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Opinion of the Court.

interest, so paid, constitutes a debt from the United States to the State. It is as if the United States had itself borrowed the money, through the agency of the State. We therefore hold that the court below did not err in adjudging that the $91,320.84 paid by the State for interest upon its bonds issued in 1861 to defray the expenses to be incurred in raising troops for the national defence was a principal sum which the United States agreed to pay, and not interest within the meaning of the rule prohibiting the allowance of interest accruing upon claims against the United States prior to the rendition of judgment thereon.

The Court of Claims disallowed so much of the State's demand as represented interest paid by it on moneys borrowed from the Canal Fund. The instalment of interest paid into that Fund by the State was $48,187.13. But as the State itself earned interest to the amount of $8319.95 on a part of the money obtained by it from the commissioners of the Canal Fund, it only claimed $39,867.18 on account of interest paid to that Fund.

The Canal Fund was made by the constitution of the State a sinking fund for the ultimate liquidation of what is known as the canal debt of New York. In April and May, 1861, $2,039,663.06 from the taxes of 1860 reached the treasury of the State, and under the constitution and laws of New York that amount should have been invested in securities for the benefit of the Canal Fund, and the interest derived from those securities paid into the Fund. The State was permitted to use a part of the above sum under an agreement by its officers that interest thereon at the rate of five per cent should be paid. It recognized and fulfilled that agreement, and now claims that the interest it so paid to the Canal Fund constituted a charge or expense properly incurred in raising, subsisting, and supplying troops to suppress the rebellion.

We are of opinion that, so far as the question of the liability of the United States is concerned, there is, on principle, no difference between the claim for $91,320.84 and the claim for $39,867.18. We do not stop to inquire whether the ac

Opinion of the Court.

tion of the canal commissioners, in allowing the State to use a part of the moneys collected for the benefit of the Canal Fund, was strictly in accordance with law. Suffice it to say, that the Canal Fund was entitled to any interest earned upon moneys belonging to it, and fidelity to the constitution and laws of New York required the State to recognize that right in the only way it could at the time have been done, namely, by paying the interest that ought to have been realized by the commissioners of the Canal Fund, if they had invested in interest-paying securities the moneys they permitted the State to use for military purposes. If the Canal Fund money, used by the state comptroller to defray the expenses of raising and equipping troops, had been borrowed upon the bonds of the State sold in open market, the interest paid on such bonds would, for the reasons we have stated, be a just charge against the United States on account of expenses properly incurred by the State for the purposes expressed by Congress. And such would have been the result if the moneys of the Canal Fund had been invested by the commissioners directly in bonds of the State, bearing the same rate of interest that was paid to the commissioners of that fund. The substance of the transaction was that the State, for moneys that could not be legally appropriated for the ordinary expenses of its own government, and which the law required to be so invested as to earn interest for the Canal Fund, used those moneys for military purposes, under an agreement by its officers, subsequently ratified by the State, to pay interest thereon. It was, in its essence, a loan to the State by the commissioners of the Canal Fund of money to be repaid with interest. The obligation of the United States to indemnify the State, on account of such payment, is quite as great as it would be if the transaction had occurred between the State and some corporation from which it borrowed the money. It is not the case of the State taking money out of one pocket to supply a deficiency in another over which it had full power; for, although the moneys brought into its treasury by the collection of taxes were under its control, the State was without power to manage and control taxes collected for

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the Canal Fund, except as provided in its constitution and laws. It could not legally have become a party to any arrangement or agreement involving the use, without interest, of the moneys of the Canal Fund that had been set apart for the ultimate payment of the canal debt.

We are of opinion that the claim of the State for money paid on account of interest to the commissioners of the Canal Fund, is not one against the United States for interest as such, but is a claim for costs, charges, and expenses properly incurred and paid by the State in aid of the General Government, and is embraced by the act of Congress declaring that the States would be indemnified by the General Government for moneys so expended.

As the State was entitled to a larger sum than $91,320.84, the judgment is reversed, and the cause is remanded with directions for further proceedings not inconsistent with this opinion.



No. 17. Submitted October 15, 1895.

- Decided January 20, 1896.

