author: Nioiiolls, G. J.

text:
    No. 13,034.
    State ex rel Miss L. B. Wilder et als. vs. Board of Liquidation City Debt et al.
    Syllabus.
    3. It by no means follows that a Board which owes its existence to statute authority and lias its powers and duties defined thereby, should he uuder a continuing liability to hare its future conduct and duties controlled by the same authority. This question lias to he determined in each case by the nature and character of the duties cast upon the Board, the rights of third parties which may have resulted from an acceptance of the trust and the duty and liability of the Board itself and its members as resulting from tlie same fact. The Board of Liquidation of the City Debt and the Drainage Commissioners of the City of New Orleans are legally justified in testing‘tlie Constitutionality of Articles 313, 31G and 317 of the Constitution oí 1S9S as impairing the obligation of contracts.
    The surplus of the one per cent, tax in New Orleans set aside for permanent public improvements by Act 130 of 1800, and the Constitutional amendment of 1S92, is the surplus which may remain after applying the tax collected to the satisfaction of the debts and claims therein specially enumerated as those which were to be provided for through the tax.
    3- Tlie unpaid salaries for the years 1880, 1881, 1882, 1883 and 188-1 of teachers in the public schools in New Orleans under contracts with the City School Board of that city, were not debts of that city, and were not intended to fall under the provisions of the funding law of 1S90, and the Constitutional amendment of 1802. They only became obligations of the city by the latter's assumption of them under the Constitutional amendment.
    The Constitutional Convention liad the power to have those claims paid through the one per cent, tax, hut only subordinately to the rights upon the tax in favor of creditors holding contract rights at tlie date of the adoption of the Constitution.
    These rights could not constitutionally he impaired.
    ON APPEAL from the Civil District Court for the Parish of Orleans. High tor, J.

      (’liarle* J. Theard, Arthur McGuirh and Henry L. Lazarus for Plaintiffs and Appellees.

      Branch K. Miller for Board of Liquidation of the City Debt, Defendant and Appellant.

      Howe, Spencer and Qocl&e for the Drainage Commission of New Orleans, Intervenor and Appellant.
    Argued and submitted December 24th, 1898.
    Opinion handed down May 1st, 1899.

      Judgment amended and rehearing refused June 30th, 1899.
   N. 13. — This case (has been removed to the Supreme Court of the United States by'«a writ of error.

The opinion of the court was delivered by

Nioiiolls, G. J.

By the 315th Article of the Constitution, the-City of New Orleans was authorized and required to examine into and assume payment of the obligations of the Board of Directors of the Public Schools of the parish of Orleans, for unpaid salaries of school teachers -and portresses and other legitimate claims against said school board for the years 1882, 1883 and 1884, and for unpaid salaries of school teachers and portresses for the years 1885, 1886 and 1887, then (now) in the hands of the -original holders, who have, in no wise parted with their rights of ownership, or pledged the same, as may be found equitably due by said board.

By the 316th Article, the City Council was di recited to issue certificates of indebtedness to the owners of said claims, when examined and found to be equitably duo, and all such certificates were directed to be paid by the Board of Liquidation.

The article provided that if any of the claims aforesaid should be rejected by the City Council, the decision thereon might be reviewed by any court of competent jurisdiction, and the judgment of the court thereon, should, if in favor of the, claimant, be. likewise paid by the Board of Liquidation.

The, 317th Article directed that the .funds requisite to pay said claims should be provided by (he sale of a. sufficient number of the Constitutional bonds of the city of New Orleans of the issue provided for by Act No. 110 of the General Assembly for the year 1890, and by the. amendment to the Constitution of the. State submitted to the people by said act, and adopted at the general election in 1892.

Acting under and by virtue of the provisions of these, articles of the Constitution, the City Council of New Orleans examined into and assumed payment of the school teachers and portresses of the public schools of that city for the years 1882, 1883 and 1884, and the city comptroller, by direction of the council, issued certificates of indebtedness countersigned by the mayor, setting forth the amount due by the city to each claimant and representing- a total sum of one hundred and fifteen thousand five hundred and fifty-eight dollars- and thirty-three cents.

The board of liquidation on presentation of the same for payment refused to pay the samo, on the ground that the mode of payment provided !by Article 317 of the Constitution, to-wit: by the sale of bonds of the issue provided for by Act No. 110 of 1890 (Constitutional Amendment of 1892), would impair the obligation of contracts and therefore he a violation of the Constitution of the United States.

The. holders of the certificates thereupon cited the hoard of liquidation into the Civil District Court to show cause why a writ of mandamus should not issue against them, commanding them to pay the certificates together with legal interest thereon, from judicial demand until paid, and provide the requisite funds by the sale of a sufficient number of said constitutional bonds.

The hoard of liquidation answered pleading first the general issue. Averring its right and its duty so to do, it resisted plaintiff’s demand on assigned grounds and prayed that their demand he rejected.

The drainage commissioners of the city of New Orleans intervened in the case joining the defendants in resisting the demand of the plaintiffs.

The latter excepted to the right of the drainage commission to intervene and its right- and authority and that of the board of liquidation to set up the issues tendered.

The District Court dismissed the intervention of the drainage commission, and ordered the mandamus prayed for to issue.

Tlu> drainage commission and the board of liquidation appealed. In their brief plaintiffs say: “It might well be asked What right the hoard of liquidation had to assail the validity of the Constitution of Louisiana. Created by Act No. 133 of the Legislature of 1880, the hoard of liquidation is merely a servant of the people.

“Its members are trusted clerks charged generally with the liquidation of the city debt; that- is all. They are not. above the law, they are creatures of the law. If it be true that the Act of 1890 osConstitutional Amendment of 1892 confided to them a special trust, it. is also true that they received said trust, from the sovereign State of Louisiana and that she may well modify the instructions which she had seen fit originally to give. It, can not be admitted for a moment, that the hoard of liquidation would have the right in any case to disregard and disobey the mandate, of the Constitution and resist, and defy the will of the. people”.

A similar claim was advanced in Board of Public School Directors vs. The City of New Orleans (42 Ann., 96), and held by this court to. be not well founded.

We adhere to that conclusion and adopt as correct the reasons assigned by the court for reaching it.

It by no manner of means follows that a board which owes its existence to statute authority and has its powers and duties defined thereby, is necessarily under a continuing liability to have its future ■conduct and its future duties controlled by the same authority.

There are doubtless cases where this power of control continues absolutely, but there are others where, though it may be continued, it is under limitations; and others again when it ceases altogether.

This question has to be determined in each case by the nature and character of the duties, cast upon the board; the rights of third parties Which may have resulted from an acceptance of the trust and the duty and liability of the bo arc? itself and its members as resulting from the same fact.

In the case just referred to the court said: “It would be passing-strange indeed if after the defendants here have been commanded to show cause why the relief sought against them should not he granted, they could be met, when they appear, in response, with the" objection that they have no standing in court.” (11th Wall., 267; 17 Ann., 251; 39 Ann., 11.) The court further said it did not hold (in 41 Ann., 156) that the city did not possess the right of pleading unconstitutionality find that they must not be heard.

Article 254 of the Constitution of 1879, referring to the powers and duties of the Legislature, in respect to the city óf New Orleans, said: “The General Assembly at its next session after the adoption of the Constitution shall enact such legislation as may be proper to liquidate the indebtedness of the city of New Orleans and apply its assets to the satisfaction thereof.

“It shall have authority to cancel the charter of said city and remit its inhabitants to another form of government, if necessary.”

This article was adopted in view of the very many sweeping alterations made in the Constitution in the powers of taxation, not only of the different parish and municipal corporations of the State, but of the State itself, and in the extent of legislative control over corporations both private and public.

Article 45 prohibited the General Assembly from “granting or autlioriziug any parish or municipal authority to grant'any extra compensation, fee or allowance to a public officer, agent, .servant or contractor, or authorize the payment of any claim against the State or any parish or municipality of the State, under any agreement or contract, made without express authority of law, and declared that ail such agreements or contracts should bo null and void.”

By Article 48 the General Assembly was prohibited from passing any local or special law “creating corporations, or amending, renewing, extending, or explaining the charter thereof, (provided this should not apply- to the corporation of the city of New Orleans), or from granting to any corporation any special or exclusive right, privilege or immunity, or legalizing the unauthorized or invalid acts of any officer, servant, agent of the State or of any parish or municipality thereof.”

Article 202 declared that the taxing power might he exercised by the General Assembly, for State purposes, and -by parish and municipal corporations under authority granted to them by the General Assembly for parish and municipal purposes, 'but Article 209 declared the State tax on property for all purposes whatever, including expenses of government, schools, levees and interest, should not exceed in any one year six mills of the dollar of its assessed value, if the ordinance regarding the bonded debt of the State should be adopted and ratified by the people, and if said ordinance should not be adopted, and ratified by the people, said State tax for all purposes should not exceed, in any one year, five mills on the dollar of the assessed valuation, and no parish or municipal t-ax for all purposes whatsoever should exceed ten mills oil the dollar of valuation. Article 229, however, directed that the General Assembly should provide that every parish might levy a tax for the public schools therein, which should not exceed the State tax, provided that with such tax the whole amount of parish taxes should not exceed the limits of parish taxation, fixed by the Constitution.

