MR. JUSTICE BRADLEY delivered the opinion of the court.
The decree appealed from in this case was for a perpetual injunction to restrain the Board of Liquidation of the State of Louisiana from using the bonds known as the consolidated bonds of the State, for the liquidation of a certain debt claimed to be due from the State to the Louisiana Levee Company, and from issuing any other State bonds in payment of said pretended debt.
The decree was made upon a bill filed by the appellee, McComb, a citizen of Delaware, in which he alleges that he is a holder of some of these consolidated bonds, and that the employment of the bonds for the purpose proposed, namely, the payment of the claim of the Levee Company, will be a violation of the pledges given by the act creating the bonds, and will greatly depreciate their value. The bill sets out the circumstances of the case, and prays for an injunction. The defendants demurred; and, the demurrer being overruled, they declined to answer, and stood upon the supposed defects of the plaintiff's case. Thereupon the decree appealed from was rendered; and the question is, whether the injunction ought to have been decreed upon the statements made by the bill.
It appears that, by an act of the legislature of Louisiana, passed the 24th of January, 1874, called the Funding Act, the governor of the State, and other State officers, were created a
The language of this clause is explained by the fact that, in 1870, a constitutional provision had been adopted limiting the State debt to $25,000,000; and the further fact, stated in the bill, that in 1874, when the funding act was passed, the outstanding bonds and valid warrants fundable under the act equalled this amount; so that, at sixty cents on the dollar, the debt to be funded would require the issue of the whole $15,000,000 of consolidated bonds. Besides these classes of debts, others to a considerable amount were then outstanding, as will appear further on.
The board of liquidation created by the funding act entered upon the performance of their duties, and, up to the commencement of proceedings in this case, they had issued a little over $2,000,000 under the act.
On the 2d of March, 1875, the general assembly passed an act authorizing the board to issue a portion of the above-mentioned consolidated bonds to the Louisiana Levee Company, in liquidation of a debt claimed to be due it under a contract made with the State in 1871, by which that company was to reconstruct and keep in repair the levees on the Mississippi River and its branches and outlets. The act of 1871, in and by which this contract was made, had provided and set apart certain taxes to be levied and collected throughout the State, to meet the payments which would accrue to the company. But it seems that these taxes had failed to reach their destination, as a committee appointed by the act of 1875, to investigate the subject, reported that there was $1,700,000 still due the company, which had accrued prior to October, 1873, and which the act authorized the board of liquidation to pay in the said consolidated bonds. This debt was not one of the debts to fund which the consolidated bonds had been created. It was not
The decree of the court below is sought to be sustained on several grounds. In the first place, the appellee contends, that, in consequence of the provisions of the Funding Act, and the constitutional amendment adopted in confirmation of it, the State debt cannot be increased, whereas the assumption of the levee debt (which, it is contended, is not a debt of the State) will directly increase it. As a part of the same proposition, it is contended that the State has deprived itself of the right to issue any bonds at all, except the consolidated bonds created by the Funding Act, to be exchanged for outstanding debts already existing.
We are not prepared to say that the legislature of a State can bind itself, without the aid of a constitutional provision, not to create a further debt, or not to issue any more bonds. Such an engagement could hardly be enforced against an individual; and, when made on the part of a State, it involves, if binding, a surrender of a prerogative which might seriously affect the public safety. The right to procure the necessary means of carrying on the government by taxation and loans is essential to the political independence of every commonwealth. By the internal constitution of a government, it is true its legislature
But in the case before us, the assumption on which this part of the case is based does not appear to be well founded. It is not the creation of a new indebtedness which the board of
The plea of increase of State indebtedness, therefore, cannot avail in this case; and so much of the decree as prohibits the levee company from receiving any State bonds whatever in liquidation of its claim, is untenable, and must be reversed. The claim itself, for any thing that appears in the record to the contrary, is a perfectly valid one against the State. It is not even alleged to have arisen after the State indebtedness had arrived to the constitutional limit of $25,000,000; nor is it denied that it was founded on a good consideration.
The question, however, remains, whether, even supposing the levee debt to be a valid one, it can be lawfully funded in the consolidated bonds, in view of the other stipulations of the Funding Act.
