Opposition Brief — Virginia v. West Virginia

‘ FILE COPY.

Ofiisc Seume Geert, US.

Fizise DD

IN THE APR 13 1914

JATAES DD. MAHER

CLERK j

{

Supreme Court of the

OCTOBER TERM, 1913.

No. 2 ORIGINAL.

COMMONWEALTH OF VIRGINIA

)

vs. ) In Equity.

)

STATE OF WEST VIRGINIA.

BRIEF ON BEHALF OF WEST VIRGINIA IN

OPPOSITION TO INTEREST.

BRET Te PYRO PRR ae Re ee eT

Pet ere pity

APEC pee ig

ee en Ree

IN THE

Supreme Court of the United States,

OCTOBER TERM, 1913.

No. 2 ORIGINAL.

COMMONWEALTH OF VIRGINIA

vs. In Equity.

ee eee ee

STATE OF WEST VIRGINIA.

I.

STATES NOT CHARGEABLE WITH INTEREST

IN THE ABSENCE OF A LEGISLATIVE

OR OFFICIAL PROMISE.

It is a firmly fixed rule of universal recognition

that interest is not to be awarded against a State

unless its consent has been manifested by an act of

ae

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aot Lesiiis ERR rR cena i gE NIC MSM RS

iat Abia RAIS sg MIRED MART a A tics Ns Bt Te BS

2

its Legislature or by a lawful contract of its execu.

tive officers.

U. 8. v. State of North Carolina, 136 U. S.. 211:

34 L. Ed., 336.

South Dakota v. North Carolina, 192 U. S., 321:

48 L. Ed., 462.

U.S. ex. rel. McCloud y. Jno, Sherman, Seey,,

98 U: S., 535; 25 L. Ed., 235.

U.S. v. Sargent, 162 Fed. Rep., 81.

Nat’] Home for Disabled Volunteer Soldiers et

al. v. Parrish, 194 Fed. Rep., $40.

U.S. v. Bayard, 127 U. S., 251-60.

II.

WEST VIRGINIA’S PROMISE TO PAY INTER.

EST, IF ANY SHE MADE, WAS CON.

DITIONAL, AND NOT ABSOLUTE.

Pursuant to the above rule, therefore, and in

order to determine whether or not West Virginia is

chargeable with interest upon her equitable propor-

tion of the principal of the Virginia debt existing

prior to January 1, 1861, it becomes necessary to

ascertain from the terms of her contract by which

she became responsible for a part of the principal

whether or not she also promised to pay interest

thereon, and, if so, whether or not such promise was

absolute or conditional.

As held by this Court (Va. v. W. Va., 220 U.S.

1), the contract of West Virginia springs ont of See-

tion 8 of Article 8 of her Constitution of 1861, the

- MEL ER GE

PAGING EF FLITE OG BIT I I GE I IL iia etait is on

Act of the Legislature of the restored State of Vir-

ginia passed May 15, 1862, giving consent to the erec-

tion of the new State under the provisions of said

Constitution, and the Act of Congress passed Decem-

ber 31, 1862, consenting, upon the faith of both, to the

creation of said State.

The constitutional provision, therefore, must be

looked to for the purpose of ascertaining the terms

of the agreement, and it reads as follows:

“An equitable proportion of the public

debt of the Commonwealth of Virginia, prior

to the first day of January, in the year one

thousand, eight hundred and sixty-one shall

he assumed by this State; and the Legisla-

ture shall ascertain the same as soon as

inmay be practicable, and provide for the

liquidation thereof by a sinking fund suffi-

cieut to pay the accruing interest, and re-

deem the principal within thirty-four

vears.”

W. Va. Constitution 1861, Art. 8, See. 8.

Here is a promise to pay an equitable propor-

tion of the Virginia debt, and a like promise to es-

tablish “a sinking fund sufficient to pay the accruing

interest. and redeem the principal within thirty-

four years”; but both promises have two qualifica-

tions attached thereto: First, she was not to contri-

bute to the payment of any indebtedness of Virginia,

whether principal or interest, accruing after the first

day of January, 1861, and, secondly, she could not,

and was not to establish the promised sinking fund

until after her equitable proportion of the debt had

been first ascertained.

