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Maryland v. Railroad Company, 89 U.S. 22 Wall. 105 105 (1874)

Maryland v. Railroad Company

89 U.S. (22 Wall.) 105


1. Although since the legal tender acts, an undertaking to pay in gold may be implied and be as obligatory as if made in express words, yet the implication must be found in the language of the contract, and cannot be gathered from the mere expectations of the parties.

2. A reference to what are called "surrounding circumstances" is allowed for the purpose of ascertaining the subject matter of the contract or for an explanation of the terms used, not for the purpose of adding a new and distinct undertaking.

3. An implication that a railroad company having an unfinished road in which the state was largely interested should pay gold instead of currency to the state which has lent to the company sterling bonds of the state of which the interest was payable abroad, and, of course, in coin, is not inferable from the fact that unless the contract between the company and the state be so interpreted, the state has not exacted from the company all that was necessary to its own complete indemnification, this being especially true in the case of a contract where in other parts a complete indemnification was specifically and carefully provided for, and in one where, at the time it was made, there was no difference, existing or anticipated, in the value of currency and coin, and the difference having been brought about by events supervening long afterwards.

In the year 1826, the State of Maryland incorporated the company now well known as the Baltimore & Ohio Railroad Company for the purpose of making a railroad from Baltimore to the Ohio River. The capital was $3,000,000, and the state took one-sixth of it, or $500,000. The company was, however, not able to make the road with the $3,000,000 capital thus originally subscribed, and in 1836 the legislature of the state passed an act "for the promotion of internal improvements &c.," meant to assist the completion of the road.

By the first section, the state authorized its treasurer to subscribe $3,000,000 in installments to the capital of the road on certain conditions.

Its ninth section was as follows:

"Before any subscriptions shall be made by virtue of this act,

Page 89 U. S. 106

the stockholders of the said company shall stipulate, agree, and bind the company . . . to guarantee to the State of Maryland, after the expiration of three years from the payment by the state of each of the installments on the stock hereby authorized, the payment from that time, out of the profits of the work, of six percentum per annum, payable semiannually, on the amount of money which shall be paid to the said company by virtue of this act, until the clear annual profits of the said railroad shall be more than sufficient to discharge the interest which it shall be liable so to pay to the State of Maryland, and shall be adequate to a dividend of six percentum per annum among its stockholders, and thereafter the state shall, in reference to the stock so subscribed for, and on so much thereof as the state may hold, be entitled to have and receive a perpetual dividend of six percentum per annum out of the profits of the work as declared from time to time, and no more, and all and so much of such annual profits as shall exceed six percentum shall be distributed to the other stockholders according to their several interest in said company."

The guarantee required by this section was given by the company and accepted by the state.

The act further provided for the appointment of commissioners to proceed to Europe to negotiate loans, and for the issue of the bonds to raise money on behalf of the state to satisfy the purposes of the act. The bonds were to be issued, redeemable at the pleasure of the state after the expiration of fifty years from their date, and to bear interest at the rate of six percentum per annum, payable quarterly, either at the loan office in the city of Baltimore, or at some place in Europe, as might be arranged by contract. They were not, however, to be sold at any rate which would yield to the state less than twenty percent net above par. Of this premium, whatever part of it was not required to pay the interest on the loan for three years after its negotiation was, with its increment, directed to be invested in order to constitute a sinking fund for the ultimate redemption of the debt incurred.

The bonds were issued by the state, but the commissioner sent to Europe was unable to negotiate them on the terms

Page 89 U. S. 107

prescribed by the act. The state then sold the bonds to the company itself, but rated as they had been by the state at $120, they proved to be unsalable by the company.

In this state of things, the state passed, in 1838, an act providing that upon the surrender of the bonds, the commissioner of loans should deliver to the company

"an amount of sterling bonds or certificates of stock to be redeemable in London, at the pleasure of the state, at any time after fifty years from the date thereof, and to bear an interest of five percent per annum, payable semiannually in London, on the 1st day of January and July in each and every year, equivalent to the amount of bonds delivered up by the company."

