Graham v. Horton

1. Sinking Fund — Diversion of — Constitutional Law. A joint resolution authorizing the State Treasurer to invest the sinking fund in warrants issued for the payment of members of the Legislature and the salaries of Judges, is in conflict with the provisions of article eleven of the constitution, and void. 2. Injunction — Interest of Plaintiff. One who is the owner of a State bond whose present value and ultimate security are diminished by such use of the fund, has such an interest as authorizes him to sustain an action for an injunction restraining the Treasurer from making such illegal investment of the fund.

JError from Shawnee District Court. Injunction, brought by the defendant in error to restrain George Graham, as State Treasurer, from making an “ illegal use ” of .certain public funds in his possession as such Treasurer. On the 20th day of February, 1883, the legislature passed an act, entitled “ An act to fund the territorial debt.” (Oh. 12, laws of 1863, p. 32.) The first section provides that the bonds of the State of Kansas shall be prepared and issued to pay certain Territorial indebtedness named in said act. These bonds were to be dated July 1st, 1863, and were to bear interest at six per cent, per annum, payable annually on the first day oi July. The 13th section of the act provides that these bonds shall be paid on the first day of July, 1883, at New York city, or the treasurer’s office, at the option of holders of the bonds. Section eight directs, that the proper officers of the State, shall cause to be levied and collected in each year thereafter, with the other State taxes, a tax sufficient to pay all interest on said bonds as it should fall due, and also a tax sufficient to create a sinking fund for the ultimate payment of the bonds. Section nine pledged the faith of the State for the payment of these bonds, and all interest thereon. Section ten provides, that the State treasurer shall annually invest the acculated sinking fund in bonds issued under said act, by going into the market and buying up the bonds at their market value. Under this act bonds were issued to the amount of $60,500, and one of these bonds of the denomination of $500, was, when this action was commenced, owned by defendant in error. In 1868 and 1869, a special tax was levied and collected for the specific purpose of creating a sinking fund for the redemption of State bonds which had .before that time been issued. The several acts providing for this tax, declare that this fund shall be applied exclusively for the objects therein designated. Ch. 8t), Laws of 1869, p. 170; Gén. Statutes, p. 896, ch. 88. On the 28th of February, 1870, some forty-seven thousand dollars or more, of this fund, was in the State treasury; and on that day the legislature (Laws of 1870, p. 233,) passed the following joint resolution : “ Sec. 1. That the State Treasurer be and is hereby required to invest the sinking fund now in the treasury, in the warrants of the State, issued in pursuance of an act entitled, ‘ An act making appropriations for current legislative expenses and for the salaries of the supreme and district judges for the year 1870/ approved February 8, 1870. “ Sec. 2. That whenever a sufficient amount of the general revenue fund shall have accumulated for the redemption of said warrants, then said warrants shall be canceled, and the money derived from the interest and principal of said warrants shall be placed to the credit of said sinking fund: provided, that the warrants so purchased shall have endorsed on their face, in red ink, the words “ sinking fund,” and shall be held by the State Treasurer, together with the interest accruing upon them, separate and apart as a portion of the sinking fund until their redemption, as is herein provided for: provided further, that this resolution shall not be construed to act as a repeal of any statute providing for the investment of the sinking fund except as provided above.” This joint resolution was passed over the objections of the Governor, and went into effect on the 3d of March. Horton, being the owner of one of the State bonds, as above stated, filed his petition in the district court, alleging, among other things, that the State Treasurer was about to pay out the sinking fund in compliance with said joint resolution, and asking an injunction. The injunction was granted. The plaintiff in error, Graham, filed a general demurrer to the petition; and at the June Term, 1870, of the district court the demurrer was heard and overruled, and the order of the court restraining Graham from using or investing the sinking fund as required by the joint resolution of February 28th, 1870, was made perpetual. The plaintiff in error excepted, and brings the case to this court for review. 1. Article 11 of the constitution was intended to provide a system of financial taxation for the State. In some cases its provisions are prohibitory on the legislature, in other cases only directory. It was made ior the benefit of the whole people and not for any class. If the legislature fails to carry out the provisions of this article, its members are responsible to the people who elected them. 4 Kas., 268. The fifth section of this article is prohibitory on the legislature, and was not intended to give rights to the State creditors. It was to keep the legislature from running the State in debt and is prohibitory on the legislature alone, and cannot be enforced by an individual in a cburt. 