Appeal from the Circuit Court of the United States for the District of Indiana.
The opinion of the court was delivered by: Mr. Justice Miller.
Mr. Usher, of Indiana, for Appellants.
Mr. Gillet, of Washington City, for Appellees.
This is an appeal from a decree of the Circuit Court of the United States for the District of Indiana.
The Government of the United States having granted to the State of Indiana certain lands to aid in the construction of a canal, designed to unite the waters of Lake Erie with those of the Wabash river, that State caused the route to be surveyed and located, and an estimate to be made of the cost of construction, which was calculated at the sum of $1,081,970.
On the 7th day of January, 1832, an act was passed, which approved and adopted this survey and estimate, established a Board of Canal Commissioners, and authorized them to borrow the sum of $200,000, to be used in making said canal. The fifth section of this act is as follows: 'That for the payment of the interest, and redemption of the principal of the sums of money which may be borrowed under the authority of the General Assembly, for the construction of said canal, to the extent of the estimated cost thereof, in the first section of this act stated, there shall be and are hereby irrevocably pledged and appropriated, all the moneys in any manner arising from the lands, donated by the United States to this State, for the construction of said section of said canal, the canal itself, with the said portion of land thereto appertaining, or as much thereof as will realize by sale the sum borrowed, and all privileges thereby created, and the rents and profits thereof belonging to the State, and the net proceeds of tolls collected on said canal, or any part thereof, as finished; the sufficiency of which for the purposes aforesaid, as above allowed and provided for, the State of Indiana doth hereby irrevocably guarantee.'
Under this act there were issued two hundred bonds for one thousand dollars each, two of which are held by complainant in this suit; and the decree which was rendered in his favor, was for the interest due and unpaid on them.
In 1834, the Legislature authorized another loan of $400,000, for the benefit of the canal, for which the act again pledged the canal and the lands granted by the Federal Government, and the State guaranteed the sufficiency of the security.
In 1835, by another act, the Legislature contracted a third loan of $227,000, for the benefit of the canal. But for this it did not pledge the canal, but only the faith of the State.
In 1836, a law was passed providing for a general system of internal improvement, which authorized the State to borrow ten millions of dollars, for which sum, in gross, she pledged her canals, railroads, turnpikes, and the tolls and water rents arising from them; and by the tenth section of that Act an additional loan of $500,000 was authorized for the benefit of the canal, for which the canal, its lands and resources, were again pledged as security.
Of some one of these later loans, probably the ten million loan, as they are called internal improvement bonds, the plaintiff became the owner of thirteen bonds, of $1,000 each.
Under the pressure of the large debt contracted by this last act, and of the general financial distress which followed shortly after it was created, the State found herself unable to pay the interest on her bonds, her credit seriously impaired, and her citizens weighed down with heavy taxation. In this state of her affairs, she came forward in 1846 with a propostion to her creditors, which is to be found embodied in the Act of January 19th, 1846, and the Supplementary Act of January 27th, 1847.
The principal features of these acts, so far as they concern our present purpose, are, that the bonded debt of the State, except its bank stock bonds, should be equally divided between the State and the Wabash and Erie Canal; that the bonds then out should be surrendered, and in place of them the holders should receive one-half in State stock certificates, bearing five per cent. interest; and for the other half, Wabash and Erie Canal stock certificates, bearing the like rate of interest. For the security of the payment of the latter, the act provided that the entire canal, its lands, revenues, and property of every description, should be conveyed to trustees, whose powers and duties were therein prescribed. As a means of completing the canal and rendering it productive, the parties who surrendered their bonds and received stock certificates in lieu thereof, were required to pay ten per cent. on the amount of the new certificates for that purpose. For this the Act also gave them a lien on the canal and its revenues in the hands of the trustees. These statutes were not to take effect until $4,000,000, which was about half of the bonds of the State, were surrendered; and the canal was not to be transferred to the trustees until $800,000 had been subscribed by holders of certificates for its completion. The creditors of the State generally accepted this arrangement. The necessary amount of bonds was surrendered to give effect to the act, and the necessary sum was subscribed to authorize the transfer of the canal to the trustees. The plaintiff surrendered his thirteen bonds of the issue of the Act of 1836, and paid his subscription of ten per cent., but he did not surrender his two bonds issued under the Act of 1832, nor does it appear that any bonds of that issue were surrendered.
It is claimed by counsel for appellant, that $981,970 of bonds of the same class of the two retained by plaintiff were surrendered. This is founded on the idea, that of the bonds issued under the Acts of 1834, 1835, and the 10th section of the Act of 1836, so many are to be considered as entitled to the security provided by the Act of 1832 as will make up with the $200,000 first issued, the estimated cost of the work mentioned in the latter act. It is difficult to see how this can be maintained, if it be in any way material to the determination of the case. The bonds which were issued under these acts seem very clearly to depend on the respective acts under which they were issued, for any lien they may have had, on the canal, its lands and revenues, and not on the Act of 1832; and the Act of 1835 gave no lien at all on the canal or anything appertaining to it, but in place thereof pledged the faith of the State for the payment of the debt and interest. The purchasers of these bonds understood it so no doubt, for it appears from the record, that while all of the bonds issued under acts subsequent to 1832 were delivered up, and stock certificates received for them, none of the $200,000 of that issue was so surrendered. But one reason can be imagined for this, namely, that the security for those first issued was sufficient, and the holders of them did not believe they could improve their condition by an exchange for stock certificates, while the holders of the ...