History of Dakota Territory, volume I, Part 111

Author: Kingsbury, George Washington, 1837-; Smith, George Martin, 1847-1920
Publication date: 1915
Publisher: Chicago, Ill. : S.J. Clarke Publishing Company
Number of Pages: 1198

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This decision of the court put a stop to the collection of the railroad fax in Yankton County for the time being, and also prevented the payment of the semi- annual interest on the bonds: which led to a suit undertaken by the National Vol. 1-41

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Bank of Brunswick, Maine, against Yankton County-the plaintiff suing for the recovery of defaulted interest on $10,000 of Yankton County railroad bonds. Suit was commenced in the United States Court at Yankton at the March term, 1870, and as the case involved exactly the same points as those involved in the case of Treadway vs. Schnauber, judgment was rendered by the lower court for the defendant. The case was then appealed to the Territorial Supreme Court, where the judgment of the District Court was reversed. The case was then taken on error to the Supreme Court of the United States, and rested in the archives of that tribunal until 1880, a period of about four years, when it was taken up, and the decision of the Supreme Court of Dakota Territory reversed.

The attorneys appearing in the case before the United States Supreme Court were S. W. Packard and James Grant for the plaintiff in error ; and Hon. Matt. H. Carpenter, United States senator from Wisconsin, and James Coleman for the defendant in error. Mr. Chief Justice Waite delivered the opinion of the court, as follows :

By section 4 of the act to provide a temporary government for the Territory of Dakota no one session of the Legislature shall exceed forty days, and in 1869 Congress declared that all sessions of all Territorial Legislative Assemblies should be biennial. The members of the Legislative Assembly of Dakota met on the 5th of December, 1870, and continued in regular session on all days except Sundays, until January 13, 1871, when they adjourned without day. The day of the adjournment was called on the journal the fortieth day of the session, although there had been but thirty-five days of actual session for the transaction of business. On the 18th of April, 1871, the members of the Legislature elected the preceding fall again assembled at the call of the acting governor of the territory. After organizing themselves as a Legislature and proceeding to legislate for the territory, they passed among other acts one entitled : "An act to enable organized counties and townships to vote aid to any railroad, and to provide for the payment of the same." Under this act the voters of Yankton County, on the 2d of September, 1871, voted to donate to the Dakota Southern Railroad Company $200,000 in the bonds of the county. All the proceedings under which this vote was taken were conducted strictly according to the requirements of law.

On the 27th day of May, 1872, the following act of Congress was approved and went into effect :

An Act in Relation to the Dakota Southern Railroad Company.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, that the act passed by the Legislative Assembly of the Territory of Dakota and approved by the governor on the 21st day of April, 1871, entitled, "An act to enable organized counties and townships to vote aid to any railroad, and to provide for the payment of the same," be and the same is hereby disapproved and annulled, except in so far as herein otherwise provided. But the passage of this act shall not impair or invalidate the organization of the company heretofore organized for the construction of the Dakota Southern Railroad leading from Sioux City, lowa, by way of Yankton, the capital of said territory, to the west line of Bon Homme County, or any vote that has been or may be given by the counties of Union, Clay, Yankton, or Bon Homme, or any township granting aid to said railroad, or any subscription thereto, or anything authorized by and that may have been done in pursuance of the provisions of the aforesaid act of the Legis- lative Assembly of said territory towards the construction and completion of said railroad, and the said Dakota Southern Railroad Company, as organized under and in conformity to the acts of the Legislative Assembly of said territory, is hereby recognized and declared to be a legal and valid incorporation; and the provisions of the act of the Legislative Assembly first aforesaid, so far as the same authorize, and for the purpose of validating any vote of aid or subscriptions to said company for the construction, completion and equipment of the main stem of said railroad, between the termini aforesaid, are hereby declared to be and remain in full force, but no further, and for no other purpose whatsoever.