15 Cal., 455; 13 Barb., 217. The money collected for the various State purposes belongs to the State absolutely. It is not a trustee for the bondholders. The State is liable at all events for the payment of its debts, no matter if the sinking fund or revenue fund is lost without the-fault of the State. That the State will meet its obligations when due, is a presumption of law that cannot be disputed. The defendant in error has no rights in the sinking fund; he is a stranger to the provisions of the constitution and cannot dispute the constitutionality of this law. 16 Pick., 96. 2. Said joint resolution is not unconstitutional.- As bonds of the State are issued to run long periods of time, it was not designed by the framers of the constitution, that the money collected for their payment should be taken from the pockets of the tax-payers and transferred to the State treasury there to lie idle for thirty, fifty or a hundred years. As the constitution is silent on the subject of the investment of the fund, it is the duty of the legislature to invest the money in productive securities. A sinking fund is generally understood to mean a sum of money set apart from time to time and kept at interest to extinguish a debt at its maturity. In what securities the treasurer shall invest this fund the legislature has the sole and exclusive power to decide. The constitution of the State is not a grant of power, but a restriction on the exercise of the power on the legislature. If the legislature can direct that the State funds can be invested in one kind of securities, it can direct them to be invested in any kind of securities, and its choice is not subject to judicial supervision. But it is said that this act is unconstitutional, because it violates the contract of the State with the bondholders. The constitution of this State does not prohibit the passage of laws impairing the obligation of contracts; nor does the act in question come within the prohibition contained in §10 of art. 1 of’the constitution of the United States. That section was never intended to act on the sovereign power of a State, unless such power was used for the purpose of destroying vested rights. It was never supposed that the constitution of the United States could prevent a State from repudiating its debts. But the act creating this debt does not make a contract with the bondholders that the money raised for the purpose of paying the bonds shall be invested in one particular way and in no other. It has none of the terms of a contract. That part of the act is incomplete. It only provides that the treasurer shall purchase bonds issued under that act, when they can be obtained at par. It is simply directory on the State treasurer, and defines his duties. No vested right can grow out of such ah act. The legislature did not prohibit a future legislature from legislating on the same subject. It is doubtful whether it could do so. 16 How., 431; 10 N. H., 146. 3. Said joint resolution does not authorize the State treasurer to use the sinking fund for the purpose of faying the current expenses of the State. It only authorizes him to invest it in State warrants. The fund still remains, no matter in what shape it is. It makes no difference with the defendant in error what the money is used for. 6 Cranch, 131. 4. The legislature has never yet levied any tax for the purpose of paying the bond of the defendant in error. There is no sinking fund provided for any one class of bonds. A sinking fund is levied for the payment of the State debt generally. Gen. Stat., 896 ; cb. 80, Laws' of 1869. As there are now more than twenty .different kinds of bonds, it would be impracticable to levy so many different taxes and keep so many different funds on the books of the auditor and treasurer. The legislature has wisely levied a tax in the aggregate sufficient, in their judgment, to pay off all the State bonds as they become due. The defendant in error cannot complain of this. If he has any right of action he must set out how much interest he has in this fund. As he only sues for himself, and not for the other bondholders, he is only entitled, if he has any remedy, to have such a part of the sinking fund s‘et apart, as the ownership of his single bond gives him an interest in. Between the defendant in error and the holders of the greater part of the State debt, there is no common interest. A perpetual injunction on the treasurer from using the whole fund, when according to Horton’s own showing he has a slight interest only in it, is not the remedy to which the latter is entitled, if entitled to any. 5. The defendant in error cannot maintain his action at all. The injury, if one is threatened to be done, is not confined to him alone. It affects so many persons, and those too who have no privity of interest with himself, that it becomes a public injury, and must l}e prosecuted by the attorney general in the name of the State. "When a whole class of individuals are equally affected by a wrongful act, no one can bring an action for himself. 