Bolles v. Brimfield, 120 U.S. 759 (1887)

Thi s was an action at law to recover upon bonds and coupons issued by the defendant in error, a municipal corporation. p. 760Demurrer to the declaration which was overruled. Defendant declining to answer further, the action was dismissed. The case is stated in the opinion of the court.

From this statement of the case, it is apparent that the judgment below is inconsistent with the decision in Anderson n . Sa/nta Anna. It is not disputed that the bonds in suit would be valid obligations of the town of Brimfield if the election of August 3,1868, at which they were voted, had been previously authorized by statute. In other words, according to the settled doctrines of the Supreme Court of Illinois, it would have been competent for the legal voters of the town, under legislative authority for that purpose previously given — such voters being its “ corporate authorities ” in the meaning of the state constitution as interpreted by the highest court of Illinois — to have required the subscription to be made, and the bonds to be issued, which were in fact made and issued pursuant to the unauthorized election of August 3, 1868. The question, then, is, could the legislature, by subsequent ratification, make that legal which was originally without legal sanction, but which p. 763it might, in the first instance, have authorized ? A negative answer to this question would be in conflict with numerous decisions of this court upon the general question as to the power of a legislature to enact curative statutes, when not restrained by constitutional provisions — the last of those decisions being Anderson v. Santa Anna. We adhere to what has been heretofore said by this court upon that subject; and, in doing so, we do not infringe upon the rule that, in respect to rights arising under, and depending upon the interpretation of, the constitution and laws of a state, this and other courts of the United States will accept as controlling the established doctrines of the highest court of the state, as announced before such rights accrued. Burgess v. Seligman, 107 U. S. 20, 33 ; Carroll County v. Smith, 111 U. S. 556, 563. Previous to the issuing of the bonds in suit, May 5, 1869, there had been no decision of the Supreme Court of Illinois to the effect that it was beyond the power of the legislature to enact such a statute as that of March 31, 1869, or that the legislature could not ratify and confirm such acts of a municipal corporation as would have been lawful if done under previous legislative authority. On the contrary, its decisions prior to that time, as we endeavored to show in Anderson v. Santa Anna, tended to sustain the validity, in such cases, of retroactive legislation. The first direct decision of the state court, so far as we are aware, adverse to the validity of such legislation, was Silliman v. Marshall, 61 Ill. 218, 226, determined in 1871, after the bonds in suit were issued. The cases of People ex rel. McCagg v. Mayor of Chieago, 51 Ill. 17, People ex rel. Wilson n . Solomon, 51 Ill. 37, People ex rel. South Park Commirs v. City of Chicago, 51 Ill. 58, Harward v. St. Clair, dec., Drainage Co., 51 Ill. 130, and other cases of that class cited by counsel, do not touch the question before us; for they decide, in effect, nothing more than that the power to levy taxes for local purposes could be conferred only upon the corporate authorities of the municipal body to be affected thereby — the object of the constitutional provision that “ the corporate authorities of counties, townships, school districts, cities, towns, and villages may be vested with power to assess and collect taxes for corporate p. 764purposes,” being to define as well the class of municipal officers upon whom the power of taxation for local purposes might be conferred, as the purposes for which such power could be constitutionally exercised. Quincy n . Cooke, 107 U. S. 549, 554.