Section 2. That for the purpose of enabling the said Dakota Southern Railroad Com- pany to construct its road through the public lands between the termini aforesaid, the right of way through the public lands is hereby granted to said company to the extent of 100 feet in width on each side of said road; Provided, That nothing in this act shall relieve said Dakota Southern Railroad Company from constructing and completing said railroad in accordance with the conditions and stipulations under which the citizens of the counties therein named voted aid to said railroad in accordance with the laws of said territory, approved April 21, 1871. Provided further, That said Dakota Southern Railroad Company shall issue to the respective counties and townships voting aid to said railroad paid-up cer- tificates of stock in the same in amounts equal to the sums voted by the respective counties and townships.

After the passage of this act the bonds voted were delivered by the county commissioners to the railroad company and stock in the company for an equal amount was issued to the county. The First National Bank of Brunswick, Maine, the bona fide holder and owner of

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ten of these bonds, amounting in the aggregate to $10,000, brought this suit against the county to recover three installments of interest. The defense was that there was no law authorizing the issue of the bonds, and as a consequence that the county was not bound for the payment of either principal or interest. Upon the trial of the cause the facts were found substantially as already stated, and a judgment was rendered by the District Court of the territory in favor of the county. This judgment was afterwards affirmed by the Supreme Court, and thereupon the bank brought the case here by writ of error.

We do not consider it necessary to decide whether the governor of Dakota had authority to call an extra session of the Legislative Assembly, nor whether a law passed at such a session or after the limited term of forty days had expired would be valid, because, as we think, the act of May 27, 1872, is equivalent to a direct grant of power by Congress to the county to issue the bonds in dispute. It is certainly now too late to doubt the power of Congress to govern the territories. There have been some differences of opinion as to the particular clause of the Constitution from which the power is derived, but that it exists has always been conceded. The act to adapt the ordinance to provide for the government of the territory northwest of the River Ohio to the requirements of the Constitution is chapter 8 of the first session of the first Congress, and the ordinance itself was in force under the confederation when the Constitution went into effect. All territory within the jurisdiction of the United States not included in any state must necessarily be governed by or under the authority of Congress. The territories are but political subdivisions of the outlying dominion of the United States. Their relation to the general Government is much the same as that which counties bear to the respective states and Congress may legislate for them as a state does for its municipal organizations. The organic law of a territory takes the place of the Constitution as the fundamental law of the local government. It is obliga- tory on and binds the territorial authorities; but Congress is supreme, and for the purposes of this department of its governmental authority has all the powers of the people of the United States, except such as have been expressly or by implication reserved in the prohibi- tions of the Constitution.

In the organic act of Dakota there was not an express reservation of power in Congress to amend the acts of the Territorial Legislature, nor was it necessary. Such a power is an incident of sovereignty and continues until granted away. Congress may not only abrogate laws of the Territorial Legislatures, but it may itself legislate directly for the local govern- ment. It may make a void act of the Territorial Legislature valid and a valid act void. In other words, it has full and complete legislative authority over the people of the territories and all departments of the territorial governments. It may do for the territories what the people, under the Constitution of the United States, may do for the states.

Turning, then, to the particular act of Congress now under consideration, we find that the attention of that body was in some way brought to the fact that the Legislative Assembly of Dakota had, on the 21st of April, 1871, passed an act to enable organized counties and townships to vote aid to railroads. In addition to this, it was known that the Dakota South- ern Railroad Company has been organized as a corporation under certain acts of the Territorial Legislative Assembly, and that votes had been taken under the said act in some of the counties and townships granting aid to or authorizing subscriptions of stock in this cor- poration. It is clear that Congress disapproved the policy of the aid act, and was unwilling to have it go into general operation ; but to the extent it could be made available for the construction and completion of the main stem of the Dakota Southern Railroad, the contrary is directly manifested. The act as a whole was "disapproved and annulled," but in substance reenacted by Congress "for the purpose of validating any vote of aid or subscription" to that company, but "for no other purpose whatever." A careful examination of the statute leaves no doubt in our minds on this subject. To make it sure that the organization of the company was complete, the "Dakota Southern Railroad Company, as organized under and in con- formity to the acts of the Legislative Assembly of said territory," was "recognized and declared to be a legal and valid corporation." It is then in terms enacted that the provisions of the said act, "so far as the same authorize, and for the purpose of validating any vote of aid and subscriptions to said company, for the construction, completion, and equipment of the main stem of said railroad. * * * are hereby declared to be and remain in full