DOT Is,

LEE EE IE EIS BEL ILOLLD LOIN TTT AI ee APES -

sc eebgit ge ae Neate aR. oo pear AR SANT sii

4

It is true that any overdue and unpaid interest

existing prior te the: first day of January, 1861,

might be treated as a part of the principal debt as

of that date, and she compelled to contribute an

equitable proportion to the payment thereof, but not

so with any interest accruing upon the Virginia debt

after that time; because, by her contract, she firmly

fixed the first day of January, 1861, as the date be-

youd which uo indebtedness should accrue to the

payment of which she would contribute.

Evidently she contemplated the payment of in-

terest upou her equitable proportion of the debt after

the same had been ascertained, but not before. Af-

ter its ascertainment, the amount so fixed would

become the principal of her debt, which, according

to the sinking fund provision, would bear interest

from that time, but no sooner or otherwise.

This construction is in keeping with the rule of

law that interest is not chargeable upon an unliqui-

dated amount.

Redfield v. Ystalyfera Lron Co., 110 U. S., 174;

28 L. Ed., 109.

Stevens v. Phoenix Bridge Co., 139 Fed Rep., 248.

In Redfield v. Ystalfera Iron Co., supra, Mr. Jus-

tice Matthews said:

“In ordinary practice, it may be con-

venient, and certainly would not be improp-

er nor unjust that interest propertly allow-

ed on the real amount, subsequently ascer-

tained, should be calculated from the date

of such a verdict; but in such cases it is not

interest on the verdict in fact, because,

until the amount is liquidated by the sub-

CLELOSLIEELAS IPG: Fe OPEL ICED LAETOLI GOL NOE GLE IE RIE FOE RIE LEA PLL IOS "5 FILM R

sequent action of the Court, there is no sum

certain due on which interest could be com-

puted.”

And in Stevens y. Phoenix Bridge Co., supra,

it was said that-—

“Interest is not recoverable on a de-

mand which is unliquidated, and which is

subject to a counter claim also unliquidated.”

The Virginia authorities upon the subject are:

Auditor of Public Accounts v. Dagger & Foley,

3 Leigh (Va.), 241.

Phillips et al. v. Williams, 5 Gratt. (Va.), 258.

M’Connico et al., Exrs. of Holloway, v. Curzen,

2 Call (Va.), 358.

Skipwith v. Clinch, 2 Call (Va.), 253.

Waggoner v. Gray’s Admrs., 2 H. & M. (Va.),

603.

Stearns v. Mason, 24 Gratt. (Va.), 484.

ITI.

WEST VIRGINIA’S EQUITABLE PROPOR-

TION OF VIRGINIA DEBT WAS NOT ASCER-

TAINED, IF FIXED AT ALL, UNTIL THE DE-

CISION OF THIS COURT ON MARCH 6, 1911.

Neither the Legislature of West Virginia nor

the Legislature of Virginia, standing alone, had the

power to ascertain West Virginia’s equitable pro-

portion of the Virginia debt, and the two States,

through all the years that have passed, have taken

ie ene eced SSS aE pee

Spa ist ah AR ANE SR DARE GERTR SE eases |

bina 2A a YL,

no joint action, and, in consequence, the ascertain.

iment of West \irginia’s proportion of the debt has

reliained Unliguidated and unfixed. There hag

uever been a oment of time from the adoption of

ihe West \irginia Constitution of isoi, or from the

establisiiment of the State im is65, that West Vir.

ginta could lave estabiished the sinking fund prom-

ised iii the kkighth Article of ber Coustitution. She

could lay no jevy, and could fix no rate, because she

did not know wiiat she had to meet. She did not

have the power to fix the amount herself, and she

Was ulWilling to perniut Virginia to do so arbitrar-

ily. For the frst tine in fifty vears, the basis of lia-

bility Was fixed by this Court in its finding and opin-

ion ol March ©, 1oli, aud that finding was provis-

ional; amd, if West Virginia should be perinitted by

this Court to apply the credits thereto that she now

claims, interest could only be calculuated upon the

balance from the time the balance is ascertained,

unless this Court should be of the opinion that West

Virginia has actively prevented the ascertainment

of her proportion of the debt, and to this suggestion

we will now briefly address ourselves.