The principal stipulations of this act, aside from that respecting the increase of the State debt, are: First, that the consolidated bonds shall not exceed in amount $15,000,000, or so much thereof as may be necessary, — that is, necessary for the purpose of consolidating and reducing the floating and bonded debt of the State at sixty cents on the dollar; secondly, that they shall only be used for exchange for said floating and bonded debt, as designated in the act, which does not embrace the levee debt in question; and that such exchange shall be at the rate of sixty cents in consolidated bonds for one dollar in outstanding bonds and warrants; thirdly, that a tax of five and a half mills on the dollar of the assessed value of all the real and personal property of the State shall be annually levied and collected for paying the interest and principal of the bonds, and
The precise manner in which these stipulations will be violated by the proposed funding of $1,700,000 of the levee debt at par, as insisted by the plaintiff, is this: First, that the entire issue of bonds will be increased by that amount, thereby diminishing the relative security provided for each bond. Secondly, that the levee company will receive the full amount of its debt, whilst the complainant, and others in like case with him, have accepted sixty cents on the dollar for their old bonds, on the faith that no one should receive any more. Thirdly, that the benefits of the scheme propounded by the Funding Act will be lost by such a violation of it, and all the advantages anticipated by the complainant and others in surrendering their original debts will fail.
In answer to the first of these supposed violations, — namely, that the issue of consolidated bonds will be increased by the amount of the levee debt, — it may be said, that the amount of the consolidated bonds is expressly limited to $15,000,000; and there is no pretence that the board of liquidation intend to issue more. The proposed appropriation might have the effect of excluding from the benefit of the Funding Act some of the outstanding obligations of the State originally intended to be embraced within its provisions. But it will not increase the total amount of the consolidated bonds. The complainant can hardly contend that he has a right to prevent the State from using the bonds for funding its other debts, if those for which they were intended should not be surrendered. It is a question of power. The Funding Act gives the board of liquidation power to issue $15,000,000 of these bonds, or so much thereof as may be necessary to fund the outstanding floating and bonded debt; and it is admitted that the amount of that debt is sufficient to absorb the whole $15,000,000. He cannot say, "I am entitled to the chances of some of the designated creditors not coming in." He cannot be injured, so far as this objection goes, if the amount of bonds ultimately
If, therefore, the substitution of one debt for another, in the participation of the benefits of the Funding Act, were all that is proposed to be done by the defendants, the complainant would have great difficulty in maintaining a bill in equity for the purpose of enjoining the officers of the State from carrying out the law passed in 1875. But this is not all that they propose to do. The proposed funding of the levee debt in the manner provided by that act would break up the whole scheme of the Funding Act, and destroy all the benefits anticipated from it, — benefits on which those who accepted its terms had a right to rely.
It was the special object of that scheme, by providing extraordinary security and sanctions for the payment of the consolidated bonds, to induce the public creditors to reduce their claims forty per cent, and exchange them for these new securities, and thus diminish the aggregate indebtedness of the State $10,000,000. This result would enhance the general credit of the State, and enable it to meet all its obligations and engagements with more certainty and less liability to failure.
It is this aspect of the act of 1875, and the proposed proceedings under it, of which the petitioner has special reason to complain, and which furnishes substantial ground for giving him relief.
True, it may be objected even to this view, as to the former one, that the bondholders of the State may refuse to come in and make the sacrifice required by the act; and, in such case, the State ought not to be for ever precluded from making such other disposition of the unissued consolidated bonds as may be beneficial to it, without being injurious to those who have accepted such bonds. If such a state of things should arise, after due time and opportunity shall have been given to test the practicability of carrying out the scheme, it will, undoubtedly, furnish proper ground for modified legislation, having due regard to the rights already vested. But the act in question was passed within three months after the adoption of the constitutional amendment confirmatory of the Funding Act, and before its practicability could possibly have been ascertained; and no attempt was made by the act to reinstate the bondholders who had come in, to their former position, or to return to them the forty per cent of their claims which they had surrendered, or in any manner to obviate the inequality and injustice to which they would be subjected by the change of plan.
In our judgment, therefore, the court below was right in granting the injunction as to the consolidated bonds, if the defendants, occupying the official position they do, are amenable to such a process.
Decree affirmed, so far as it prohibits the funding of the debt due to the Louisiana Levee Company in the consolidated bonds issued or to be issued under the Funding Act of Jan. 24, 1874; and reversed as to so much thereof as prohibits the issue of any other bonds to said Louisiana Levee Company in liquidation of said debt.
MR. JUSTICE FIELD did not sit in this case, and took no part in the decision.