In 1868, Y., a citizen of Louisiana, being then married, mortgaged his interest in certain real estate in that State to E. H., his wife joining in the mortgage. In 1870 the father of Mrs. Y. died, leaving a policy of insurance in her favor. Y. collected this sum and converted it to his own use and the use of the community. In 1876, by a transaction between Y. and the residuary legatee of E. H., who was also indebted to Y., her said indebtedness was discharged, and Y.'s interest in that mortgage was assigned to Mrs. Y. in replacement of her paraphernal moneys and property, so secured and converted by her husband. In 1881 Mrs. Y. became entitled to a further sum, on the final settlement of her father's estate, which was in like manner received by Y., and converted to his own use and that of the community. In 1881, on the petition of Mrs. Y., filed in 1881 in a suit against her husband for a dissolution of the community and a separation of property, a decree to that effect was made by the

Statement of the Case.

state court; and it was further adjudged and decreed that Y. was in-
debted to Mrs. Y. in the sums so received by him from her father's es-
tate, with recognition of mortgage on the property described, and the
property be sold to satisfy said judgment and costs. In 1882, in order
to enable Y. to borrow from N. & Co., Mrs. Y. executed a mandate and
power of attorney, authorizing the cancelling and erasure of the mort-
gage to E. H.
What was done under that power was afterwards claimed
by Y. and by Mrs. Y. not to amount to such cancellation, and by
N. & Co. to be effective. A mortgage to N. & Co. was then executed by
Y., and the inscription of Mrs. Y.'s mortgage was then renewed. In 1883
N. & Co. commenced proceedings to foreclose their mortgage, (Mrs. Y.
not being made a party to the suit,) and obtained a decree of foreclosure
in 1886. The property was duly appraised according to the law of Louis-
iana, and at the sale no sufficient bid was made. It was then advertised
for sale on a credit of twelve months. In 1887, Y. notified the marshal
that Mrs. Y. had an incumbrance on the property prior to the mortgage
to N. & Co., (stating the amount of it,) and that a sale for less than that
amount would be invalid. Notwithstanding this notice, a sale was made
for a less sum. This sale was attacked by Y. and Mrs. Y. by various
proceedings set forth in the opinion of the court, which resulted in a
decree setting aside the sale, and adjudging that the attempted renunci-
ation by Mrs. Y. of her special mortgage was invalid, and that that mort-
gage should be recognized as the first mortgage on the property, superior
in rank to the mortgage of N. & Co. Held,

(1) That Mrs. Y. must stand upon her legal mortgage, resulting from the

receipt of her paraphernal property, and recognized by the judg-
ment of 1881, decreeing a separation of property; or upon a judicial
mortgage arising from that judgment; or on the contract between
herself and the residuary legatee of E. H.;

(2) That if her mortgage be held to be legal or judicial, its existence
was not a bar to the confirmation of a sale for an amount insuffi-
cient to satisfy it, and that it could not rank the special conven-
tional mortgage of N. & Co. ;

(3) That by the transaction between the residuary legatee of E. H. and Mrs. Y., the respective debts were discharged by agreement and compensated each other, and when the principal obligation was thus discharged, the mortgage fell with it, and would not be revived, although the indebtedness were reacknowledged;

(4) That the decree below should be reversed.

EDWARD Nalle & Co., composed of Edward Nalle and Walter C. Flower, doing business in the city of New Orleans, filed their petition in the district court for the ninth district of Louisiana, holding sessions in and for the parish of Tensas, on May 30, 1883, against Wade R. Young, to foreclose a mortgage executed on June 2, 1882, to secure Young's note


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Statement of the Case.

for $1632.61, payable December 1, 1882, on his interest in certain real estate in that parish, known as the St. Peter plantation. The petition alleged "that said Wade R. Young resides permanently out of the State of Louisiana and is not represented in this State," and prayed for the appointment of a curator ad hoc. The appointment of a curator was made and citation served upon him. On June 25, 1883, Wade R. Young filed his answer to the petition, wherein he described himself as “a resident and citizen of the State of Mississippi," and on the same day filed his petition for the removal of the cause accompanied by a removal bond; and June 28, the district court entered an order transferring the case to the United States Circuit Court for the Western District of Louisiana, which was done accordingly. Plaintiffs thereupon prayed in that court that their petition be allowed to stand as a bill in equity, and October 12, 1883, the defendant Young filed his answer thereto, admitting the execution of the note and mortgage, but alleging in substance that he had been compelled to pay usurious interest; that the account current between the parties was composed of excessive and objectionable charges; that plaintiffs failed to carry out their agreement and understanding with him; and that upon a proper taking of accounts there was nothing or but little due.

In addition to his answer, to which a replication was filed, defendant made a reconventional demand, on which, upon a trial thereof, judgment passed against him. November 11, 1884, the cause was revived as to the heirs of Edward Nalle, who had deceased, and they entered their appearance March 24, 1885.

Proofs were taken, and the cause was referred to a master to state an account, who made a report of the amount due to Nalle & Co., less a specified credit. The cause coming on to be heard on the pleadings and proofs and oral testimony then adduced, a decree was entered November 6, 1886, "that plaintiff's mortgage on the property described in the act of mortgage annexed to the bill of complaint herein, viz.: [here follows description] the said interest of Wade R. Young in the above lands having been ascertained by a survey made by

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