In 1880, the General Assembly passed Act No. 133, entitled: “An Act to liquidate the indebtedness of the city of New Orleans and apply its assets to the satisfaction thereof, to create a board of liquidation and prescribe their duties and to provide for a fiscal agent, and for the levying of a special tax to pay said interest”.

For the purpose of carrying out the purposes of the Act and liquidating the indebtedness of the, city, a board, designated as the board of liquidation of the city debt, "fras created, to which the duty was assigned, or delegated, of retiring and cancelling “the entire debt of the city,” except the floating debt created up to the date of the passage of the act (April, 1880).' The board was authorized and directed to have certain described bonds jnepared, which it was declared wore to be used exclusively for the purpose of negotiation or of exchange as therein provided for. The method provided for for retiring the debt was either by the sale of the new bonds or by their exchange, for old ones. It was provided that the entire issue of new bonds to be sold or exchanged should not exceed ten million of dollars. It was .declared that nothing in the Act should be construed as affecting Article No. 31 of 1876, known as the “premium bond act,” and it was made the duty of the city authorities to turn over and transfer to the board all monies collected on account of the tax levied in accordance with the provisions of that act, and it was made the duty of the board to apportion the proceeds of said tax, and apportion the same pro rata, and in the proportion which each form of bonded indebtedness should bear to the entire amount of the city’s debt, and such portions of the said proceeds of tax as should not properly belong' to the outstanding amount of premium bonds, were directed to be applied to the payment -of the bonds created by the act, then being enacted. The act required the city council to levy an annual tax calculated upon the assessment of the preceding year less twenty per cent., sufficient to pay in full the interest on all the bonds issued under its provisions and it directed that any tax levied should continue in force until superseded by a new tax levy for the same purpose.

The surplus arising from the collection of the debt and interest tax or from the sale of assets in the hands of the board after paying the interest coupons of the bonds to be issued under the act was ordered to be. used for the purchase and retirement of any valid bond of the city created before the passage of the act, at a rate not exceeding fifty (tents on the dollar, or at the discretion of the hoard for the retirement of the bonds created under the act at a price not- exceeding par, and the bonds or obligations purchased, exchanged or retired were directed to be cancelled. The fourth section of the act subjected the members of the board to a criminal prosecution should they knowingly audit, fund, or purchase or retire for value any illegal obligation of the city or use any portion of the bonds authorized to be issued or the proceeds for purposes otherwise than those contemplated by the act.

In 1882 the General Assembly by Act No. 58 of that year, authorized the city of New Orleans to renew and extend payment of her •outstanding bonds other than premium bonds, to provide the rate of interest on the bonds as renewed or extended -and to levy a tax to pay the same. This tax the act declared should never exceed one-half of oiie per cent., nor be less than one-quarter of one per cent, on the .assessed valuation of all taxable property, and should be turned over as collected to the board of liquidation in the same manner as the premium bond tax, to be by them deposited to the credit of the city •debt fund and to he applied exclusively for the objects and purposes therein declared. '

The act directed that all funds then or which might be at the date ■of the passage of the act in the hands of the hoard of liquidation under existing laws, should be deposited with the fiscal agent of the board to the credit of the account known as the “City Debt Fund,” which fund should be used exclusively to the purchase on the most favorable terms not exceeding par of the face value of the outstanding- bonds or coupons or certificates therefor of the city, which were extended or to be extended under the provisions of the act, then being enacted, provided, that said city debt fund should be used first to provide for and pay the interest on the bonds and certificates contemplated in the act, and the city was directed in its annual budget to make an appropriation to carry out the provisions of the act.

The seventh section directed that the surplus proceeds of any of the premium bond tax of each year remaining- in the hands of the board of liquidation, or surplus on hand at the time of the passage-of the act after all the drawn series, interest and premiums thereon exigible or due to the ’holders thereof have been provided for dr fully paid, should also be deposited with the fiscal agent of the board to the credit of the account known as the city debt fund, and applied exclusively as provided in section fifth.

The tenth section declared the act in all its parts, provisions, terms, conditions, obligations and limitations, should be deemed to he and be a valid, binding contract between the State of Louisiana, the city of New Orleans, its residents, citizens and taxpayers, and the hold-ers of the bonds authorized in t-he act to be extended.

In July, 1884, the General Assembly passed an act known as No. G’7 of that session, entitled “An Act to amend and re-enact sections 2, 3 and 5 of an act entitled ‘An Act to liquidate the indebtedness of the city of New Orleans and to apply its assets to the satisfaction thereof; to create a board of liquidation and prescribe their duties; and to provide for a fiscal agent and for the levying of a sufficient tax to pay said interest’, approved April 10th, 1880; and to further provide for the redemption of the bonds authorized herein, the payment of the interest on the same when said tax is not levied; and for the disposition and sale of said assets and other property.”

The act so amended is the act herein before referred to as Act No. 133 of 1880.

The amendment to the second section consisted in extending the powers and duties of the board of liquidation so as to give it exclusive control and direction of not only all matters relating to the “bonded debt” of the city, but of all matters relating to the “judgment and bonded” debt of tire city; and in altering the form and terms of the bonds which -the board had been directed to have pre-pared.

The third section of the Act of 1880, as amended, authorized and required, and made it the duty of the board to retire and cancel the entire debt of the city standing at the time of the passage of the amending act in the form of executory judgments, and registered under the provisions of Act No. 5 of 1810, and that which thereafter might become merged into executory judgments and likewise registered, except the floating debt or claims created for and against the year 1819 and subsequent years.

It declared that it was the full intent and meaning of the amending' act to apply solely the privileges thereof to executory judgments at that time rendered (the passage of the new act) against the city, and to such floating debt or claims against said city for 1818 and' previous years merged and to be merged into executory judgments,, whether absolute or rendered against the revenues of any particular year or years previous to the year 1819.

For the purpose of retiring and cancelling said judgment debt the board was authorized and required either to sell the bonds to be issued under the act at not less than their par value and 'apply the proceeds thereof to the payment of the said judgments as specified, or to issue said bonds in exchange thereof.

In July, 1890, the General Assembly passed an act which appears iii the published acts of that session under the number 110, but is referred to in the amendment to the Constitution of 1879, adopted in 1892, as Act No. 36.

Th-is act, though it preceded the adoption of the amendment, was entitled “An Act to carry into effect the Constitutional Amendment-passed at the present session of the Legislature relative to the bond debt of the city of New Orleans, and to authorize and direct the said-city to issue through the board of liquidation of the city debt four per cent, bonds, to be known as the constitutional bonds of the city of New Orleans, payable fifty years from date; and to direct the retirement of the now outstanding bonded debt of said city, premium bonds-excepted, by the sale of said constitutional bonds and application of proceeds by the board of liquidation to the payment of said outstanding bonds, premium bonds excepted, and to the payment also of certain judgments -against the city on floating debt claims created prior to 1879, and to authorize the purchase by said board of said outstanding bonds other than premium bonds, or the exchange thereof for said constitutional bonds and for the payment of said outstanding bonds and of the aforesaid outstanding bonds not retired under this, act and for the payment of the annual allotment of premium bonds' and premiums; t.o direct the levy and collection by the city of one per cent- now levied for the bond debt and to direct the payment to- and application by the board of liquidation of said taxes to the purpose aforesaid for which it is levied, and. to provide a sinking fund' for said constitutional city bonds and for -the disposition of the surplus of said tax not required for the aforesaid bond debt and to recognize said tax as the contract right of the holders of the aforesaid bonds and to recognize also the exemption of said constitutional bonds from all taxation, -and to define the functions -and powers of said board of liquidation.”

• The first section of that act declares that in order to provide for' the retirement of the outstanding bonded indebtedness of the city of New Orleans and such other indebtedness as under existing laws is- or becomes entitled to be funded into any series of bonds, always saving and excepting, however, the bonds known as premium bonds, the1 city of New Orleans be authorized, empowered and directed to issue bonds to the amount of ten millions of dollars, described as to their form and terms.

it directs that these bonds when executed should be delivered to the board of liquidation of the city debt to be used for the purposes aforesaid in accordance with the provisions of the act.

The second section authorized and empowered the board to sell and dispose of such amounts of said constitutional bonds as might be requisite for the purposes expressed in the later section of the act, and fixed the terms and conditions on which they should be sold.

The third section directed that all the funds received by the board from the sale of constitutional bonds should be immediately deposited with the fiscal agent of the city of New Orleans, to the credit of a special fund called the Bond Sales Fund, which said fund should be used solely and exclusively for the purpose of retiring by payment all the said now outstanding valid bonds of the city of New Orleans, matured or subject to be called upon, including the certificates or bonds issued under the fourth section of Act No. 54 of 1882, and including judgments then or thereafter rendered on floating debt claims prior to 1879, entitled to be funded under Act No. 67 of 1884, but excluding premium bonds issued under Act No. 31 of 1876 not ■to bo retired under the act.

