648 



OBLIGATION OF CONTRACTS. 



expedition in 1877, and published also a trea- 

 tise on the " Depth of the Sea," besides numer- 

 ous contributions to scientific journals. 



OBLIGATION OF CONTRACTS. That 

 clause of the Federal Constitution which pro- 

 hibits the States from passing any law impair- 

 ing the obligation of a contract was elaborately 

 considered by the Supreme Court of the United 

 States in two important cases, decided early in 

 1883. In each case State legislation, relating 

 to State bonds, was under review. One suit 

 was brought by a holder of Virginia bonds, and 

 the other by creditors of Louisiana. In each 

 case the decision was in favor of the State.^ 

 The opinions of the Court are of exceptional' 

 interest and importance, as an exposition of 

 the constitutional powers of the States in deal- 

 ing with their creditors. 



THE VIRGINIA CASE. In 1871 the principal 

 of the State debt of Virginia, with its overdue 

 and unpaid interest, amounted to more than 

 $45,000,000. The principal of this indebted- 

 ness had been incurred by the construction of 

 various public works prior to the civil war. 

 It was claimed that one third of this burden 

 was to be borne by West Virginia, and this 

 liability was recognized by the latter State in 

 its first Constitution, adopted in 1863; but 

 nothing was done by its Legislature toward 

 making any provision for the payment of the 

 debt. In 1871 Virginia undertook to make a 

 settlement with its creditors, and for that pur- 

 pose passed " an act to provide for the fund- 

 ing and payment of the public debt." After 

 reciting that two thirds of the debt was the 

 just proportion of Virginia, the act provided 

 that the owners of the bonds, stocks, or inter- 

 est-certificates of the State, with some excep- 

 tions, might fund two thirds of the amount of 

 the same, together with two thirds of the in- 

 terest due, in six per cent coupon or registered 

 bonds of the State, having thirty-four years to 

 run, but redeemable at the pleasure of the 

 State after ten years, the bonds payable to 

 order or bearer, and the coupons to bearer, at 

 the Treasury of the State. The statute then 

 declared that "the coupons shall be payable 

 semi-annually, and be receivable at and after 

 maturity for all taxes, debts, dues, and de- 

 mands due the State, which - shall be so ex- 

 pressed on their face ; and the bonds shall bear 

 on their face a declaration to the effect that 

 the redemption thereof is secured by a sink- 

 ing fund provided for by the law under which 

 they are issued." For the remaining third of 

 the amount of the bonds thus funded, the act 

 provided that certificates should be issued to 

 the creditors, setting forth the amount, with 

 the interest thereon ; and that their payment 

 should be provided for ; .n accordance with 

 such settlement as might subsequently be made 

 between the two States, and that Virginia 

 would hold the surrendered bonds, so far p& 

 they were not funded, in trust for the holder 

 or his assignees. 



A large number of creditors accepted these 



terms, surrendered their old bonds, and took 

 new ones, with interest coupons annexed, for 

 two thirds of their amount, and certificates 

 for the balance. The amount of bonds sur- 

 rendered was about thirty million dollars, for 

 which new bonds, amounting to twenty mill- 

 ion dollars, were issued. When the act of 

 1871 was passed, and when the interchange of 

 bonds was made in conformity with its pro- 

 visions, the law of Virginia afforded the hold- 

 ers of the new bonds the remedy of .a manda- 

 mus from the Supreme Court of Appeals, to 

 compel collectors to accept the coupons in pay- 

 ment of taxes. 



Such was the law governing the rights and 

 the remedies of the holders of these bonds and 

 coupons, when, on January 14, 1882, was 

 passed "an act to prevent frauds upon the 

 Commonwealth, and the holders of her securi- 

 ties, in the collection and disbursement of rev- 

 enues." After reciting that forged and spuri- 

 ous bonds and coupons were in existence, the 

 act provides that the officer to whom coupons, 

 issued under the act of 1871, are tendered in 

 payment of taxes, debts, or demands due the 

 State, " shall receive the same, giving the party 

 tendering a receipt, stating that he has received 

 the same for the purpose of identification and 

 verification." The second section provides that 

 " he shall at the same time require such tax- 

 payer to pay his taxes in coin, legal-tender 

 notes, or national bank bills, and, upon pay- 

 ment, give him a receipt for the same. In 

 case of refusal to pay, the taxes due shall be 

 collected as all other delinquent taxes are col- 

 lected." Section 3 is as follows: 



He shall mark each paper as coupons so received, 

 with the initials of the tax-payer from -whom received, 

 and the date of receipt, and shall deliver the same, 

 securely scaled up, to the judge of the county court 

 of the county or Tiustings court of the city in which 

 such taxes, debts, or demands are payable. The tax- 

 payer shall thereupon be at liberty to file his petition 

 in said county court against the Commonwealth. A 

 summons to answer which petition shall be served on 

 the Commonwealth's attorney, who shall appear and 

 defend the same. The petition shall allege that he 

 has tendered certain coupons in payment of his taxes, 

 debts, and demands, and pray that a jury be impan- 

 eled to try whether they arc genuine, legal coupons, 

 which are legally receivable for taxes, debts, and de- 

 mands. Upon this petition an issue shall be made in 

 behalf of the Commonwealth, which shall be tried by 

 a jury, and either party shall have a right to excep- 

 tions on the trial, and of appeal to the Circuit Court 

 and Court of Appeals. If it be finally decided in fa- 

 vor of the petitioner that the coupons tendered by 

 him are genuine, legal coupons, which are legally 

 receivable for taxes and so forth, then the judgment 

 of the court shall be certified to the Treasurer, who, 

 upon the receipt thereof, shall receive said coupons 

 for taxes, and shall refund the money before then 

 paid for his taxes by the tax-payer out of the first 

 money in the Treasury, in preference to all other 

 claims. 



Section 4 provides that whenever any tax- 

 payer shall apply to any court for a mandamus 

 to compel a collector to receive the coupons 

 for taxes, it shall be the duty of the collector 

 to make return to the mandamus that he "is 



