Opinion of the Court. duty of the treasurer, and he is hereby authorized and directed, to pay all such interest as may accrue out of any moneys in the treasury, not otherwise appropriated." Laws N. C. 1854-5, 301, c. 232, § 10. The State received certificates for the stock subscribed and still holds the same, which stock is represented in the meetings of the stockholders of the railroad company by a proxy appointed by the governor of the State, by virtue of the charter of the railroad company. William E. Christian, a citizen of Virginia, the complainant in this suit, is the holder of ten of the bonds issued as aforesaid; and as no interest had been paid thereon since the year 1868, he filed this bill in July, 1883, in behalf of himself and all other holders of the bonds referred to who should come in and contribute to the expenses of the suit; and he made defendants to the suit the Atlantic and North Carolina Railroad Company, the president and directors of said company, personally, F. M. Simmons, the proxy representing the stock owned by the State, and J. M. Worth, treasurer of the State. The bill sets forth the material parts of the acts in question; which acts created the company and authorized the board of internal improvements, on behalf of the State, to subscribe for twothirds of the capital stock of the company; and, for that purpose, to borrow money on the credit of the State and issue bonds therefor. It particularly sets forth the section before referred to, which guaranteed the payment of the bonds, and thereto pledged the stock held by the State. It states the fact of the subscription of the stock and the issue of the bonds, and alleges that the complainant is the bona fide holder for value of ten of the bonds, whose numbers are given, all having interest coupons attached, the first payable January 1, 1869, and one on each bond for every six months thereafter. The bill then avers that, ever since the year 1868, the State has neglected and refused to make any provision for the payment of the interest, and that all interest accruing since that time remains due. As the next averment indicates the legal view on which the bill seems to be founded, we quote it in full. It alleges as follows, to wit: Opinion of the Court. "That the aforesaid certificates of debt or bonds are, by virtue of the act of the general assembly of the said State of North Carolina herein before recited, and of the pledges therein made by the said State, a lien upon the 10,666 shares of stock owned and held by said State in the said The Atlantic and North Carolina Railroad Company, in payment for which the said bonds or certificates of debt were issued, and upon all dividends of profits that have been and that may hereafter be declared upon said stock, and that the holders of said certificates, among whom is your orator, are in equity and good conscience entitled to have and receive all such dividends of profits as the same are paid for and upon account of the interest due and accruing on said certificates." The bill then states that it appears from the report of the officers of the railroad company made to the annual meeting of stockholders in June, 1881, that for the preceding fiscal year the company had received more money than was expended in running and operating the road; and, that, on the 1st of July, 1881, the company leased all its property to The Midland North Carolina Railroad Company for the sum of $40,000 per year, the lessee to keep the same in good repair; and then adds: "That these sums not being required for the necessary expenses of said company, or a large part thereof, should have been distributed to and among the stockholders of said company by way of dividends, and that the holders of the coupons of said bonds or certificates, among whom is your orator, are entitled in equity and good conscience to have whatever sum may be received by the State as and for dividends on the stock owned by said State in said company appropriated to the payment of the interest due and in arrears on said bonds." The bill further states that the Midland Company having failed to comply with its contract, the lease has been declared forfeited and rescinded, and the property has been restored to the management of the Atlantic and North Carolina Railroad Company. The bill then states on information and belief that it is the purpose and intent of the directors to again lease the road and Opinion of the Court. property of the company, to which the complainant objects for reasons set forth in the bill, and asks for an injunction to prevent the same being done; but as this part of the bill and the relief sought in relation thereto was abandoned at the hearing in the court below, and is not urged on this appeal, it is unnecessary to notice it further, except to quote the concluding paragraph which states the nature of the claim of the bondholders upon the stock owned by the State in the railroad company, and is apposite to a full understanding of complainant's position. It is as follows, to wit: "XXII. That the holders of said bonds, having a lien on the said stock for the payment of the principal and interest of their said debt, are in equity the real owners of said stock, and that the same should be applied by said State, through its proper officers, to the payment of said debt, and that the State should do nothing herself nor allow anything to be done by her officers or by her associates in said company which would destroy or impair the value of this security to her said creditors, and he insists, being so advised, that it is contrary to equity and good conscience for the proxy of the State to give his consent and thereby the consent of the State to any contract of lease to be made by said company, without the consent and concurrence of the holders of said bonds, until the State shall have made adequate provisions for the payment of said debt, both principal and interest.” The prayer of the bill, so far as relates to the stock held by the State in the railroad company, and to the dividends thereon, is substantially as follows, to wit: 1st. That the bonds or certificates of debt held by the complainant and others may be decreed to be a lien upon the said stock and dividends until paid or redeemed. 