LV.

WEST VIRGINIA NOT AT FAULT.

From the adoption of her Constitution in 1861

vntil ber adepission into the Union in 1863, West

Virginian had no pewer to act, because she had not

hecoue 2 State. From 1863 until 1866, the two

States were at war, and nothing could be done. Ib

SA PSL ITE S SF DRE MET GE GSE Ok POLI IT APU EM 8s PLS Te CF

1866, Virginia filed a bill in this Conrt against West

Virginia, attacking the integrity of her territory.

and claiming jurisdiction over the Counties of Ber-

keley. Jefferson and Frederick. which suit was not

decided until the sixth dav of March. 1871, and. dur-

ing its pendency, it was uncertain what constituted

West Virginia, and her action upon the debt ques.

tion was thereby prevented and postnoned. Tmme-

diately following this: that is to say, upon the 15th

day of March, 1871, the Governor of West Virginia.

pursuant to a joint resolution of her Legislature,

appointed a Commission to negotiate » settlement of

the debt question with the Commonwealth of Vir-

ginia. This Commission proceeded without unneces-

sarv delay to the Capitol of Virginia for the purpose

of carrvine ont the ohiects of its anpointment. but

was met with a refusal upon the pert of Virginia to

negotiate. and West Vireinia was once more power-

less. Short'y after this: that is to sav. on March

30. 1871. the State of Virginin. without consulting

West Virginia. took the matter into her own hands.

and, by legislative enactment. arbitrarily fixed West

Virginia’s nortion of the debt one-third, thus

making it imnossible for West Virginia to do any-

thing in the premises: and there the matter remain

ed practically until immediately hefore the institu-

tion of this srit. West Virginia. it is therefore re-

spectfully submitted, has not been at fant. and has

not heen the cause of the postponement of this set-

tlement.

Upon the other hand, Virginia has had it in her

power for more than forty vears to institute this

suit. and ascertain through this tribunal West Vir

a eee ons

SOO s SE as

‘ NE ee PE ES I a EO BL

8

ginia’s equitable proportion of her debt. Ins

she neglected so to do, and has caused, by her neg.

lect and delay, the very time to run upon which ghe

now seeks to charge interest.

It is, therefore, respectfully submitted that.

West Virginia should not be charged with interest

until after the ascertainment of her equitable pro.

portion of the debt, as promised in her Constitution,

Respectfully submitted,

A. A. LILLY,

CHARLES E. HOGG,

and

JOHN H. HOLT,

Associate Counsel ~

for West Virginia.

x ‘ Pa Lo el LOD Ne ADE IPLT Ae IL ALE PEE ALDER ER

IN THE

Supreme Court of the United States,

OCTOBER TERM, 1913.

No. 2 ORIGINAL.

COMMONWEALTH OF VIRGINIA

)

vs. ) In Equity.

)

STATE OF WEST VIRGINIA.

OPPOSITION TO INTEREST.

BRIEF ON BEHALF OF WEST VIRGINIA IN

[IN THE

Supreme Court of the United States,

OCTOBER TERM, 1913.

No. 2 ORIGINAL.

COMMONWEALTH OF VIRGINIA

)

vs. ) In Equity.

)

STATE OF WEST VIRGINIA.

STATES NOT CHARGEABLE WITH INTEREST

IN THE ABSENCE OF A LEGISLATIVE

OR OFFICIAL PROMISE.

It is a firmly fixed rule of universal recognition

that interest is not to be awarded against a State

unless its consent has been manifested by an act of

LOADED INE

2

its Legislature or by a lawful contract of its execu.

tive officers.