force." And again: "That said Dakota Southern Railroad Company shall issue to the respective counties and townships voting aid to said railroad, paid up certificates of stock in the same in amounts equal to the sums voted by the respective counties and townships." In the light of these distinct and positive declarations and enactments of Congress, it is impossible to bring our minds to any other conclusion than that, when the bonds now in controversy were put out, there existed full and complete legislative authority to bind the people of the county for their payment. No complaint is made of any irregularity in the proceedings under the law. The question in the case is one of power only. As we think, the vote of the people of the county was "validated" by Congress, and express authority given to issue the bonds for the purpose originally intended. The only change which Congress saw fit to make was to require the company to give stock in return for the donation voted. The judgment of the Supreme Court of the territory will be reversed, and the cause remanded with instructions to reverse the judgment of the District Court, and direct a judgment for the plaintiff on the facts found, for such amount as shall appear due on the coupons sued for ; and it is so ordered.

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Yankton County was not prepared for this sweeping adverse decision. While there had been apparently no general sentiment in favor of Mr. Treadway's suit during its pendency in the territorial courts, the progress of legal proceedings which included the argument of attorneys and the decisions of a majority of the members of the Territorial Supreme Court which sustained Mr. Treadway's contention had brought out some points that were encouraging to the expectation that the county would be freed from its liability to pay the bonds mainly because of the action of Congress, taken after the bonds were voted, which changed the character of the aid voted to a subscription to the capital stock of the company in place of a donation and the further and more unpopular and radical change which struck out Yankton as the terminus of the railroad, extending that important point to the west line of Bon Homme County, presumably to the new Town of Springfield, also on the Missouri River, whereas the bonds were voted to a road terminating at Yankton. It is not reasonable to suppose Yankton County would have favored donating even one-fourth of $200,000 to build a road to a river point over twenty miles west, and thus defeat the important purpose the voters had in view, which was to make Yankton the terminal, and the starting point for the steamboat traffic then enjoyed by Sioux City. The act of Congress would make Yankton a way-station on the road, and the extension of the line as con- templated by that act, to construct which a company had been formed, would have destroyed the prosperity the city then enjoyed, and blighted its prospects for the future. As was said in the opinion of Associate Justice Bennett, of the Terri- torial Supreme Court :

If the county (Yankton) can be bound at all it must be in manner provided by the act of the special session of the Territorial Legislature of April 21, 1871, and the only method therein pointed out is by the voice of the people expressed through the ballot box; and after it has made its contract as therein directed, I know of no earthly power that can change it against the will of the county." Justice Bennett said further: "There is no way of escaping the logical conclusion to which we are driven, and that is by holding that the people of a county are entitled to no voice in the nature, character, and amount of the pecuniary liabili- ties with which they are to be burdened. When that point is reached, despotism will have displaced law, and arbitrary power will make and construe its own decrees.

The main portion of the arguments of the majority of the court were directed against the validity of the act of Congress, which it was contended would impose a liability against the will and without the consent of the party to be charged thereby. "This the law-making power cannot do. It can only act retrospectively for the purpose of furnishing a remedy for the removing of an impediment in the way of the enforcement of some pre-existing legal or equitable right or duty, and not for the purpose of creating such right or duty." It was by many thought that Congress did not understand the situation, and this was referred to by the attorneys in their arguments in the lower court. It was thought quite probable that the measure passed by Congress was taken already prepared, and without much inquiry. It was true and was so represented to Congress and by a memorial of the Legislature, that the people desired Congress to confirm and ratify what had been done at the extra session, but there was no authority given for making such radical changes in the laws under which action had been taken. In view of the new features engrafted upon the congressional act, it would at least have been more fair and just to require that the new law of Congress be submitted to a vote of the people interested, for ratification or rejection.