2d. That all dividends on said stock may be paid to the complainant and the other bondholders who may join him in the suit. 3d. That if said dividends prove insufficient for this purpose, a sale of said stock, or so much thereof as may be necessary to pay said certificates, may be made under the decree of the court. Opinion of the Court. 4th. That an account may be taken of the amount due for interest, etc. 5th. That a receiver may be appointed to take possession of the dividends hereafter payable to the State. 6th. That the officers of the railroad company may be enjoined from paying to the state treasurer, or to any other person on behalf of the State, any dividends which may accrue to the State, and that the treasurer may be enjoined from receiving the same. To this bill, Simmons, the proxy of the state stock, and Worth, the state treasurer, filed a joint answer, separate from the other defendants, admitting the material statements of the bill, so far as relates to the origin and character of the stock and bonds referred to, but denying that any dividends were or could be made on the stock, in consequence of the expenses and legitimate obligations of the railroad company. The concluding averment of their answer is as follows, to wit: "VII. These defendants, further answering, say that two certificates of stock, one for one thousand and sixty-six shares, and the other for two hundred shares, have been issued to the State of North Carolina by the defendant company, which certificates, together with the stock represented thereby, are the property of the State and are in her possession, and have been for a long time before the commencement of this suit, with authority in no one to part with the same except by the direction of the general assembly of the State; and these defendants are advised that, so being the property of the State and in her actual possession, they cannot be taken therefrom or in anywise be affected by any decree rendered in a cause to which the State is not a party; and these defendants rely upon the fact that the State is not a party to this suit as if the same had been specially pleaded.” The other defendants also filed answers to the bill, but it is unnecessary to refer to them, or to other incidental proceedings which took place in the cause. The important facts on which relief is claimed are as above recited from the statements of the pleadings. The bill was dismissed by the court below, and from that decree the present appeal was taken. Opinion of the Court. From the foregoing summary of the statements and prayer of the bill we see that its object and purpose is to obtain, in behalf of the complainant and other bondholders, the adjudication of a lien upon the stock held by the State of North Carolina in the Atlantic and North Carolina Railroad Company, and upon the dividends on said stock; and the enforcement of that lien by requiring said dividends to be paid to the bondholders, in satisfaction of the amount due on their bonds; and, if these are insufficient, by a sale of said stock, or so much thereof as may be necessary; aided by the appointment of a receiver to take possession of said dividends; and an injunction to restrain the railroad company, and its officers, from paying to the state treasurer, or to any other person on behalf of the State, and to restrain said treasurer from receiving any moneys accruing and payable as dividends on said stock. How the dividends due to the State can be seized and appropriated to the payment of the bonds, or how the stock held and owned by the State can be sold and transferred, through the medium of a suit in equity, without making the State a party to the suit, it is difficult to comprehend. The general rule certainly is, that all persons whose interests are directly to be affected by a suit in chancery must be made parties. Russell v. Clarke's Executors, 7 Cranch, 68, 98; Shields v. Barrow, 17 How. 130, 139; Ribon v. Railroad Cos., 16 Wall. 446; Williams v. Bankhead, 19 Wall. 563; McArthur v. Scott, 113 U. S. 340. The exceptions to the rule are pointed out in these cases, and do not touch the present case. The State has a direct interest to be affected by such a proceeding. The proposal is to take the property of the State and apply it to the payment of its debts due to the plaintiffs, and to do it through the instrumentality of a court of equity. The ground on which it is contended that this may be done is, that the property is affected by a pledge, and may, therefore, be dealt with in rem. But a pledge, in the legal sense, requires to be delivered to the pledgee. He must have the possession of it. He may then, in default of payment of the debt for which the thing is pledged, sell it for the purpose of raising the amount, by merely giving proper notice to the VOL. CXXXIII-16 |