U.S. v. State of North Carolina, 136 U. S., 211;

34 L. Ed., 336.

South Dakota v. North Carolina, 192 U. S., 321;

48 L. Ed., 462,

U. S. ex. rel. McCloud y. Jno. Sherman, Secy.,

98 U. S., 535; 25 L. Ed., 235.

U.S. v. Sargent, 162 Fed. Rep., 81.

Nat’! Home for Disabled Volunteer Soldiers et

al. v. Parrish, 194 Fed. Rep., 940.

U.S. v. Bayard, 127 U. S., 251-60.

II.

’

WEST VIRGINTA’S PROMISE TO PAY INTER-

IST, IF ANY SHE MADE, WAS CON-

DITIONAL, AND NOT ABSOLUTE.

Pursuant to the above rule, therefore, and in

order to determine whether or not West Virginia is

chargeable with interest upon her equitable propor-

tion of the principal of the Virginia debt existing

prior to January 1, 1861, it becomes necessary to

ascertain from the terms of her contract by which

she became responsible for a part of the principal

whether or not she also promised to pay interest

thereon, and, if so, whether or not such promise was

absolute or conditional.

As held by this Court (Va. v. W. Va., 220 U.S..

1), the contract of West Virginia springs out of Sec-

tion 8 of Article 8 of her Constitution of 1861, the

Act of the Legislature of the restored State of Vir-

ginia passed May 13, 1862, giving consent to the erec-

tion of the new State under the provisions of said

Constitution, and the Act of Congress passed Decem-

ber 31, 1862, consenting, upon the faith of both, to the

creation of said State.

The constitutional provision, therefore, must be

looked to for the purpose of ascertaining the terms

of the agreement, and it reads as follows:

“An equitable proportion of the public

debt of the Commonwealth of Virginia, prior

to the first day of January, in the year one

thousand, eight hundred and sixty-one shall

be assumed by this State; and the Legisla-

ture shall ascertain the same as soon as

may be practicable, and provide for the

liquidation thereof by a sinking fund suffi-

cieut to pay the accruing interest, and re-

deem the principal within thirty-four

years.”

W. Va. Constitution 1861, Art. 8, Sec. 8.

Here is a promise to pay an equitable propor-

tion of the Virginia debt, and a like promise to es-

tablish “a sinking fund sufficient to pay the accruing

interest, and redeem the principal within thirty-

four years”; but both promises have two qualifica-

tions attached thereto: First, she was not to contri-

bute to the payment of any indebtedness of Virginia,

whether principal or interést, accruing after the first

day of January, 1861, and, secondly, she could not,

and was not to establish the promised sinking fund

until after her equitable proportion of the debt had

been first ascertained.

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Si Sieve hein k wr Pie ts Ry ligt eX

[t is true that any overdue and unpaid interest

existing prior to the first day of January, 1861,

might be treated as a part of the principal debt as

of that date, and she compelled to contribute an

equitable proportion to the payment thereof, but not

so With any interest accruing upon the Virginia debt

after that time; because, by her contract, she firmly

fined the first day of January, L861, as the date be-

yond which uo indebtedness should accrue to the

payment of which she would contribute.

Evidently she contemplated the payment of in-

terest upon her equitable proportion of the debt after

the same had been ascertained, but not before. Af-

ter its ascertainment, the amount so fixed would

hecome the principal of her debt, which, according

to the sinking fund provision, would bear interest

from that time, but no sooner or otherwise.

This construction is in keeping with the rule of

law that interest is not chargeable upon an unliqui-

dated amount.

tediield v. Ystalyfera Lron Co., 110 U. S., 174;

28 L. Ed., 109.

Stevens v. Phoenix Bridge Co., 139 Fed Rep., 248.

In Redfield vy. Ystalfera Lron Co., supra, Mr. Jus-

tice Matthews said:

“In ordinary practice, it may be con-

venient, and certainly would not be improp-

er nor unjust that interest propertly allow-

ed on the real amount, subsequently ascer-

tained, should be calculated from the date

of such a verdict; but in such cases it is not

interest on the verdict in fact, because,

“util the anount is liquidated by the sub-

sequent action of the Court, there is no sum

certain due on whieh interest could be com-

puted.”

