State? Of what value were these rights and privileges? What will be their value at the expiration of the twenty years?

But if this security had been sufficient to indemnify the State, what provision is made in the act of adequate ways and means to enable the State to pay one single dollar of this debt to the holders of the bonds? Absolutely none. The legislature simply ignored article 111 of the constitution, and violated its positive injunction. There can be but one consequence; it is inevitable. The act was ultra vires, and is void; and the bonds, having been issued without authority of law, in violation of the organic law, are absolutely void, and impose no obligation, legal or moral, on the State.

I concur in the decree just pronounced.

CONCURRING OPINION,

DEBLANC, J. Under act No. 46 of the Legislature of the State of Louisiana, approved on the 3d of January 1870, the Governor of said State was authorized to issue-in favor of the Bauf and Crocodile Navigation Company, domiciled in the parish of St. Landry, the bonds referred to in said act.

To whom were said bonds to be delivered? By whom alone could they have been either sold or pledged? They could have been properly

Lord Cecil et al. vs, the Board of Liquidation.

delivered but to the company in whose favor they were to be issued, and that company could have legally disposed of them but for one object: to raise money for the completion of the work necessary to secure the navigation of the Boeuf and Crocodile.

How and by whom was that money to be raised? In such quantities as would be deemed necessary, and by the President and Secretary of the company.

Instead of issuing those bonds in favor of the company, what was done? They were made payable to Henry Clay Warmoth, then Governor of the State, or bearer. In that form, they passed to the applicants, who claim that-under act No. 11 of the extra session of 1875, they have the right to compel the Board of liquidation to exchange them for consolidated bonds. In that form, they are not the bonds authorized by the statute of 1870-and, as remarked by the Chief Justice, that fact could have been ascertained by reading the law published on the back of every instrument they hold.

Did the company receive those bonds, and did they pass-by transfer or otherwise from the company to any one? That may be, but those facts are not shown. The actual bearers took them before maturity, and—in their opinion-by whom and howsoever their transfer was effected-were it by one who acted with or without a mandate from the company-the delivery of the bonds, and the payment made by them to those by whom they were delivered, preclude the State from contesting their validity.

Were these questions presented by either the demand or the defence, we would certainly hesitate to adopt the second conclusion—but they are not presented. We are called upon-under a special act-to declare, not whether the bonds were taken on good faith and before maturity-not whether in an authorized suit brought to recover from the State the amount of those obligations, the State would be cast-but whether, under the provisions of the act relied upon by plaintiffs, the obligations so transferred to them shall be exchanged for consolidated bonds?

Had these bonds been made payable to the company, and, in that form, had passed to third parties, they might have carried, on their face, the presumption that they had been delivered to, received and disposed of by those who alone had the right to sell, pledge and transfer them. Stripped of that presumption, they do not bear in themselves the evidence that they were issued, delivered and disposed of in accordance with the law. If they were, to non-bond the State towards the holders, to bond the company towards the State, those facts must be legally established.

I concur in the opinion read by the Chief Justice.