U.S. Supreme Court
Stanley County v. Coler, 190 U.S. 437 (1903)
Stanley County v. Coler
Argued April 27-28, 1903
Decided June 1, 1903
190 U.S. 437
While, as a general rule, federal courts will accept the interpretation put by the courts of a state upon its own constitution and statutes, yet where the law has not been definitely settled, it is the right and duty of federal courts to exercise their own judgment.
A presumption that the duty devolving upon the officers of a county of ascertaining the conditions upon which bonds of the county may be issued was properly exercised should and does accompany and guarantee such bonds.
County bonds issued under statutes and sections of the Code of North Carolina which permit bonds to be issued to enable counties to subscribe to stock when necessary to aid in the completion of any railroad in which citizens of the county may have an interest held to be valid notwithstanding that the supreme court of the state had decided in another action that such bonds were invalid.
This suit was brought in the United States Circuit Court for the Western District of North Carolina by the respondents against the petitioner, to recover on certain coupons attached to bonds alleged to have been issued by Stanly County, State of North Carolina, in part payment of the subscription of said county to the capital stock of the Yadkin Valley Railroad Company. The bill alleged the following facts:
The Yadkin Valley Railroad Company was organized as a corporation under the laws of North Carolina to construct and operate a railroad running from Salisbury in that state, south to Norwood, a point in Stanly County.
The incorporation of the said company was under and by virtue of chapter 236 of the Acts of 1870, passed by the legislature for that year, and the said chapter was amended by an act of the legislature, chapter 183 of the Acts of 1887.
The county, being desirous of aiding in the construction of said road, and acting through its proper authorities, subscribed the amount of $100,000 to the capital stock of the company in pursuance of the authority and power conferred upon the said county under and by virtue of the acts of the Legislature of North Carolina as above set out; and, also, under and by virtue of sections 1996, 1997, 1998, and 1999 of the Code of North Carolina, all of the said acts and sections of the Code of North Carolina having been enacted and become laws in accordance with the constitution of the state.
The county still holds the stock and derives benefit from the road in increased facilities for transportation, greatly increased value of the lands of the county, and from the taxes paid thereon. A copy of the bonds was attached to the bill, and is inserted in the margin. * chanroblesvirtualawlibrary
The bonds were exposed for sale, and the respondents became purchasers of them in good faith, and at the highest market price, and without any notice, express or implied, that there was any suggestion of their being void, invalid, fraudulent, or otherwise than perfectly legal in their issue and sale.
Interest on the bonds issued, as the same has become due, has been paid for the last four years. The coupons due and the amounts thereof are as follows:
48 Stanly County coupons, Nos. 2,46, 48, 49, and
72, $60.00 each . . . . . . . . . . . . . . . . . . $2,880.00
33 Stanly County coupons, Nos. 81, 92, 95, 96,
98, 108, 110, 112, 116, 118, 120, all numbers
inclusive, $30.00 . . . . . . . . . . . . . . . . . 990.00
Making the sum of . . . . . . . . . . . . . . . $3,870.00
The payment of said sums was demanded at the proper time and refused, although the said total sum had been collected from the taxpayers of the county by the board of commissioners, in pursuance of the power conferred upon them, and was in the hands of I. W. Snuggs was the trustee of the bondhold-treasurer of the county, and having received the same for the payment of said interest, he became and is the trustee and agent of the bond and coupon holders, and therefore holds the same "for the use and in trust for complainants." The complainants are informed and believe that the reason why said treasurer has not accounted to them is that he has been restrained by a certain process of injunction, issued by one of the superior courts of the State of North Carolina in a suit brought in the name of the board of commissioners, and in the names of James P. Nash and G. R. McCain as plaintiffs, and against the said I. W. Snuggs as defendant, but that complainants were not made parties to the same, nor was any other bondholder. The treasurer and board of commissioners, unless restrained, will dispose of the fund collected as aforesaid. An injunction was prayed, and the statement of an account, and the appointment of a receiver asked.
The answer attacked the validity of the bonds, and averred that their invalidity was adjudged by the supreme court of the state in the case of Commissioners v. Snuggs, 121 N.C. 394,
"and that there has been no other decision or judgment given by said supreme court in conflict with the aforesaid decision; but that the said decision is uniform with the decision of the same court, delivered in the case of Bank v. Commissioners, 119 N.C. 214, which are the only two cases in which the principle, or validity of these bonds has ever been before the supreme court of the state."
There were proper replications made to the answer. The case was submitted on the pleadings and certain exhibits, some of them being the records of the suits in the courts of North Carolina.
The grounds upon which the bonds are claimed to be invalid are indicated in the opinion. A decree was entered declaring and adjudging the bonds to be valid obligations of the County of Stanly; that complainants (respondents here) in the suit chanroblesvirtualawlibrary
were bona fide purchasers and holders thereof; that I. W. Snuggs was the trustee of the bondholders, and held the sum of $6,000 as such trustee, for the benefit of the bondholders, under and by virtue of the law and the orders of the board of commissioners of the county, and for the sole purpose of paying off and discharging the interest due on the bonds as set out in the bill. The decree also appointed a receiver for said sum, and ordered that said I. W. Snuggs pay the same to the receiver. It was further adjudged that the Board of Commissioners of Stanly County be enjoined from in any manner interfering with the execution and performance of the decree. The decree was reversed by the circuit court of appeals, and the cause was remanded "with directions to dissolve the injunction, discharge the receiver, and dismiss the bill." 96 F.2d 4. A rehearing was granted, and the decree of the circuit court was affirmed.