The. fourth section gave fhe board power after the payment of all' aforesaid outstanding’ bonds subject to call or matured as provided in the third section, to purchase the unmatured outstanding bonds of the city, premium bonds always excepted, and fixed the terms and conditions under Which the purchase could be made.

The fifth section authorized the board to exchange bonds issued under the act for valid outstanding bonds of the city, premium bonds excepted, and fixed the manner, terms and conditions under which .the exchange could be -made.

1 The seventh section made it the duty of the council in order to provide for the payment of the principal and interest of the constitutional bonds authorized to be issued by fhe act and all other valid outstanding bonds of the city, to levy for the year 1892 and annually thereafter, until the principal and interest of the bonds authorized to be issued was fully paid, a special ad valorem tax of one per cent. upon all the taxable property of the city of New Orleans, said special tax to be a part of and not in addition' to the tax' of twenty mills and two-tenths of a mill on the dollar of value then levied for all purposes by' the city of New Orleans.

The eighth section directed that out of the proceeds of said one per cent, per annum, tax, beginning in the year 1892, the board .of IN (.initiation should annually provide for the carrying of the premium bon'd plan; the payment of the interest upon the bonds authorized to be issued by the act, and of the interest upon all other outstanding interest, bearing bonds of the city, and after the year 1925 for the annual sinking fund necessary to call and retire the number of bonds provided for in section 9 of the act.

It further directed that after making in each year the provisions above required, and after deducting the expenses incurred by said board, and after paying any deficiency in the, interest, fund of any previous years, one-lialf of the surplus should be passed to the credit of a special fund to be known as the “Permanent Public Improvement Fund,” to be disposed of as disposed of later in the act; and the other half of said surplus should be paid ov.er to the school board of the ■city in addition to any other fund appropriated by said city out of other funds, to be used in the maintenance and support of the public schools in said city.

The tenth section directed that the “Permanent Public Improvement Fund” should be used exclusively for the purpose of the construction of permanent public improvements in the city, such as leyees, canals, drainage stations, pavements, public buildings, publie parks, and bridges, and required that all ordinances passed by the common council to be paid out of this fund should be first approved by the said board of liquidation, who should not draw any check on said fund unless they should bo convinced, upon proper enquiry that said ordinance covered the construction of a permanent improvement within the purview of the act. It was declared in the section that the true meaning of this clause was not to g'iVe said hoard any authority to say to wliat. permanent public improvement any fund should be applied, but only to see thát said funds should be applied exclusively to the construction of improvements that- are permanent.

In the eleventh section of the act the board of liquidation was created a body corporate with power to sue and be sued; it was declared that nothing in the act Should be construed to affect or change in any manner the duties, powers and functions of the board of liquidation under existing laws, not inconsistent with it, or the rights of said board to the assets and pi'operty of the city not dedicated, to publie use, including the uncollected taxes prior to 18^9, but said duties, functions, rights and powers we.ro maintained and confirmed in full force.

The 16th section declared all the substantial provisions of the act to be a contract between the State of Louisiana, the city of New Orleans, the taxpayers of said cily, and each and every holder of said constitutional bonds.

The* J8th section declared that nothing in the act contained should be construed to affect or disturb in any manner the existing right to the tax now (then) levied for premium bonds, and for said outstanding bonds not retired, said tax'being preserved in full force and the payment of the allotments of premium bonds and premiums extant in the hands of holders and of the interest and principal at maturity of all outstanding1 bonds that might not be retired under the act, should it continue as now (then) directed under existing laws; said tax of one per cent, being levied for premium bonds and outstanding bonds not retired, as well as for the aforesaid, constitutional bonds substituted for the outstanding bonds paid, purchased or retired, by exchanges under the act.

The 19th section declared the general provisions of the act should not take effect until the adoption of the Constitutional amendment, then contemplated, and repealed all laws or parts of laws contrary to or inconsistent with the act.

The Constitutional amendment referred to was submitted to and adopted by the people and was as follows:

“For the purpose of retiring the n-ow existing valid outstanding bonds of the city of New Orleans, including tfe. bond certificates or bonds issued under the act, of the Legislature No; i>8 of 1882, and to retire judgments now or hereafter rendered against the city on floating debt claims prior to 1879, entitled to be funded under Act 67 of 1884, the said city of New Orleans is hereby authorized and directed on and after the adoption of this amendment to issue through the hoard of liquidation of the city debt, bonds to be known as the constitutional bonds of the city of New Orleans, not exceeding ten millions of dollars, at fifty years, bearing four per cent-per annum interest, to bear date and be in tbe form prescribed by the legislature. The said bonds shall be applied by tbe said board to the retirement of said outstanding bonds and judgments by tbe sale of said constitutional bonds, and application of tbe proceeds of sale by the board o-f liquidation to pay or purchase said outstanding bonds and judgments, or by exchanging the said constitutional bonds on the terms and in the mode prescribed by the legislature. For the payment of the interest and principal at maturity of' said constitutional bonds and other outstanding bonds not retired under this amendment and for the payment of the annual allotments and premiums of the premium bonds of said city, the said city ig hereby authorized and directed to levy annually and until the full payment of said bonds, a special tax of one per cent, on all the real 'and personal property 0f the city; said.tax to be part of and not in addition to the tax of twenty mills and two-tenths of a mill on the .dollar of tho valuation now levied for all purposes by the city of New Orleans, and the said tax shall be paid over as collected to and be applied by the board of liquidation to the payment of the interest and principal at maturity of said constitutional bonds and outstanding-bonds not retired and to the payment of the allotments of premium bonds and premiums extant in the hands of holders. Said tax is hereby declared to be the contract right of the holders of*aIl said bonds; and the exemption' of said constitutional bonds from all taxation by the city of New Orleans and State of Louisiana hereby recognized and declared, and after the payment of all the interest on said constitutional bonds and bonds nob retired., and the payment of the said annual allotments of premium bonds and premiums extant in the hands of holders and after making provisions for a sinking fund at such time and of such amount as the legislature, prescribes, the surplus of said one per cent, shall be disposed of by the legislature.

The act passed at tlie present session, No. 36, entitled “An Act to carry into effect the constitutional amendment passed at the present session rein rive to tho bond debt of the city of New Orleans, etc., be and is hereby approved and confirmed in all its parts as a contract between the city of New Orleans and the. holders of said constitutional bonds, premium bonds and of the'bonds outstanding not retired as aforesaid.

I’lie city of New Orleans is hereby authorized and empowered to examine into and assume the payment of the claims and obligations of the board- of school directors for the city and parish of Orleans, due for the year 1880,-1881,, 1882, 1883, and 1884, now in the hands of original owners who have in no tvise parted with their right of ownership or pledged the same, as may be found to be equitably due by said board fer services rendered, labor performed, or materials furnished by authority of said board.”

In 1896, by Act No. 114, the General Assembly created a drainage commission for the city of New Orleans. It gave the commission full power to control and execute the drainage of the city, authorizing it to proceed to execute and carry out substantially the plan for such drainage adopted by the council of said city by ordinance 10,091, Council Series, approved 10 July, 1895, so far as it might find said plan desirable and practicable, with the right, however, to modify the same as in its judgment circumstances might require. All work done or supplies and materials ordered by the commission ■were directed to be let out to the lowest bidder. In order to raise funds for the purpose of doing the. work speedily and on an extensive scale, the commission was given power to issue and dispose ‘of its negotiable bonds bearing interest at a rate not exceeding five per cení, per annum, payable semi-annually, to be sold by the commission at not less than par.

That portion of the funds in the hands of the board of liquidation under the provisions of sections 6 and 10 of Act No. 110 of 1890, accruing to public works, etc., from January, 1898, was dedicated and applied for the purposes of the act, and all monies and funds at the. time of the passage of the act under.the control of the city of New Orleans, and: afterwards to be received, arising from the sale of street railroad franchises, or other franchises, were also dedicated and applied to the purposes of the -act.

All monies and funds dedicated and applied for the purposes of the act were declared to be consecrated to the payment of the principal and interest on said bonds. It was declared that all the provisions of the act respecting the dedication and application of funds and money, constituted a contract with the holder or holders of bonds issued, the obligation of which contract should not be impaired.

In 1898, by Act No. 63, the General Assembly amended and reenacted sections 6, 1 and 8 of Act 114 of 1896, creating the drainage commission. Under' the amendment, to section 6, the amount of bonds which the drainage commission had bow: 'authorized to issue was reduced from five millions to one million five hundred thousand dollars. In the same amending section, it was declared that all monies and funds dedicated and -applied by the act to the purposes thereof, were primarily consecrated to the payment of the interest on said bonds, and the redemption of the principal thereof, as provided in the act, but any surplus of said funds, inuring to said commission from taxes of 1899, 1900, 1901 and 1902, and from other sources prior to January 1, 1893, not required to pay current interest on said bonds, might bo used for the general purposes of said commission.

The commission, after the year 1920, was given the right, and it was made its duty, to call in and pay, not exceeding' two hundred thousand dollars of said bonds in each year, and in the order of their issue, beginning- with number one.