And in Stevens v. Phoenix Bridge Co., supra,

it was said that

“Interest is not recoverable on a de-

inand which is unliquidated, and which is

subject to a counter claim also unliquidated.”

The Virginia authorities upon the subject are:

Auditor of Publie Accounts v. Dagger & Foley,

3 Leigh (Vali, 24t.

Phillips et al. v. Williams, 5 Gratt. (Va.), 258.

M’Connico et al.. Exrs. of Holloway, v. Curzen,

2 Call (Va.), 358.

Skipwith v. Clinch, 2 Call (Va.), 25:

Waggoner vy. Gray’s Admrs., 2 H. & M. (Va.),

603.

Stearns v. Mason, 24 Gratt. (Va.), 484.

ITl.

WEST VIRGINIA'S EQUITABLE PROPOR-

TION OF VIRGINIA DEBT WAS NOT ASCER-

TAINED, IF FIXED AT ALL, UNTIL THE DE-

CISION OF THIS COURT ON MARCH 6, 1911.

Neither the Legislature of West Virginia nor

the Legislature of Virginia, standing alone, had the

power to ascertain West Virginia’s equitable pro-

portion of the Virginia debt, and the two States,

through all the vears that have passed, have taken

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no joint action, and, in consequence, the ascertain.

ment of West Virginia’s proportion of the debt has

remained unliquidated and unfixed. There has

never been a moment of time from the adoption of

the West Virginia Constitution of 1861, or from the

establishment of the State in 1863, that West Vir.

ginia could have established the sinking fund prom.

ised in the Eighth Article of her Constitution. She

could lay no levy, and could fix no rate, because she

did not know what she had to meet. She did not

have the power to fix the amount herself, and she

was unwilling to permit Virginia to do so arbitrar-

ily. For the first time in fifty years, the basis of lia-

bility was fixed by this Court in its finding and opin-

ion of March 6, (%ii,-amd-thet—finding was provis-

ional; and, if West Virginia should be permitted by —-

this Court to apply the credits thereto that she now

claims, interest could only be calculuated upon the

balance from the time the balance is ascertained,

unless this Court should be of the opinion that West

Virginia has actively prevented the ascertainment

of her proportion of the debt, and to this suggestion

we will now briefly address ourselves.

5Y.

WEST VIRGINIA NOT AT FAULT.

From the adoption of her Constitution in 1861

until her admission into the Union in 1863, West

Virginia had no power to act, because she had not

become a State. From 1863 until 1866, the two

States were at war, and nothing could be done. In

ee

SN PUNT PRGREL OB PL OYE LEI ARLES AME PIT PRI 9 Y : ~ AK PS

7

1866, Virginia filed a bill in this Court against West

Virginia, attacking the integrity of her territory,

and claiming jurisdiction over the Counties of Ber-

keley, Jefferson and Frederick, which suit was not

decided until the sixth day of March, 1871, and, dur-

ing its pendency, it was uncertain what constituted

West Virginia, and her action upon the debt ques-

tion was thereby prevented and postponed. Imme-

diately following this; that is to say, upon the 15th

day of March, 1871, the Governor of West Virginia,

pursuant to a joint resolution of her Legislature,

appointed a Commission to negotiate a settlement of

the debt question with the Commonwealth of Vir-

ginia. This Commission proceeded without unneces-

sary delay to the Capitol of Virginia for the purpose

of Catrving—<cavt the_ohjects of its appointment, but

was met with a refusal upon the part of Virginia to

negotiate, and West Virginia was once more power-

less. Shortly after this: that is to say, on March

30. 1871. the State of Virginia, without consulting

West Virginia. took the matter into her own hands.

and, by legislative enactment, arbitrarily fixed West

Virginia’s portion of the debt one-third, thus

making it impossible for West Virginia to do any-

thing in the premises; and there the matter remain-

ed practically until immediately before the institu-

tion of this suit. West Virginia. it is therefore re-

spectfully submitted. has not been at fault, and has

not been the cause of the postponement of this set-

tlement.

