Paup v. Drew/Opinion of the Court

This is a writ of error to the Supreme Court of Arkansas, under the twenty-fifth section of the Judiciary Act of 1789.

A judgment was rendered, in the Pulaski Circuit Court, against the plaintiffs in erorr, on the 23d of December, 1847, for six thousand one hundred and nineteen dollars and costs, on bonds payable at different times, given for the purchase of a part of certain lands granted to the state by Congress, for the support of a seminary, and which lands were sold by the Governor, as the agent of the state, under the authority of the General Assembly. The bonds were made payable and negotiable at the State Bank of Arkansas, 'in specie or its equivalent.'

The defendants pleaded a tender in the notes of the State Bank of Arkansas, and relied upon the twenty-eighth section of the charter of the bank, which provided 'that the bills and notes of said institution shall be received in all payments of debts due to the state of Arkansas;' that the notes of the bank tendered were issued while this section was in full force, and which constituted a contract to receive them in payment of debts by the state, which the state could not repudiate, &c.

There was a demurrer to the plea, which was sustained by the court. The case was submitted to a jury, whose verdict was for the plaintiff, on which a judgment was entered. A writ of error was prosecuted to the Supreme Court of Arkansas, on which the judgment of the Circuit Court was affirmed.

By the act of the 2d of March, 1827, the Secretary of the Treasury was authorized to set apart and reserve from sale of the public lands, within the territory of Arkansas, a quantity of land not exceeding two entire townships, for the use of a university, &c. And by the act of the 23d of June, 1836, it is provided, 'that the two entire townships of land which have already been located, by virtue of the above act, are hereby vested in and confirmed to the General Assembly of the said state, to be appropriated solely to the use of such seminary by the General Assembly.' Under the act of the state of the 28th of December, 1840, these lands were sold by the Governor of the state, and the bonds now in question were given on the purchase of a part of them, as above stated.

The entire capital of the bank is owned by the state, and its concerns are managed by the agents of the state. The directors of the principal bank and of the branches are elected by the legislature of the state.

In the case of Woodruff v. Trapnall, decided at the present term, this court held that the twenty-eighth section in the charter constituted a contract between the state and the holder of the bills of the bank. That the pledge of the state to receive the notes of the bank, in payment of debts, was a standing guaranty, which embraced all the paper issued by the bank until the guaranty was repealed. And that this construction was founded upon the fact, that the bank belonged exclusively to the state, was conducted by its officers, and for its benefit. That the guaranty attached to the notes of the bank in circulation at the time of the repeal, and such notes the state was bound to receive in payment of its debts. That in this respect the obligation of the contract applied to a state equally as to an individual. And that as to the binding force of a similar guaranty by an individual, there would seem to be no ground for doubt. But that under this guaranty the state is bound to receive the notes of the bank only in payment of debts in its own right.

The lands sold did not belong to the state of Arkansas, but were held by it in trust 'to be appropriated solely for the use of the seminary.' The money, of course, secured to be paid by the purchaser, partook of the same character. The bonds were made payable to the Governor or his successor in office. And it appears, as stated in the plea, that the money to be received was intended, under the act of incorporation of the bank, to constitute a part of its capital. The Governor acted as the agent of the state in making the sale of the land, and in collecting the money; but he could only represent a trust interest. The manner in which the money was intended to be appropriated can in no respect affect the question now under consideration. In law, the money did not belong to the state, in any other capacity than as trustee, and consequently the debt was not due to the state in its own right. No court can sanction the violation of a trust, but will always act on the presumption that it will be faithfully executed. And this is especially the case when the trust is vested in a state, which is not amenable to judicial process. To hold that the state of Arkansas is bound, under the provision in the charter of the bank, to receive its notes in payment for the Seminary lands, would violate the trust, as it would greatly reduce the fund. Should the money be invested by the state, and lost, it would be responsible for it. No hazard incurred in the appropriation or use of this money could exonerate the state from faithfully carrying out the object for which the fund was originally constituted.

The bonds were given payable 'in specie or its equivalent.' This shows that it was the understanding of both parties, that currency less valuable than specie should not be received in payment of the bonds. If by a contract the state was bound to receive the notes of the bank in payment of its debts, by a contract this obligation might be waived. And no waiver could be more express than an obligation by the debtor to pay in specie or its equivalent.

We are therefore of opinion, that, as this fund is a trust in the hands of the state, it cannot, within the twenty-eighth section of the charter of the bank, be considered a debt due to the state; and we think by the condition of the bonds to discharge them 'in specie or its equivalent,' the notes of the bank are also excluded. On both these grounds, the contract set up in the pleading not being impaired, we think the judgment of the state court must be affirmed.

Mr. Justice CATRON, Mr. Justice DANIEL, Mr. Justice NELSON, and Mr. Justice GRIER gave separate opinions, as follows:

Mr. Justice DANIEL.

I concur in the conclusion adopted by the court in these causes (Paup et al. v. Drew, and Trigg et al. v. Drew); but whilst I do this I cannot claim to myself the argument upon which that conclusion professes to be founded. The principles and reasonings propounded in these cases, and in that of Woodruff v. Trapnall, appear to me to place all three of the cases essentially upon the same platform, and establish no valid or sound distinction between them, but should, if those principles and reasonings be correct, have led to the same conclusion in them all.

Mr. Justice CATRON.

I concur with my brother Daniel.

Mr. Justice NELSON.

I concur in the judgment of the court on the ground, first, that the act of the legislature of the state of Arkansas, repealing the provision of a previous act, by which the bills of the Bank of Arkansas were authorized to be taken in payment of the public dues and taxes, was constitutional and valid, and the defendant therefore bound to discharge his obligation in the legal currency of the country; and, secondly, that, if otherwise, the obligor in this case has expressly stipulated to pay the debt in specie or its equivalent.

Mr. Justice GRIER.

I concur with my brother Nelson.

This cause came on to be heard on the transcript of the record from the Supreme Court of the state of Arkansas, and was argued by counsel. On consideration whereof, it is now here ordered and adjudged by this court, that the judgment of the said Supreme Court in this cause be, and the same is hereby, affirmed, with costs and damages at the rate of six per centum per annum.