Ry the seventh section of the -act, its provisions respecting the dedication and application of funds and monies were declared to constitute a contract, primarily with the holders of said bonds -as aforesaid to the extent as aforesaid, and also with each and every person or corporation that may have, entered into contracts with the said commission, and it was further declared that the obligation of said contract as to dedication and application of funds and monies should not -be impaired and might he enforced by any holder of said bonds or by any contract creditor of paid commission by mandamus and injunction, or by other proceedings in court.

Tn 1886 this court was called upon in Labat vs. New Orleans (38 Ann., 284), to pass upon the right, of the plaintiff therein declaring on certificates issued by the board of directors of the public schools of the city of New Orleans during- the years 1874, 1875 and 1876, to recover judgment, thereon against the city of New Orleans, the ulterior object, being to obtain therefor bonds of said city to be issued under the provisions of Act No. 67 of the Legislature of 1884, which was amendatory of Act No. 133 of 1880, passed for the purpose of liquidating the indebtedness of the city of New Orleans.

The court in its opinion stated that the main contention hinged upon the question as to whether such certificates evidenced or not an indebtedness of the city of New Orleans; that plaintiff’s argument was that those certificates constituted a part of the indebtedness of the city of New Orleans, but that if when issued they were not debts¡ •of the city they had acquired that character under a correct construction of Ai-ticle 254 of the Constitution of 1879, and of section o of Act No. 74 of 1880, which purposed to enforce the provisions of Article 254 of the Constitution.

After an examination of the certificates, the court was of the opinion that they were not evidences of debt against the city, and then-holders had no right to obtain judgment against the city with a view to having the same converted into bonds under the provisions of Ac! No. 67 of 1884; that that portion of Act No. 74 of 1880 which placed the unpaid salaries of school teachers subsequent to 1872 and prior to January 1st, 1880, on the same footing with the valid indebtedness of the city of New Orleans, and authorized bonds to be issued to take up school board certificates which had been issued for the same, was unconstitutional and therefore void.

Referring to plaintiff’s argument that this act was authorized by Article 254 of the Constitution, reading, “that the General Assembly shall enact such laws as may be proper to liquidate the indebtedness of the city of New Orleans and apply its assets to the satisfaction thereof”; the court said: “It can scarcely be argued that by this language the convention could be construed to have meant that the legislature could provide for the liquidation of claims which were riot part of the indebtedness of the city of New Orleans, or that such language could possibly be strained to mean that the legislature was therefore' vested toilh the power to coerce the city of New Ox-leans into the settlement of school certificates which had issued without her authority or consent, by an irresponsible board or corporation, for or without valuable consideration, and perhaps in direct violation of the very law whence such board could derive its only legitimate authority.

The language of the Constitution can authorize no such deductions and its proper construction would at once strike with nullity any attempt of the. legislature to fasten on the city of New Orleans the obligation to settle or liquidate any claims which are not legally and unequivocally included in the term 'indebtedness.’ The very letter and the undoubted spirit of the Constitution are most obviously adverse to any such proposed legislation; they go to the extent of forbidding such action even with the consent of the corporation.”

In 1888 the General Assembly, in Act No. 81 of that year, provided that the city council of New Orleans in making tlieir annual budget of expenditures should include therein the amount deemed necessary to meet the expenses of the schools and keep in good repair school houses and grounds, as may seem reasonable and just, provided it should not exceed the statement of the school board to be previously made, and shall not be less than two hundred and fifty thousand dollars, whereof $75,000 is to be paid out of the reserve fund of twenty per cení, contributed by section 66 of Act 20 of 1882, and Act 109 of 1886, from which certain claims against the board shall be gradually paid so as to be extinguished in 1896. The act authorized the board; if necessary, to enforce its provisions by mantlnmus.

The city having refused to make appropriations as directed, the board sought by judicial proceedings to force it to do so through mandamus. (State ex rel. School Board vs. City of New Orleans, 42 Ann., 94.)

The city defended upon the ground that the General Assembly was attempting to amend its charter in a prohibited manner, and requiring it. to pay through the board of directors, a debt which it did not. owe. The District Court refused the mandamus and the Supivmo Court on appeal affirmed the judgment.

In the course of its opinion this court, said: “It is elementary that -a State, in the absence of constitutional prohibition, may delegate part of her political and administrative powers to municipal corporal tions within her borders, which then become State functionaries, and that whenever such delegation may take place, the State <;an confer n.n them certain rig-tits, which she may subsequently extend, abridge or withdraw, as may seem just, and advisable, but without impairing the obligation of contracts. This privilege of delegation is essential in the very nature of things, as otherwise the local administration necessary for public good would be an impossibility in consequence of the practical inability of the State general government to well pirovide by itself for the regulation of administrative matters on numerous important details in the different parts of the State.

“The organic law may, however, check the incidental rights of the legislature so that when constitutional restrictions have been imposed, the limitation is paramount and the legislature is impotent.

“Indeed, it is a question settled beyond the possibility of reasonable doubt, and which needs no reference to authorities to be verified, that the supremacy of the legislature over a municipal corporation in many respects, is restrainable by qualifications placed by the Constitution in terms, or by fair implication.

“It is as clear that a legislature can no more transgress a State Constitution than a convention can violate the Federal Constitution, . a municipal corporation can override its charter or valid laws affecting it and the Federal or State Constitution.

“Although under an express constitutional provision the legislature has authority to cancel its charter and remit its inhabitants to another form of government (Article 254), that body has no right to compel its representatives by whatever name under its actual or under an eventual form of government, to do that which parochial or municipal corporations cannot be forced to do. So that if by the terms of the Constitution or fair implication from them, it appears that the legislature has no right to compel a municipal corporation to do that which the Constitution says the legislature may authorize them to do, and if the legislature undertakes to go beyond its power of authorization, its action is nugatory.”

In State ex rel. Town of Mansfield vs. Police Jury of DeSoto Parish, 47 Ann., 1244, we had occasion to examine into this same question as to the power of control of the General Assembly over the-powers of taxation, the actions -and the funds of a municipal corporation, in view of constitutional restrictions and limitations, and reached the same conclusions which had been reached in 42 Ann., 94, by our predecessors.

Under the principles announced in the cases cited, the unpaid salaries of school teachers in the public schools of the city of New Orleans, for the years 1880, 1881, 1882, 1883 and 1884 were not “debts” of the city of New Orleans at their origin and could not be m-ade so by mere legislative authority.

Their status in this respect remained unchanged up to the amendment to the Constitution of 1819, adopted by the people of the State, which authorized and empowered, but did not compel the city of New Orleans to examine into -and assume the, payment of the claims of teachers for these particular year's.

The vote of the people of New Orleans on the adoption of that amendment was 34,366 votes for -and 599 votes against the same.

The effect of the adoption of that amendment was not to constitute those claims ipso fado “debts” of the city. The city only became committed to payment of the same by its subsequent voluntary act.

The amendment designated no time nor method nor means for the payment of these claims, if and when assumed.

The indebtedness of the city covered by Act No. 110 of 1890, which the amendment “recognized and confirmed in all its parts”, for the funding1 and payment of which the legislature was therein providing through bonds not to exceed ten millions in amount), was the then existing- “valid outstanding bonds of the city of New Orleans, including the bond certificates or bonds issued under the Act No. 58 of 1882, and judgments then rendered or thereafter to be rendered against the city on floating debt claims prior to 1879 entitled to be funded under Act No. 67 of 1884.” The funding or payment of the u-npaid salaries for the years 1880, 1881, 1882, 1883 and 1884 of public school teachers, was evidently not contemplated by this act. The debts to be funded and for which provision for payment, through bonds, was therein made, were specifically enumerated, and the taxes authorized and directed to he levied by the act, were dedicated and devoted especially and primarily to the satisfaction of those particular debts as under a contract obligation. The surplus of the one per cert!, tax referred to in the act was the surplus “after the payment of -all the interest on said constitutional bonds -and -bonds not retired, and the payment of the annual allotments of the premium bonds, and pi'emiums extant in the hands of holders, and after making provision for a sinking fund at such time -and of such amount as the legislature. prescribed. This surplus was authorized to be disposed of by the legislature.

The legislature disposed of it in the 8th sectio-n of Act No. 110 of 1890.

After declaring in what way the one per cent, tax should each year be. primarily disposed of, the General Assembly used the following language: “After making in each year the provision above required, and after deducting- the expenses incurred by said board, and after paying any deficiencies in the interest fund of any previous years, one-half of the surplus should be passed to the credit of a special fund, to he disposed of as disposed of later in the .act, and the other half of said surplus should be. paid over to the school hoard of the city in addition to any other funds appropriated by said city out of other funds to be used in the maintenance and support of the public schools in said city.”

The disposition of the permanent improvement fund which the 8th section declared was to- be made “later in the act,” was made in its 10th. section.

The General Assembly had, as we have seen by its Act 114 of 1896, given special direction as to the permanent improvement fund, ordering it to be used for city drainage. It had organized a drainage commission to take charge of that subject and for the purpose of raising funds for the purpose of doing the work speedily and on an extensive scale, had given power to the commission to issue and dispose of its negotiable notes to an a-mo-unt of five millions of dollars, and that portion of the funds in the hands of the board of liquidation accruing to public works under sections 6 and 10 of Act 110 of 1890, had been by it dedicated and appropriated -as under a contract obligation for the payment of these bonds.