So that, substantially the same question is presented here that arose in Anderson v. Sa/nta Anna. Having a clear conviction that the legislature did not transcend its power in enacting the statute of March 31, 1869, and there being, to say the least, at the time the bonds in suit were issued, no adjudication to the contrary in the Supreme Court of Illinois, we cannot surrender our judgment upon that question and overrule the settled doctrines of this court, in deference to decisions by the state court, made long after the rights of the plaintiff accrued. Burgess v. Seligman, Carroll County v. Smith, and Anderson v. Santa Anna. In holding that the legislature did not violate the constitution of the state in passing the act of March 31, 1869, we do not disregard those decisions of the state court which hold that the legislature cannot impose a debt, for local corporate purposes, upon a municipal body, against the will of its corporate authorities. For, as often held by the state court, the corporate authorities of a town like Brimfield are its legal voters, and they, at the election of August 3, 1868, gave their consent to the subscription and bonds in question. The same voters who approved the subscription of $35,000, at the same time, and by means of the same election machinery, approved an additional subscription for $15,000. There is no suggestion in the record that the votes cast for the latter subscription did not constitute a majority of all the legal voters of the town. We must presume, upon this record, that the legislature ascertained, as stated in the act in question, that such a majority had, at the election of August 3, 1868, voted for the additional subscription of $15,000; and we do not see that the subsequent ratification by the legislature of what had been done by the voters can be regarded as imposing a debt upon them against their will. The legislature simply gave effect to the wishes of the people, as expressed in the customary mode for ascertaining p. 765the popular will. Grenada County Supervisors v. Brogden, 112 IL S. 261, 262; Anderson v. Santa Anna, 116 U. S. 356, 364.

W, owning a plantation in Louisiana, and being embarrassed, agreed with several of his creditors and with K, that W should remain in possession and work the plantation; that K should make annual advances to a stipulated amount to enable him to work it, and should receive and dispose of the crops and apply their products, first to the payment of his own account, and next to the payment of the debts of the creditors; and that for these advances and the balance on his account K should have a first mortgage on the plantation with pact de non alienando, and that the debts of said creditors should be secured by a mortgage subsequent to the lien to secure K’s account. A second mortgage was afterwards made to K, with a like pact, and with an agreement, in which all joined, that it should have priority over the first mortgage. The plantation was worked at a loss, and K having made large advances, W acknowledged the amount of them before a notary, and K proceeded by executory p. 766process to obtain a sale of the plantation, and it was sold under judicial process. In a suit brought after the lapse of eight years by one of said creditors to foreclose the creditors’ mortgage, and to set aside the sale under the mortgage to K: Held, (1) That no notice to the creditors of the proceedings to foreclose K’s mortgage was necessary; (2) That W’s acknowledgment of the balance due on K’s account was all the ascertainment that was required; (3) That the relation of trustee and cestuis que trust did not arise between K and the creditors; (4) That the creditors were guilty of laches in allowing so long time to elapse after knowledge of the sale, before commencing proceedings to disturb it.

Neither of these objections seems to be well founded. A holder of a first mortgage, duly executed before a notary, p. 769with, pact de non alienando, is not bound to give notice to any person but the debtor in possession.

These sections do not, it is true, speak of the pact de non alienando and its peculiar effect. This pact and its consequences were derived from the Spanish law, and were not affected by the Code, and have been firmly established in the jurisprudence of Louisiana. Nathan v. Lee, 2 Martin (N. S.) 32; Donaldson n . Maurin, 1 La. 29; and other cases cited in Hennen’s Dig. Arts. Executory Process, III. (b); Mortgage, V L (c), 6; Louque’s Dig. ib. This rule not only applies to vol . cxx—49 p. 770subsequent purchasers from the mortgagor, but to subsequent incumbrancers. Guesnard v. Soulie, 8 La. Ann. 58. The mortgage of Kennedy & Co. contained all the requisites required for this process. It was a first mortgage by agreement of all the parties, and contained the pact in question. The fact that the complainants and other creditors had a junior mortgage by virtue of the same instrument makes no difference. They agreed to stand on the plane of second mortgagees, and must be bound by the conditions attaching to such a position. It has even been held by the Supreme Court of Louisiana that where two separate notes, drawn in favor of different individuals, were secured by the same mortgage, either mortgagee may sue to enforce his rights without a joinder of the other. Utz v. Utz, 34 La. Ann. 752. And, in another case, it was held that where there are concurrent mortgagees, one of them may proceed by executory process to foreclose the mortgage without giving special notice to the others. Soniat v. Miles, 32 La. Ann. 164. In such cases the other interested parties are entitled to their proper shares of the common proceeds. Carite v. Trotot, 105 IT. S. 751, 755.