In the written opinion of Justice Barnes, who also took the position denying the validity of the law of Congress, he says :

Congress has made frequent grants of public lands, and in various ways aided in the construction of railroads through public lands in the territories, thus benefitting citizens set- tling upon these lands ; but in this instance Congress is attempting to place this burden upon private parties, and thus enhance the value of these same public lands in these same counties. By this process, and if this kind of taxation can be sustained, a burden before unheard of can be forced upon the pioneers who happen to be so unfortunate as to have purchased Govern- ment lands. The evils resulting from this kind of legislation in the states have been so great that I regard it fortunate that Congress has not the power to repeat it in the territories. It requires very little discernment to see that long before the new states could be admitted into the Union, almost every organized county would be bonded to such an extent, in their efforts to procure the building of railroads, that the payment of their bonds would be an utter impossibility.

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And the fact that Congress had refused to donate lands to aid the building of a railway in the territory led to the supposition that the burden of this bonded debt, under all the circumstances, would eventually be assumed by the general government.

It is a long distance from the national capital to the old capital of Dakota, and official communication between the parent political metropolis and its humble prototype in Dakota, in 1880, and for several months thereafter, was beset by vexations hindrances ; hence the mandate of the Supreme Court of the United States, though anxiously looked for by Mr. Packard, the bondholders' attorney, was slow in reaching the tribunals of Dakota. It was known, however, that the decision had been rendered and was adverse to the county.

Dakota was, at this time, making strenuous efforts to secure a division of the territory, and statehood for the southern half had been suggested. and Mr. Packard visited Washington, with the view of securing the assistance of Congress as a collecting agency in behalf of the bondholders. Subsequently Senator Hale, of Maine, became an ardent opponent of division, basing his antagonism on the alleged efforts of Yankton County to repudiate its honest indebtedness. It was one of this senator's corporate constituents, the First National Bank of Brunswick, Maine, which had sued the county and won its case before the Supreme Court.

Action to Restrain Collection of Railroad Bond Tax.

District Court in and for Yankton County. Treadway v. Schnauber.

Comes now E. G. Smith, district attorney of the Second Judicial District, and moves the court for an order setting aside and vacating the order of injunction heretofore entered in the above entitled action restraining and enjoining the county treasurer of said Yankton County from collecting certain taxes levied for the purpose of paying the interest on certain bonds of Yankton County in aid of the Dakota Southern Railway, as the same appears and stands on file and of record in this court.

E. G. SMITH, District Attorney.

And now, August 18, 1883, the above motion coming on to be heard, and the court being fully advised in the premises, it is ordered and adjudged that the injunction entered in the above entitled action in this court on the . ... day of A. D. 1876, restraining the defendant, treasurer of said county, from collecting the tax mentioned and described in the complaint in this action, be and the same is hereby set aside, canceled and annulled, and the county treasurer, defendant, is released and freed from such injunction.

August 18, 1883. By the court, A. J. EDGERTON, Judge.

With this close of the litigation, Yankton County proceeded to make the best arrangement within its power, with the holders of the railroad bonds, the interest on which had now accumulated until considerably over $300,000 was due, principal and interest.

No steps looking toward a settlement with the bondholders were taken during 1880; and in 18SI, the Legislature of the Territory came to the relief of the county by passing an act to authorize the funding of bonds and coupons, provided it could be done at a discount of 50 cents on the dollar. The county commissioners were authorized to issue new bonds bearing six per cent interest per annum, and with the proceeds purchase the old bonds, or exchange for the old bonds on the terms of one dollar of new bonds for two dollars of old bonds But it was further provided by the law, that in case the county commissioners were unable to "amicably fund the outstanding bonds at the rate named [50 per cent discount], they had authority to agree upon a higher rate on the dollar ; but such agreement must first be submitted to a vote of the people of the county. and by them ratified."