The drainage commission duly organized, and at the time of the adoption of the Constitution, it 'had created obligations to a largo amount, payable out of the surplus.

We do not understand it to he claimed that the holders of claims for unpaid salaries for the years 1880, 1881, 1882, 1888 and 1884 of teachers in (ho public schools of New Orleans, were entitled to have their claims funded or paid under the Act of 1890; but that their pretensions rest exclusively upon the effective force of Articles 315, 316 and 3Í7 of the Constitution of 1898 — which, effective force the defendants question.

In discussing this matter we have to deal not with the powers of the legislature, but of those of a convention, not only.over corporations and corporate acts, but over the. legislature and legislative acts.

In State ex rel. Folsom vs. Mayor, etc. (32 Ann., 714), this court said: “A Constitution framed by a convention of the people, especially after having' been submitted to and ratified by a vote of the people, is the ultimate expression of the will of the sovereignty itself. Its provisions may control with plenary power all private and social rights and all existing laws and institutions, and may (¡ven violate the most fundamental rules of justice, provided only they do not conflict with the provisions of the Constitution of the United States, -which •with regard to the subjects controlled by them and to those alone form the paramount law of the land. No court has the right to question the validity of any provision of a State Constitution, however unwise, impolitic or unjnst it may be upon any other ground whatever than that it violates the Constitution of the United States.” (Cooley on Constitutional Limitations, page 34.)

“It follows, therefore, that the provision of the Constitution of 1879 must, have full force against all persons and against all rights except so far as its operation is restrained by the Constitution of the United States.

The court said “it was useless to discuss limitations upon the powers of the legislature imposed by the Constitution of 1868 because those limitations had no force over the power of the convention.”

This last statement was made, of course, with reference to matters not controlled by the provisions of the Constitution of the United States. '

The application of these principles to the matters presented to us in this case'confine our enquiries to a very narrow range. Are the provisions of Articles 315, 316 and 317 of the Constitution violative of any of the provisions of the Constitution of the United States ?

It is claimed they violate the obligations of contracts and therefore should not he enforced.

The first point to which we direct our attention is as to the power and extent of the power of the convention over the subject of the drainage of the fcity of New Orleans, or of matters falling under the term “permanent public improvement.” Was there anything in the situation of affairs when the convention met which had conferred upon New Orleans, as a city, an absolute vested right to determine for itself for the future, free from all legislative or constitutional control, the extent to which permanent improvements should be made within its limits — the selection of the objects of permanent improvement, or the amounts to be expended for that purpose? Unquestionably not.

The convention would have had the right to have ordered the city as such to have desisted from improvements of a particular kind, either permanently or for a limited time, with the privilege of continuing later on, or to alter the'character or kind of improvements, or the amount- which should, he expended for the same. The oorporation wo-uld in vain urge that the course pursued was detrimental toils interests; that it would be checked in its progress; that the public health would be impaired; it would be forced to yield to a superior power legally controlling these matters, however disadvantageous^ the power might be exercised. Neither the city nor the drainage commission could legally object that the extent or scope of the system of permanent improvement would be restricted by the withdrawal of funds needed to make that system complete or successful.

The work could have been stopped at any time, though the rights of contract creditors as they existed at the date of the action of the convention could not have been by it impaired.

Our examination on this branch of the case as to' the effect of enforcing Articles 315, 316 and 317 of the Constitution will go no further than to see whether contract creditors having rights upon the permanent improvement fund would be impaired or not. Defendants assume that the mere fact that constitutional bonds should be sold for the purpose of paying the certificates held by relators or should bo given in exchange for those certificates, would of necessity entitle the holders of such bonds to prime the holders of permanent improvement bonds, bonds drawn against the “surplus” of the one per cent, tax dedicated to permanent public improvements, and also to necessarily come in on a footing of equality with all the other holders of consolidated bonds, and they maintain if this he true, the rights of contract creditors under the funding act, would be im* paired.

Relators on the other hand insist that the only portion of the one per cent, tax ever set aside for permanent public improvements was one-half of the surplus produced by the tax which would remain after having retained in the bands of the hoard of liquidation enough to meet the payment in full of a ten million issue of, consolidated bonds,, and that therefore it would be legally immaterial to creditors basing contracts on such surplus, to whom the other portion of the fund would go; it would be enough for them to know it would not go to them, and relators urge that other ‘holders of consolidated bonds would have no ground c*f complaint; that they should be. permitted to share equally with them from the tax fund, as they had accepted their bonds on the expected basis of coming in concurrence with an issue of ten millions of bonds; that they miaht be interested that the limit as to the amount of the bonds should not be passed, but that they were without legal interest, when the limit should not have been passed, as to who should be the holders of the bonds sharing the fund with them.

In support of this last position they rely upon the decision of the Supreme Court of the United States in Board of Liquidation vs. McComb, (92 U. S. Reports, 531). If the collection of the one per cent. tax would suffice to pay each year the holders of consolidated bonds issued in taking up or retiring the bonds and claims such as were provided for by the Act No. 110 of 18p0, and the Constitutional Amendment of 1892, without any conflict with the bonds, ordered to he sold by Article 317 of the Constitution of 1898, the former, of course, would have no cause of complaint, but if from any cause the amount of the tax collected would be insufficient for that purpose, we do not think the holders of these latter bonds could force the former to pro rate with them the amount in hand.

This condition of things is not existing. It may never arise, and should it arise, the board of liquidation would doubtless have taken steps to distinguish bonds issued under Article 317 from those which had been otherwise issued.

It does not necessarily follow that all claims payable out of a particular tax should stand on a footing of perfect equality as to payment. If from any legal existing cause there would be priority of' right, there would be priority of payment. We have -an example of this in the matter of the priority or preference payment of the salaries of the constitutional officers of the State over warrants for ordinary claims, though all are payable out of the general fund (State ex rel. Collins vs. Burke, Treasurer, 32 Ann., 1213), and it has been held that amounts needed for the alimony of the city have to be paid out before those for other purposes are paid. (Lucas E. Moore vs. City of New Orleans, 32 Ann., 729; Saley vs. City, 33 Ann., 79; Shotwell vs. City, 36 Ann., 936; Wadsworth vs. City, 45 Ann., 889). So also it sometimes happens from special circumstances that the holder of one or more of the same series of notes may hold rights subordinated to those of the holders of the others.

If there should he, in the future, any actual conflict of interests, the board of liquidation and the parties interested will doubtless have taken steps to be able to protect themselves.

We do not take the same view that relators do as to what was meant and intended to be oo-nveyed by the_ “surplus” referred to by Act 110 of 1890, Act No. 114 of 1896, and the constitutional amendment of 1892. We think the law makers intended that any portion of the one per cant, tax provided for in Act 110 not needed for the payment or retirement of the particular bonds or claims therein specially provided for as to payment or retirement, should constitute the surplus of the tax. That it was not contemplated when these laws were passed, or the amendment of 1892 adopted, that in order to exhaust any portion of the ten millions of dollars originally expected to be needed to pay the existing bonds and the existing claims therein specially enumerated, which might not he necessary for the. purpose, new classes of claims should or would be thrown under the provisions of the original funding law.

We think the “surplus” was intended to connect at once and follow immediately behind as to its appropriation the amount, beyond that actually needed to carry out the plan as originally mapped out and planned. The surplus was provisionally ascertained each year in a manner particularly specified to be readjusted the next in a manner also particularly specified. All the surroundings and circumstances connected with the legislation negative the idea that the surplus mentioned was to be only any surplus over ten'millions of dollars which might result from the collection of the one per cent. tax.

We. think the board of liquidation, the drainage commissioners, and those with whom they contracted were justified in placing that interpretation upon the legislation, and that contract i'ights based upon the same should be protected from impairment. The convention, while ordering the payment of the certificates held by the relators, through sales of consolidated bonds, could not confer upon the holders of such bonds rights which in any way would come in’ competition with the contract rights of creditors existing against the tax at Ihe time of the adoption of the Constitution. Though there was no mention in the Constitution as to the rank of the bonds which would be issued to take up relators’ certificates, that rank resulted from legally existing conditions which could not be constitutionally interfered with. There is no constitutional objection to the convent iou’s ordering the board of liquidation to sell bonds to take up the. relators’ certificates, but there would be constitutional objection to be urged, if the effect of the issuing of such bonds would be to place the holders thereof on an equality with the holders of bonds issued to take up the bonds and claims provided for as to their funding and payment by Act No. 110 of 1890, Act No. 114 of 1896, and the constitutional amendment of 1892. Duperier vs. Police Jury, 31 Ann., 710; Shields vs. Pipes, 31 Ann., 765.

The consolidated bonds which relators seek to have issued upon, their prayer will really be drawn against (when issued) any surplus, which will remain of the one per cent, tax after the payment of all. the bonds issued and to be issued by the board of liquidation, under Act No. 110 of .1890, and the constitutional amendment of 1892, in. order to fund and retire and pay the, bonds and debts therein specially enumerated, and also the bonds issued and to be issued by the drainage commission under the provisions and authority of Act No. 114 of 1896, to pay the contracts existing at the date of the adoption of the. Constitution, which were entered into upon the faith of the surplus directed to bo’set aside to the credit of the permanent improvement fund by the Act No. 110 of 1890, Act No. 114. of 1896, and the constitutional amendment of 1892.