The complainants, however, deny that Kennedy & Co. had any such right, because their claim stood in the form of an open, unliquidated account, and the balance had to be acknowh edged by the debtor Williams before it was in a proper shape for executory proceedings. We do not think that this objection can prevail. The mortgage on its face was good for any sum not exceeding $35,000, and though this was to cover future advances, it was none the less efficacious as a mortgage to the extent of those advances, less the amount of any p. 771credits realized from, the proceeds of the crop, or otherwise The law on the subject of such mortgages is laid down in the Civil Code as follows:

It is true that the other mortgagees were interested in the amount of the balance due at the end of each year, and were undoubtedly entitled to inspect the accounts which Kennedy & Co. were to keep with the plantation; but the latter were not required to render accounts to them in the ordinary sense of those terms. Their accounts were with Williams, to whom the advances were made, or with the plantation, which was the same thing; and their settlements were properly made with him; and being so made, were binding on all the parties, unless fraud or collusion could be shown. The evidence shows that Kennedy & Co. were always ready and willing to have their accounts inspected, if the other parties had desired to inspect them. This was all that the agreement implied or required. Hence the acknowledgment by Williams of the p. 772m OCTOBER TERM, 1886.

The complainants’ case, therefore, must stand or fall upon the charge of fraud and conspiracy on the part of Kennedy & Co. and Williams. We have carefully examined the evidence m relation to this charge, and are satisfied with the conclusions reached by the Circuit Court on the subject. The main stress of the argument of the appellants on this point is laid on the want of notice to them of. the executory proceedings, and the haste with which the proceedings were conducted. We have already shown that they were not entitled to notice, and the haste in the proceedings is accounted for by the fact that unless a sale were made in the early spring, the purchaser could not make a crop for that year; and, hence, the property would command a greater price at an early sale than at a later one. The evidence shows that everything was done in good faith and with all due publicity. The charge that Kennedy induced parties not to appear and bid at the sale is not substantiated by satisfactory proof; on the contrary, we think it is disproved. None of the parties interested seem to have thought the proceedings assailable either for fraud or any other cause. The sale was made March 7, 1874; Kennedy took immediate possession, and carried on the plantation. The complainant bank had suspended October 4, 1873, and went into bankruptcy. A receiver (Cockrem) was appointed October 20, 1873, and another receiver (Casey) July 1, 1874. The p. 773latter, in his report to the comptroller, classed the claim against Williams as worthless. He, or his predecessor, must have examined into the condition of the security at the time, and must have ascertained all about the sale to Kennedy, if they were not aware of it when it took place. The receiver paid no further attention to the claim until shortly before the filing of the bill in this case, which was May 15, 1882, more than eight years after the sale took place. The notes given to the complainants had then been due over five years, and no interest or principal had ever been paid on them. Surely such an important asset of the bank, the principal of which was over $50,000, could not have been overlooked. The other second mortgagees were equally oblivious to any illegality or fraud in* the sale until this suit was brought. It seems incredible that parties so deeply interested, represented as they were by vigilant and able counsel, did not in all this period discover the alleged illegalities and frauds. The proceedings incident to the sale were matter of record; the petition for executory process, the order, the acknowledgment of the debt, the appraisement of the property, the purchaser’s bid, the sheriff’s deed, all lay open to inspection; and no sign was ever made for more than eight years by any of these parties. They must have been satisfied with the regularity of the proceedings, and the good faith of Kennedy & Co. and Williams. Their conduct is inexplicable on any other hypothesis.

But it is alleged that the defendants, Kennedy & Co., were trustees for the complainants and the other mortgage creditors; and, therefore, that they are answerable for all profits and gains realized by Mr. Kennedy from the plantation purchased p. 774by him. We are of opinion, however, that the relation of trustees did not arise from the agreement. Kennedy & Co. were to receive the crops and dispose of them, and if any surplus remained after reimbursing themselves for their advances and proper charges, they were to pay it over to the other mortgagees, instead of paying it to Williams. They only occupied the position of factors, legally responsible for any surplus in their hands. For this surplus, if they neglected to pay it over, they were liable in an action at law. This is a very different position from that of a trustee in the chancery sense of that term. The fact is, they never had any surplus and were never liable in any amount to the complainants, or their comortgagees.