No headway was made under this act toward effecting a settlement, and it is probable that nothing more was expected from the law than to provide for delay until the county would be in better condition to agree upon terms of settle- ment. It was estimated that the debt had by this time just about doubled, if incidental expenses were included, and it was piling up at the rate of $1, 3331 3 a month. The bondholders, or rather their attorney, who appeared to have complete control of their interests. was inflexible in his determination to exact

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every dollar that was due, and threats were freely made of applying for a man- damus to compel the county officers to levy and collect a tax sufficient to discharge the entire indebtedness.

Under the stress of these circumstances the wits of the lawyers were sharpened. The bondholders' attorney. Mr. S. W. Packard, was vigilant and resourceful; but for the next two years he "found a foeman worthy of his steel," in the repre- sentatives of the county. The county commissioners of the county became like the Irishman's flea, "when you put your hand upon him he isn't there." Sheriffs and constables led by Mr. Packard, were untiring in their efforts to find a county official upon whom they could serve process, and when they had discovered one, it was to learn that he had resigned. And in this way nearly two years was passed before an agreement for settlement was reached. It was finally brought about that the county should pay the face of the old bonds and the eight per cent interest by an issue of new bonds bearing four per cent interest for ten years and four and a half per cent thereafter for a term of thirty years. The county had by this time amassed a surplus of about fifty thousand dollars which it was proposed to apply to the reduction of the debt.

When this agreement was reached a committee of citizens of the county, in company with the bondholders' attorney, visited Washington and made an effort to secure the passage of a law by Congress authorizing the settlement on the termis stated, and which were subsequently embodied in the act of the Territorial Legislature of 1883. The movement to secure the legislation from Congress was not in view of any favor it would be to the county, unless Congress had been disposed to shoulder the debt; but the case had become notorious through the efforts of Mr. Packard, previously exerted, to secure some action from Congress that would compel the county to pay the original bonds, and so ardently did he press the matter that he secured the aid of Senator Hale, of Maine, to oppose the division of the territory or the admission of the State of Dakota, until the "Territory had wiped from its escutcheon the foul stain of repudiation." Thus the contest was taken into the halls of Congress, and as it happened to be a constituent of Senator Hale's-the First National Bank of Brunswick, Maine- which had prosecuted the suit before the Supreme Court of the United States, Mr. Hale dignified the affair with' considerable eloquent denunciation of the repudiators. And inasmuch as the subject had assumed such threatening pro- portions, it became an affair which interested the people of the entire territory, and they were anxious that it should be amicably and justly terminated. This was finally consummated under an act passed by the Territorial Legislature, approved February 23, 1883. under the provisions of which the county was authorized to fund the indebtedness by an issue of new bonds bearing four per cent interest for the first ten years, the bonds to run thirty years, and to draw four and a half per cent interest after ten years until paid. Said refunding proposition to be first submitted to a vote of the legal voters of the county for their approval.

There must have been nearly a complete demolition of the Yankton County government during the year or two preceding the settlement of the matter, for it appears at the first meeting of the board of county commissioners in 1883. after the new funding act had become a law, that the three commissioners were all new officers who had been "appointed to fill existing vacancies, according to law." They were A. W. Lavender, Wm. H. Edmunds and Haldo Sater, a com- petent and satisfactory body, and they proceeded without delay at their first meeting held April 6th, to put in operation the funding law. Peter Royem was the county clerk. A special election was called to be held April 25th following to vote upon the new bond proposition. Ten election precincts were established, and so sanguine were the commissioners that the voters would ratify the new law that Captain Lavender was authorized to procure, without unnecessary delay. 250 one thousand dollar blank county refunding bonds and 1,000 one hundred dollar bonds, making $350,000 in all, that being the estimated aggregate of the amount that would be refunded.

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History of Dakota Territory, volume I, Part 111

Author: Kingsbury, George Washington, 1837-; Smith, George Martin, 1847-1920 Publication date: 1915 Publisher: Chicago, Ill. : S.J. Clarke Publishing Company Number of Pages: 1198

Author: Kingsbury, George Washington, 1837-; Smith, George Martin, 1847-1920
Publication date: 1915
Publisher: Chicago, Ill. : S.J. Clarke Publishing Company
Number of Pages: 1198