OBLIGATION OF CONTRACTS. 



653 



It took effect January 1, 1880. A part of 

 this, called the "debt ordinance," reduced 

 the interest on the consolidated bonds to two 

 per cent per annum for five years, to three 

 per cent for fifteen years afterward, and to 

 four per cent thereafter, with a proviso that 

 the holders of the bonds might exchange them 

 for new bonds for seventy-five per cent on 

 the dollar drawing four per. cent interest. The 

 Constitution further declared that the cou- 

 pons of the consolidated bonds should be re- 

 mitted, and that " any interest taxes collected 

 to meet said coupons are hereby transferred to 

 defray the expenses of the State government." 



In January, 1880, after the above constitu- 

 tional provisions went into operation, two suits 

 to test their validity were brought by John 

 Elliott, Nicholas Gwynn and Henry S. Walker, 

 holders of bonds. One was -brought in the 

 United States Circuit Court to enjoin the sev- 

 eral officers of the State composing the Board 

 of Liquidation from recognizing the " debt or- 

 dinance " of the new Constitution, and from 

 disregarding the provisions of the funding act 

 and the Constitution of 1874. In the other 

 suit, which was begun in the State Court and 

 removed to the Federal Court, a mandamus was 

 asked to compel these officers to apply the 

 funds on hand to the payment of interest on 

 the consolidated bonds, and also to proceed to 

 collect the tax levied in accordance with the 

 provisions of the act and the Constitution of 

 1874. 



The question raised by these suits, and brought 

 before the United States Supreme Court, was 

 whether the " debt ordinance " provisions of 

 the Constitution of 1879 impaired, in violation 

 of the Federal Constitution, the obligation of 

 the contract entered into between the State 

 and its creditors by the act of 1874 and the 

 Constitution of that year. The Supreme Court 

 said that the language of the act and the Con- 

 stitution of 1874 "shows unmistakably a de- 

 sign to make these promises and these pledges 

 so far contracts, that their obligations would 

 be protected by the Constitution of the United 

 States against impairment; " and added that it 

 is equally manifest that the object of the State 

 in adopting the " debt ordinance " in 1879 was 

 to stop the further levy of the promised tax, 

 and to prevent the disbursing officers from 

 using the revenue from previous levies to pay 

 the interest falling due in January, 1880, as well 

 as the principal and interest maturing there- 

 after." The Court admitted that the State had 

 violated its contract, but held that there was 

 no means of compelling it or its officers to carry 

 put the contract. It was clear that the State 

 itself could not be sued by these bondholders 

 without its own consent, and this had never 

 been given. " Neither was there when the 

 bonds were issued," said Chief-Justice Waite, 

 " nor is there now, any statute or judicial decis- 

 ion giving the bondholders a remedy, in the 

 State courts or elsewhere, either by mandamus 

 or injunction, against the State in its political 



capacity, to compel it to do what it has agreed 

 should be done, but what it refuses to do." The 

 persons sued are the executive officers of the 

 State, and they are proceeded against in their 

 official capacity. The suits are to enjoin them 

 from doing what the Constitution of 1879 re- 

 quires them to do, and to compel them to do 

 what that Constitution prohibits them from 

 doing. 



The question then is whether, notwithstand- 

 ing the Constitution of 1879 on its face takes 

 away the power of the executive officers of the 

 State to comply with the provisions of the act 

 of 1874, the contract can be enforced by coerc- 

 ing the agents and instrumentalities of the 

 State, w.hose authority has been withdrawn in 

 violation of the contract, without having the 

 State itself in its political capacity a party to 

 the proceedings. The relief asked will require 

 the officers against whom the process goes to 

 act contrary to the positive orders of the su- 

 preme political power of the State, whose crea- 

 tures they are, and to which they are ultimately 

 responsible in law for what they do. They 

 must use the money in the Treasury and under 

 their official control in one way, when the su- 

 preme power has directed them to use it in 

 another, and they must raise more money by 

 taxation when the same power has declared it 

 shall not be done. The parties prosecuting the 

 suits do not, in direct terms, ask for the pay- 

 ment only of the bonds and coupons which 

 they hold. All that is asked will enure as 

 much to the benefit of the other holders of 

 similar obligations as to the particular parties 

 to these suits. So that the remedy sought im- 



Elies power in the judiciary to compel the 

 tate to abide by and perform its contracts for 

 the payment of money, not by rendering and 

 enforcing a judgment in the ordinary form of 

 judicial procedure, but by assuming the control 

 of the administration of the fiscal affairs of the 

 State to the extent that may be necessary to 

 accomplish the end in view. 



It was argued that the money in the Treas- 

 ury collected from the tax levied for 1879 con- 

 stituted a trust fund of which the individual 

 defendants were ex-officio trustees, and that they 

 might be enjoined as such trustees from divert- 

 ing it from the purposes to which it was pledged 

 under the contract. On this point Chief-Jus- 

 tice Waite said : 



The individual defendants are the several officers of 

 the State, who, under the law, compose the Board of 

 Liquidation. That hoard is in no sense a custodian 

 of this fund. Its duty was to negotiate the exchange 

 of the new bonds for the old on the terms proposed. 

 It had nothing to do with levying the tax, collecting 

 the money, or paying it out further than hy purchasing 

 the honds with any surplus there might be from time 

 to time in the Treasury over what was required to 

 meet the interest. The provision in the law that it 

 shall be the duty of the Auditor, Treasurer, and the 

 board, respectively, to collect the tax, pay the interest, 

 and redeem the honds, evidently means no more than 

 that the Auditor and Treasurer shall perform their re- 

 spective duties under the general laws in the assess- 

 ment and collection of the tax, and shall pay in the 