■ The effect of this will be to subordinate the rights of holders of bonds issued by the drainage commission to pay for contracts entered into after the adoption of the Constitution of 1898 to those of the holders of consolidated bonds to be issued under the orders of Article 317 of the Constitution of 1898. This may check and impede, the work of public improvement, but it is a matter which we cannot control.

For the reasons assigned, it is hereby ordered, adjudged and decreed that tlie judgment of the District Court be and the same is-hereby affirmed, except as to the intei’est allowed, which interest is-hereby reduced from five to four per cenl. Costs of appeal to be borne'by appellees.

Mr. Justice Monroe takes no part, as he was not a member of the' court when the case was submitted.

On Application por RuriKARiNO.

An examination of this cause on the application for a rehearing,, has brought to our notice, that in affirming the judgment of the District Court, we affirmed that portion of the same which dismissed the intervention of the drainage commission of New Orleans, as being without any interest in the cause. Such was not our intention.

We think the drainage commission of New Orleans-had sufficient interest in tlie matters involved in the litigation to intervene in the cause.

A re-examination of the cause lias brought us to the conviction, that our judgment is erroneous, in so far as it accorded interest to the relators, upon their certificates.

For the reasons assigned, it is ordered, adjudged and decreed, thait our former judgment be amended, by setting -aside that portion of the same by which interest at four per cení, is accorded to the relators, and by which the judgment of the District Court is affirmed, in dismissing the intervention-of the drainage commission.

It is now ordered, adjudged and decreed, that the judgment of the District Court, in so far as it dismisses the intervention of the drainage commission of New Orleans as having no interest in the cause, and in so far as it recognizes the right of the relators to interest upon their certificates, he annulled, avoided and reversed, and it is now ordered, adjudged and decreed, that recognizing the right of the said drainage commission to intervene herein, its intervention he, and it is hereby reinstated; and it is further ordered and decreed, that that portion of relators’ present demand, by which they pray that they he recognized as entitled, and accorded interest upon their certificates, he and the same is hereby rejected.

It is further ordered, adjudged and decreed, that the judgment of the District Court, except as herein altered and amended, he affirmed, and our own judgment, except in so far as herein altered and amended, remain undisturbed.

Behearing refused.


source: Caselaw Access Project

author: Nicholls, C. J. Blanohard, J.

license: Public Domain

text:
    No. 13,136.
    State of Louisiana vs. The Debenture Guarantee and Loan Company, Limited.
    Syllabus.
    1. The right of individuals to organizo themselves into a corporation Is not an-original, but is a derivative right expressly conferred bj' legislative authority. Throughout the whole legislation upon the subject and behind jit lias constantly rested the principle that corporations should be created “for the promotion of some object of public utility,’' and for none other.
    2. It is not only the right, but it is also the duty of the State to Inquire into the manner in which its authority to individuals to organize themselves into corporations is being exercised and to take active steps to have a claim to Such authority declared unfounded, if in fact it was so.
    S. Though the organization be without authority of law, the suit of the State for such purpose is properly against the organization and not against the individuals composing it.
    4. Where the charter of an intending corporation authorizes it to commence business only when a specified number of shares of its stock shall have been subscribed, it is without right or authority to act as a corporation before that number has been reached in the subscription.
    D. Debentures of all kinds bear sufficient resemblance to stock or bonds to make dealing in them by way of purchase and sale fall under the designation of stock jobbing which is a character of business prohibited to corporations in Louisiana.
    ON APPEAL from the Civil District Court.for the Parish of Orleans. Rightorj J.

      21. J. Ounningham, Attorney General, (F. B. líainold and Siiffl <S> ■ Madison, of Counsel), for the, State of Louisiana and' August M. Benedict, Liquidator, Plaintiffs and Appellees.:
    TV. K. Horn and IT. II. Rogers for the Defendant and Appellant.
    Argued and submitted May 18, 1899.
    Opinion handed down June 22, 1899.
    Judgment amended and rehearing refused June 30, 1899.
   On the application for rehearing- by Blakcttard, J.

The opinion of the court was delivered by

Nicholls, C. J.

The prayer of the plaintiffs petition is that the Debenture Guarantee and Loan Co., Ltd., its president, officers, etc., be enjoined from acting as a corporation and from doing’ any business under its pretended charter;-that it be enjoined from declaring forfeited or lapsed any rights of its debenture or certificate holders by reason of their failure to pay instalments during the pendency of this suit; for citation and for judgment maintaining and perpetuating the injunction, and declaring said pretended charter nnll and void; that should it he held that the organization of said company was authorized by law, its said charter be forfeited, reserving the -right to apply for the appointment of a liquidator under R. S. 731; that Jules E. Brulatour be appointed receiver to take charge of its effects and liquidate the affairs of said company, and for all orders and decrees interlocutory and final which may become necessary and X>roper in the premises, and for general relief.

This prayer was predicated upon allegations that the said company is not organized for any xmrposo for which the law authorizes the formation of corporations in this State; the said company is a debenture company formed for the sole purposes of selling or borrowing money upon its own obligations or debentures, to be paid for in monthly instalments, by which said company binds itself 1<> pay tin holders of said debentures a profit of fifty per cent, upon the amount invested, which said company is without the means or capacity to do, except through the continued payments of instalments by new purchasers of its debentures, whose money is used to take up older debentures, and through laxises and forfeitures on account of inability to pay monthly instalments on the part of holders of other debentures; that said entire system is not legitimate, hut is vicious and unjust, and must necessarily fail within a more or less limited time; that through the active exertions of solicitors, and the glowing representations of signs, advertisements and circulars, samples of which circulare are annexed as part of the petition, people are induced to invest in these debentures with the sole hope of making the large profit promised before the inevitable crash comes; that t'he terms of the debentures are such that thp holders are almost sure to lose the full amount invested, or, at least, half thereof, if circumstances should prevent their continued payment of instalments, and a very large proportion of the patrons of such companies are among the poorer classes, very liable to become unable to continue payments and ill able to bear such losses; that the whole system amounts to a gambling game and is demoralizing as such; that Act 36 of 1888, under which the company claims to be organized,'is not a complete and valid law, by reason of its failure to provide the mode of organization of corporations thereunder, or safeguard for the protection of the public against pretended corporations exercising- a State franchise, and because it only authorizes the organization of corporations for purposes not inconsistent with pre-existing laws, and the organization of all such corporations was and is prohibited by said pre-existing laws therein recognized and not repealed; -that the requirement that the provisions of the laws of this State governing corporations in general be complied with in forming corporations under said act. does not amount to any provision for a mode of organization, because there are no such general laws of the State; that the laws of the State providing the mode of organization of corporations ot one class, are no more general than the laws prescribing the mode id' organization of corporations of any other class, and the requirements are practically different for each class; that if by the expressions used the legislative intent was that the requirements prescribed by law for the organization of corporations fox public improvements, etc., should be complied with, then said corporation is not organized according . to law, because many of said requirements have not been;, complied with; that in so far as the acts which said company pretends or claims to do can be lawfully done by corporations in this State, they pertain to corporations “otherwise specially provided for” and organized for insurance, hanking or homestead purposes; that said company in its mode of organization has not complied with the requirements prescribed for corporations of either of said classes; that Act 36 of 1888, only intended to authorize the organization of .corporations for the purposes of carrying oil ordinary business of the different kinds which had. heretofore, been carried on only by individuals and partnerships, so that liabilities incurred in carrying on such ordinary business could lie limited; that the sole object of said pretended eorpoi-ation is in effect, gambling, tending to encourage the gambling spirit among the people, intended to take the chances of profit by the losses incurred by people thus demoralized, and is, therefore, contra bonos mores, against the public, policy of the State, and contrary to the letter and spirit of Article 172 of the Constitution of 1879 and of Article 188 of the Constitution of 1898; that, therefore, the legislature. did not intend to authorize the organization of such corporations, and if such was the legislative intent, said act is unconstitutional and void; that under the color of said Act 36 of 1888, but without any legal justification, a large number of such debenture companies bare been organized in tbis State; that said companies carry on no business within the meaning of said act; that if dieir transactions can be designated as a business at all, it is stock jobbing and prohibited in terms by law; that said company is without capital and is insolvent; that in its organization, stock was issued to its promoters and organizers for the use of their names, and not for any labor done, or money or property actually received, in violation of Article 238 of the Constitution of 1879; that its bonds or debentures have been issued in the same manner in order that the names of reputable citizens should be published as holders thereof, as an inducement to others to buy, in violation of the same Article of the Constitution; that while a few of such companies are claimed to be honestly conducted, it is conceded that the most of them are fraudulent and only intended as temporary means of profit by their promoters; that the theory upon which said companies operate being vicious, all are bound to fail, the larger the business any company does, the more insolvent it is, and the more widespread losses will be caused by i'ts failure; that the organization of these debenture companies under the color of an act of the legislature, thus operating under a State franchise and imposing- upon the public by re-ason thereof, even if a few of such companies are honestly conducted, will work great injustice and loss to the people, and be just cause for public scandal; that at present Louis C. Jacob is president and Charles B. Lanusse is secretary, and is general manager of said company, both residents of the Parish of Orleans; that said company, its officers, agents, managers, directors and stock-holders are unlawfully exercising a corporate franchise, and are acting as a corporation in this State without having been legally incorporated, and in violation of law, and will continue to do so unless enjoined there1from; that the public interest and common justice require that said company be enjoined from declaring forfeited or lapsed the rights of any debenture, holder who does not continue paying his monthly instalments dining the pendency of this suit, and also, that the .affairs of said company be liquidated according to law under the direction of the court for the common benefit of all creditors and other persons interested according to their respective rights.