The act continued:

"And in thus changing the bonds already issued under the act aforesaid for the bonds hereby created, the said commissioner of loans shall give to the said company in the proportion of $3,200 of the bonds or certificates of stock hereby created for every $3,000 of the bonds so to be delivered up."

"Provided however that the said company shall secure by mortgage on all the property and revenues of said company to the satisfaction of the treasurer, the payment of the interest at the rate of five percentum per annum on the stock created by this act, semiannually, at least ninety days before the first day of January and July, in every year, FOR THE TERM OF THREE YEARS from the date of the bonds, together with the cost of transmitting said interest to London to be there paid and also the difference in the exchange of currency between London and the City of Baltimore."

The bonds that were issued to the company by the state, under this act of 1838, owing to difficulties in disposing of them to advantage, were not appropriated by the company until about the year 1849, when they were placed on the market in Europe and sold. As they were disposed of, the railroad company paid the interest on them as it accrued and all costs and difference in exchange for the term of three years, and after the expiration of that term, it continued to pay such interest, cost, and exchange by applying directly the state's guaranteed dividend of six percent on

Page 89 U. S. 108

the stock subscribed under the Act of 1836 instead of paying it over to the Treasury. The company rendered no account, but treated the six percent dividend as equivalent to the five percent sterling interest, with the costs and exchange, and this continued to be its course of conduct to the 1st of July, 1865, from which time it ceased to apply the six percent dividend as formerly, but paid it directly into the state treasury in currency notes. The state had been, therefore, required from the 1st of July, 1865, to the present time to provide for the payment of the sterling interest in London, together with all costs and difference in exchange, which, of course, had to be adjusted to a gold standard, while it had been in the receipt of the six percent dividend in currency.

At the time that the company accepted the provisions of the act, June 4, 1836, and indeed up to the year 1861, the matter was not one of practical importance. Coin (or paper convertible on demand into it) was the currency of the country. The law recognized no tender as valid but one in coin, and in the case of this contract, as in all others made at the time that it was (A.D. 1836), the expectation of the parties, it was not denied, was that the contract would be discharged in coin.

But in the year 1861, already named, a general suspension of payments in coin took place throughout the country, and in 1862 and 1863, Congress authorized the issue of many millions of notes of the United States, which by the acts authorizing them were declared to be a tender in payment of debts. This act, this Court held to be constitutional, [Footnote 1] but the Court also decided that a debtor could pay his debt with legal tender notes only when his contract did not specify that payment should be made with coin [Footnote 2] -- in other words, that a debtor might have defined the medium of payment as well as have promised to pay. So that after the passage of these acts, there were two kinds of money or representatives

Page 89 U. S. 109

of values with which debts might be paid, coin and legal tender notes, an ordinary debtor being at liberty to pay in currency, though a debtor who had undertaken to discharge his obligation by payment in gold or silver would be held to his contract as specifically made.

Immediately on the issue of the sort of notes above mentioned, they fell in value as compared with gold, and at many times since had been greatly below it. At one time during the summer of 1864, it required $285 in them to buy $100 in gold. The difference thus became vast, and it so happened that the payment, in gold, of five percent was the payment of a much greater sum than would have been the payment of six percent in the "legal tender notes" of the United States, otherwise called "currency." And as the state had paid the five percent interest on its sterling bonds in gold -- the only way in which it could pay interest abroad -- it now, in the suit below, asserted that it was entitled to be fully indemnified by the company and to be repaid in gold and not in currency. This the company denied, and the question therefore was whether by the contract between the parties the state was entitled to demand in gold what was payable to her, or whether it might be satisfied in legal tender notes. The court below was of the opinion that it might be satisfied in legal tender notes, and gave judgment against the state. To that judgment the present writ was taken.

Page 89 U. S. 111

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