13 Barb., 218; 8 Cowen, 196; 19 Johns., 223. 6. The injury complained of is too vague. That capitalists are afraid that the State will not keep its faith with its creditors, and that its bonds will not be paid when due, are injuries that the law will not presume nor allow to be proved. What does the defendant in error assert in his petition as.the ground of his injury? It is a supposed wrongful act, to be committed thirteen years hence, by the sovereign power. . Leave that out of his petition, and he has no ground of complaint. No matter what may be done with money raised as a sinking fund, if his bond is paid when due, he has no reason to complain: It is damnum absque injuria, if anything. 7. This action cannot be maintained for want of proper parties. The State is the owner of the fund, and the State treasurer only its custodian. The issue attempted to be raised in this case is tbe right of tbe State to invest tbe sinking fund in its own way. Tbe treasurer has no interest in tbe matter whatever. It makes no difference to him in wbat way tbe money is used. Tbe State is tbe only party in interest. Neither tbe defendant nor tbe plaintiff own one dollar of tbe money. How can two parties go into court and settle the right of a third to use bis own money ? 8. Tbe court has no jurisdiction of tbe subject-matter of this suit. It cannot, therefore, reach it by enjoining tbe treasurer not to use it in a certain way. It can make no order concerning tbe fund, nor decide who are the owners of it. Tbe court can make no order to have tbe fund separated. It cannot require tbe treasurer to keep bis books so as to preserve a fund for defendant’s bond. 9. Tbe joint resolution was passed by tbe legislature when its constitutionality was strongly assailed. Tbe governor vetoed the bill on tbe ground of its unconstitutionality. It was again discussed by both bouses, and passed by a two-thirds vote. Such a deliberate construetio.n of the constitution, by tbe legislature, is to b.e taken into consideration by tbe court. Tbe legislature of 1869. put" a like construction on tbe act under 'like circumstances. Cb. Ill, Laws of 1869; 12 Wheat, 270; 16 Pick., 95 ; 39 N- H., 312; 6 Crancb, 128. 1. Tbe authority for tbe State to issue bonds, and contract for public debts, is found in § 5, art. 11 of tbe constitution ; and tbe same section requires tbe State to provide for tbe payment of tbe debt evidenced by such bonds. 2. Tbe State has exercised tbe right to issue bonds. Laws of 1863, p. 32, cb. 12 ; and has performed the duty of providing for their payment. Gen. Stat., p. 896, cb. 88; Laws of 1869, p. 170, cb. 80. 3. Tbe resolution of February 28th, 1870, directing tbe investing of this sinking fund, is simply a borrowing of this fund, “ to defray tbe current expenses of the State; ” and is therefore in violation of § 3. art. 11 of tbe constitution, which directs that, “ tbe legislature shall provide each year for raising revenue sufficient to defray tbe current expenses of tbe State.” 4. Tbe diversion or appropriation of tbe sinking fund, contemplated by this resolution, is a palpable violation of tbe 4th section of article it of tbe constitution, which provides that “ ño tax shall be levied except in pursuance of a law, which shall distinctly state the object of the same; to which object only such tax shall be applied.” 5. This resolution is a plain violation of section 5 of article 11 of tbe constitution, in at least three important particulars, to-wit: First — It creates a “ public debt,” and this can be done by the legislature directly for two purposes only, to-wit: “ to meet .extraordinary expenses,” or for “ public improvements,” and to the extent of pne million dollars only. (4 Kas., 265; 7 N. Y., 88, 107.) Second — -The resolution undertakes to appropriate to a wholly different purpose a sinking fund specifically appropriated for the payment of the bonds by the very act under which the bonds were issued. Third — The legislature in passing the said resolution in effect, undertook to repeal §§ 8 and 10 of said act of 1863, creating this bonded debt. Section 5 of article 11 of the constitution provides, that “ such appropriation shall not be repealed, nor the taxes postponed or diminished until the interest and principal of such debt shall have been wholly paid.”' 6. The law under which the bond in controversy was issued, and the several constitutional provisions in relation to the same, constitute a part of the contract between the State and the owner of the bond; the legislature has no constitutional authority to pass any law or resolution that will impair its obligations; and the bond-owner has a right to insist upon a faithful compliance with every provision of the constitution and of the law under which the bond was issued that operates as a protection to his rights. Cooley’s Const. Law^ pp. 273, 281, 285, 358; Sedg. on Stat. and Const. Law, pp. 616 to 628; 31 Penn. St., 175, 185; 16 How., 369; 4 Kas., 382; 4 Wallace, 535.