A preliminary injunction issued ex parle upon this petition.

Defendant moved to set the same aside, on the ground:

1st. That the. petition disclosed no cause of action for the issuance of said writ.

2nd. That the affidavit of the petition for the writ was insufficient.

3rd. That the court was without jurisdiction to grant the writ. •

This motion to dissolve was sustained, and the preliminary 'injunction was set aside.

Defendant then peremptorily excepted:

let. That the Sovereign State of Louisiana is not rightfully or lawfully a party in, or to, any or all, the matter or things set forth or alleged in the petition 'herein filed, and is without interest in the subject matter of this suit.

2nd. That the State in its sovereign capacity, can not, without express authority of law' evincing her consent, be'brought into court or be made a party litigant in any civil proceedings, and can only be in causes in which she is a real party and has an actual interest.

3rd. That the petition does not set forth or exhibit any cause of action in the plaintiff or right in law' to the relief herein sought or prayed for.

4th. That the issues raised and the matters involved in the petition filed herein, relate, exclusively, to purely business pursuits and avocations by and between citizens in their pi-ivate characters and dealings, expressly sanctioned and permitted by the Constitution and general law's of the State, and by the said Act. No. 36 of 1888, which does not involve the exercise of any public franchise, or function of any public nature, or pertaining to any of the public or sovereign rights or powers of the State.

5th. That the said Act No. 36 of 1888, does not include or confer the exercise of any public function or franchise by the associations therein provided for, but relates exclusively to the right to carry on any lawful business or enterprise (except stock jobbing) in the-manner and form therein provided for, -without personal liability against the individual stock holders so engaged, and such exemption from liability under said act is a matter \vhich relates to and concerns only the contractual relations and obligations by the individual stockholders with debenture holders and creditors of the defendant c-.omx»any, who are the sole parties in interest, and these, can not be-adjudicated or regulated at. the. suit of the State without the complaint and presence of. the parties in interest.

The court overruled these exceptions.

Defendant answered pleading the general issue and praying to be-dismissed w'ith costs and for general relief.

The District Court, ordered, adjudged and decreed that the charter-of the defendant, company be annulled.

It appointed-Henry Guillotte, receiver, upon his fumishihg bond "in the sum of five hundred dollars, to be increased on the filing of '.the inventory.

It ordered and decreed that ail inventory be made.

.Defendant appealed.

Opinion.

The petition in this case was filed on the 20th of May, 1898, and was drawn upon the supposition, to some extent, that the charter of the defendant company was identical with those of the various debenture companies against which the State instituted actions which .are now pending in this court.' In this respect, there is error.

The defendant company is not a debenture company proper, and its charter is not such as described.

Its objects are declared, in its charter and amended charter to be;

1st. To guarantee the payment of debentures such as will be ap*proved by the board of directors; in consideration of which an assessment or premium shall be levied by the board of directors on each debenture so insured in such sum as they may deem proper; said premium or assessment to be paid in advance at such time as the board may direct, until said debentures shall be regularly redeemed.

2nd. To guarantee debentures paid at a. fixed date as may he determined between the company and the debenture holder on which there will be an assessment levied on each debenture, payable in advance, in such sum and in such maimer as the board of directors may determine.

To loan money on debentures at such rate and amount as may be determined by the board of directors; also to buy and sell delxmtures as it may judge most convenient.

The third article of the charter declares;

The. capital stock of this company shall he one hundred and twenty thousand dollars, divided into ten thousand shares o-f twelve dollars each, and shall be paid for in monthly payments -of one dollar per share.

The first payment on stock is payable fifteen days after the publication of the charter; any stockholder failing to pay the. instalments as prescribed in the charter, after due notice of thirty days lias been given, will render his certificate null, and forfeit premium payments mado on same.

This corporation shall commence business' as soon as one thousand shares of its stock shall 'have been subscribed.

Ey the first section of Act No. 36 of 1888, the General Assembly enacted, “that it shall be lawful for any number of persons, not less than three, upon complying with the laws of this State governing corporations in general, to form themselves into and constitute a corporation for the purpose of carrying on any lawful business or •enterprise, not otherwise specially provided for, and not inconsistent with the constitution and laws of this State; provided that no such corporation shall engage in stock-jobbing- business of any kind; the ■corporation herein provided for to have a capital stock of not less than five thousand dollars.”

At the time that that act was passed, there was a general law in the State, found in Section 683 of the Revised Statutes and the sections following that one, which provided “for the organization of corporations for works of public improvement, and for other purposes.”

That statute made it lawful for any number of persons, not less ■than'six, on compliance with the provisions of the act, to form themselves into a corporation, for the purposes named therein. After enumerating-, specially, different purposes for Which corporations could be thus formed, the act broadened the enumeration made, by declaring, that they could be formed generally for “all works of public utility and -advantage,” but at the same time it declared, that “no corporation shall engage in mercantile, commercial, brokerage, stock-jobbing, exchange or banking business of any kind.”

Article 428 of the civil code declares that the use of corporations "is to contribute, by the union and assistance of several persons, to the promotion of some object of general utility, although they be at the same time established for the advantage of those who are members of such corporations.

The only evidence introduced for the State, was the charter and amended charter of the defendant company, and the testimony of ■Charles E. Lanusso, secretary and treasurer of the company, who at the instance of the attorney general, produced a certified copy of the list of the original subscribers to the stock of the company, as recorded iu the recorder’s Office of the recorder of mortgages in the Parish of Orleans, on November 26, 1898.

The by-laws were no-t introduced, and we have very little light as to the details and methods of defendant’s business through^Lanusse’s testimony.

From it, however, we have ascertained, that the company had been in active operation for a very considerable time, and at the date of the trial, it had two hundred and eleven shares of stock subscribed for.

It is urged in behalf of the defendant, that the State of Louisiana is not rightfully ór lawfully a party in or to all the matters or things sot forth in the petition filed, and is without interest in the subject-matter of the suit.

That the State in its sovereign capacity, without express authority of law evincing her consent, can not be brought into court, or be-made a litigant in any civil proceeding, and can only he in causes in which she is a real party, and has an actual interest, and that the petition filed does not'set forth or exhibit any cause of action in the X>laintiff, or right in law to the relief herein sought.

We understand these exceptions to be leveled not only at the right of the State to institute these proceedings, hut to call in question the authority of’the attorney general to institute this particular suit on its behalf.

The right of the State to inaugurate proceedings against an existing corporation for forfeiture of its charter, for specially assigned and properly pleaded grounds, is not, we think, disputed. If we apprehend defendant’s position, it is, that the State, after the General Assembly had authorized by statute the formation of corporations for “any lawful business,” and parties have acted upon that statute, can not inaugurate proceedings to have the corporation declared “non existent,” for the reason that in the opinion of the attorney general or other State officials, the object and pui*poses of the corporation were not wise nor judicious, hut that the operation of the corporation would he bound to terminate ultimately in disaster to all parties.

That it would require legislative action of some kind to place a particular kind of business under the ban, or to authorize judicial proceedings against corporations following that particular kind of business, to warrant or justify such an action.

The. right of individuals to organize themselves into a corporation, is not an original, hut a derivative and expressly conferred right.

Legislative authority is essential to its exercise, and hence it is that corporations in describing themselves either in judicial pleadings or authentic acts, always refer to themselves as a corporation created and organized under the laws of Louisiana.

The body having authority to bestow such a right or privilege has necessarily the power and authority to select the object and purposes for which it can and shall be granted, and to attach such conditions and limitations as it may think proper to the exercise of the right.

Before the passage of general laws on this subject, the General Assembly acted itself directly upon individual eases presented to it for its consideration.

The granting of the right by act of the General Assembly in a special case carried with it as a consequence legislative recognition and approval of the public utility and advantage of that corporation, and thus removed and withdrew, unless under extra-ordinary circumstances, the propriety of the existence of the same from judicial control.

In course of time, the legislature thought proper to announce in advance in general terms certain objects as commanding their approval, and permitted parties to form corporations for such purposes on declared terms and conditions.

In one class of cases it made it the duty of parties seeking to organize corporations to submit their charters to the district attorney of the district of the domicil of the proposed corporation for examination as to its legality, and authorized a. judicial issue on that subject to be raised and determined in the event of an opinion by tbe district attorney adverse to its legality.

In other classes, no person was specially designated to perform such duty, but the matter of the public utility and advantage of the corporations to be formed was left at largó; and specially was this the case in Act No. 30 of 1888.

Throughout the whole legislation and boliind it, had constantly rested the principle that corporations should he created “for the promotion of some object of general utility” and for none other.

It can not he conceived that the legislature should have ever intended to confer upon three or more persons the riaht to determine of themselves and for themselves (and that -finally) that the -objects for which they were about to organize were legal and useful and proper, and to be permitted on the strength of that conclusion to do business as such without let or hindrance from any quarter, except in cases of violation of the provisions of their various charters.

• We think that wherever the power or legality of a person to act in respect to some particular matter is based aitd predicated essentially upon the authority of another, it is not only the right, but it is the duty of that other to take active steps at once to 'have the claim of the existence of such authority declared unfounded, if such it was, and we see no difference in this matter between irrivate citizens and the State.

The exercise of this power and duly is essential not only for the protection of the public at large, but really that of the jrarties themselves» who enter into such organizations, for it may well happen that persons organizing’ in good faith or belonging to organizations in which they deem themselves secure by limited liability may wake up to find themselves confronted by demands of absolute liability, based upon the ground that the objects of the corporation, were outside of the provisions of the law authorizing- such bodies.

We do not mean to say that the parties themselves on discovering- their danger, would not be authorized to put an end to the organization on that ground subject to their existing obligations in favor of third persons. That course was authorized by this court in the case of the Factor’s and Trader’s Insurance Co. vs. New Harbor Protection Co., 39 Ann., 583, but this is an independent remedy on their part not inconsistent with the duty of the State to save them b armless from acts done on the strength of i1s sanction and permission before they themselves have come to a knowledge of their real situation.

There are so many possible injuries to result in different ways and to different persons from unauthorized action of tins character, that the right of the State to,put an end to it, if existing, can not, wo think, be propefly questioned.

To permit a small number of persons to operate in business to an indefinite extent, under exceptional limited liability, without the necessity of making- report at any time of the (‘hanging-, shifting conditions of such business, and without any official authority provided for supervision over their action, is an extraordinary and dangerous condition of things, and the only wonder is that mo-re disastrous results should not have followed from its existence than seems 1,o have been the case.

The State has, undoubtedly, the right to be heard in this ease. Whether it has presented its demand in proper manner, and if so, whether the demand’ bo well founded in law and fact, are different matters.

It is urged that' the State by citing- the defendant as a corporation, and through parties acting as officers of a corporation, has admitted the existence of the corporation and estopped itself from contesting the same.

It is claimed that the action, if admissible a't all, should have been directed against the parties who organized the corporation or those claiming to he now members of it. There is no force whatever in that proposition. When the parties who signed the act. by which this defendant is claimed to have come into existence as a corporation, did so, they ceased to have any authority ^ to represent individually the rights or obligations of the intellectual body which they claim to have thus created, a body which, if it really existed, was, (under the terms of our civil code) a body separate and distinct from the persons who composed it.

A judgment declaring- the corporation never to have existed, or declaring its charter forfeited, if held to have ever existed, would not be res judicata against the body itself if not present and represented in the litigation by its declared legal representatives.

It could not he assumed in advance, as a matter of fact or law, that the pretensions and claims of the State were well founded; it would he a begging of the question to do this.

The real self-styled corporation has a right to be heard in the matter; in fact no effective judgment could be rendered in the premises without it.

When the parties went before the notary and attempted to create a corporation, and selected certain parties to act officially and judicially for and in behalf of the corporation, they authorized those parties holding- those positions de facto to represent their interests in all matters connected with their claims in and under that organization. as to its right to have existed or to be perpetuated.

They constituted these parties as the common agents of all parties concerned in the existence or perpetuation of the corporation, not only the original incorporators, hut the subsequent holders of stock.

The original incorporators may or may not be presently interested in or connected with the defendant. After launching out the new corporation, they may have, separated from it. They certainly do not, as individuals, represent the present holders of stock therein.

It would have been better, however, to have made them co-defendants.

That course was pursued in the Factor’s and Trader’s case referred to, but we do not know' that it was essential to have done this. There are good reasons why all the present stock-holders should not be made parties; in the first place, they are too numerous, -and in the next place, their names were not of record in the recorder’s office when this suit was brought, and the State could not be expected to know, or be called upon to ascertain who they -were. We see no inconsistency in calling’ the defendant into this litigation as a corporation and citing it as a corporation through its officers and asking the court to declare that it had never had existence as such. Homestead Co. vs. Lingman, 46 Ann., 1123.

The parties who are acting’ on its behalf do not pretend to be acting on their own account.

The wrong asserted by the State, and so far as the State is concerned is, that certain business is being canned on under the sanction of its name without right or authority, and that this condition of things should be stopped by injunction.

The State is not attacking the business carried on as an illegal business, carried on by the parties as individuals, but as carried on as a corporation.

For that purpose, the parties representing the so-called corporation arc certainly those with whom the State should proceed contradictorily.

The demand of the State, if sustained, will certainly have its correct legal result — the discontinuance of the business under the guise of its being conducted by a corporation under a limited liability on the part of those connected with it.

There is no more inconsistency in bringing defendant into court as a corporation to have it declared to be not such, than there would be to allege in a pleading the existence of a judgment, and to pray that it be decreed to have been and to be an absolute nullity, nor to bring’ into court a party as a husband to have his marriage with the plaintiff decreed never, to have legally existed.

The existing status is recognized temporarily, solely for the very avowed purpose of having it declared to he without foundation. We think the attorney general was vested with full authority to bring .this action on behalf of the State.

This particular case has been submitted to us substantially without ■argument, it being, evidently, part of a general attack upon the debenture companies whose charters have been sought to be annulled or set aside by the attorney general.

The secretary of the defendant as a witness for the State, ia answer to a question asked him, declared it had no legal connection with the debenture companies referred to, though it had loaned money-on some of the debentures of those companies; 'had bought some, .and guaranteed some of them.

The mere fact that it may have done this woqld not carry with it as a consequence, the illegality of the corporation if the general business of loaning money on debentures or guaranteeing debentures generally would be authorized.

We can not take official knowledge of what debentures are, and whether they are all of one character, or whether they differ, and no evidence has been placed before us on that subject.

We think, however, we are justified in assuming that debentures of all kinds bear sufficient resemblance or analogy to stocks or bonds to make dealing in them by way of purchase and sale, fall under the designation of stock-jobbing, which is a character of business prohibited in corporations in this State. “Stock-jobbing” is not defined by law, but the Century dictionary defines it as “the business of dealing in stocks or shares; the purchase and sale of stocks, bonds, ■etc., as carried on by jobbers who operate on their own account.”

The allegations of plaintiff’s petition in this case were drawn up, as we have said, under an evident mistake as to defendant’s charter and the business it was engaged in, and a§ a consequence, they are, as directed against this particular corporation, very faulty and incorrect.

There is in reality very little under the pleadings on which to base a judgment against it sc\far as its business is conorned. There is one feature of the case, brought to our notice, which, we think, calls for judicial action on our part.

It is shown by the evidence that, although, the defendant’s charter authorized'it to commence business only when one thousand shares of its stock should have been subscribed, it has done so when only a few hundred have been subscribed for. It is without right or authority under such circumstances to act as a corporation, and it is our duty to so decree.

It is therefore, ordered, adjudged and decreed that the judgment appealed from, insofar' as the same decrees the nullity and forfeiture of defendant’s charter, he affirmed, and that the same, in so far as it appoints a receiver or liquidator, be reversed, reserving to the State of Louisiana, and all other parties in interest, all rights under the law relative to the appointment of a receiver or liquidator to take charge of, liquidate and settle the affairs of said corporation.

On Application for Behbarino.

Blanohard, J.

In this case, on the 22nd of June, 1899, as relates to the appointment of a receiver or liquidator, a decree of the court was handed down, which, in part, read as follows, viz:

“That the said judgment, in so far as it appoints a receiver or liquidator, he reversed, reserving to the State of Louisiana and all other parties in interest all rig'hts under the law relative to the appointment of a receiver or liquidator.”

The attorney general and associate counsel have filed an opplication for rehearing and so have the counsel for defendants.

The State avers that the public interest, and, particularly, the terest of the debenture holders, demand a settlement of the question as relates to the appointment of ft receiver or of a liquidator; and the State asks that the liquidator, appointed by the governor, he recognized. ¿

These eases were argued late in the session. The argument was directed to the question of the legality vel non of the charter under which the respective companies carried on business.

The illegality of the charter was decreed. The court considered that, as to liquidator or receiver re! non, contradictorily with parties in interest, the question can be considered in the District Court to which the judgment is remanded for execution.

The whole question as to the appointment of liquidator or receiver is left at large and to be considered as an original question. Whether the appointment of liquidator lies with the governor or of receiver with the court or the parties in interest we do not determine. Tt is left as an open question.

The judgment appealed from except in so far as altered or amended by this court, is affirmed.

Rehearings refused.

Monroe, J., takes no part.