Upon the other hand, Virginia has had it in her

power for more than forty vears to institute this

suit, and ascertain through this tribunal West Vir-

Rea Vile Caen! Uae a ME ere

Rapin ct aaitt alah APS CAA aioe aha ed

ginia’s equitable proportion of her debt. Instead,

she neglected so to do, and has caused, by her neg.

lect and delay, the very time to run upon which she

now seeks to charge interest.

It is, therefore, respectfully submitted that

West Virginia should not be charged with interest

until after the ascertainment of her equitable pro-

portion of the debt, as promised in her Constitution,

Respectfully submitted,

A. A. LILLY,

CHARLES E. HOGG,

and

JOHN H. HOLT,

Associate Counsel

for West Virginia.

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FILE Copy, | *

IN THE

Supreme Court of the United States,

OCTOBER TERM, 1913.

No. 2 ORIGINAL.

COMMONWEALTH OF VIRGINIA

)

vs. ) In Equity.

)

STATE OF WEST VIRGINIA.

ADDITIONAL BRIEF OF WEST VIRGINIA IN

SUPPORT OF THE MOTION FOR LEAVE

TO FILE A SUPPLEMENTAL ANSWER.

IN THE

Supreme Court of the United States,

OCTOBER TERM, 1913.

No. 2 ORIGINAL.

COMMONWEALTH OF VIRGINIA

)

vs. ) In Equity.

)

STATE OF WEST VIRGINIA.

L

STATEMENT OF FACTS.

The motion of West Virginia is for leave to file

the supplemental answer presented with the motion

for the inspection of the Court, and it is based, as

we understand it, and certainly as it was intended,

Me te

2

upon the decision of this Court in this cause of

March 6, 1911, and upon the investigations and dis.

coveries of the West Virginia Commission that was

appointed to negotiate with a like Commission of

the State of Virginia an amicable settlement of the

controversy, pursuant to the suggestion of this Court

in said opinion.

Very briefly, and by way of premise, we will

look to both in order to determine whether or not

the motion is justified.

The decision of March 6, 1911, held—

First, that West Virginia was obligated to pay

an equitable proportion of the Virginia debt exist-

ing prior to the first day of January, 1861. So niuch

has been settled, and finally settled, by this Court,

and its conclusion is not questioned, either by Vir-

ginia or by West Virginia;

Secondly, that the total debt existing as of that

date to be apportioned between the two States

amounted, in round numbers, to $30,000,000.00, and,

Third, that, taking the relative resources of the

two debtor populations, exclusive of slaves, the debt

should be apportioned in the ratio of 76144% to

Virginia, and 2314% to West Virginia, and, upon

this basis, West Virginia’s equitable proportion of

the principal of said debt was ascertained to be

$7 182,507.46.

The Court, however, did not enter a decree for

this amount against West Virginia; but, believing

that enough had been said “for patriotism, the fra-

ternity of the Union and mutual consideration to

bring it to an end”, suggested a conference between

the two States.

IAS Po PTR ANNE

3

Va. v. W. Va., 220 U. S., page 1.

Pursuant to this suggestion or warning, West

Virginia, as speedily as practicable, appointed a

Commission for the purpose of negotiating with a

like Commission upon the subject from the State of

Virginia. The first meeting of the Commissions

amounted to little or nothing; but, after their ad-

journment, a sub-committee of the West Virginia

Commission was appointed, for the purpose of inves-

tigating in detail the existence, disposition and val.

ue of any assets purchased with the common funds

that Virginia might have appropriated to her own

use, and for the proper per cent. of which West Vir-

ginia should be allowed a credit. This investigation

was suggested by and based upon another statement

in the opinion of March 6, 1911. It was there said by

the Court, speaking through Mr. Justice Holmes,

that—

“The whole State would have got the

gain, and the whole State must bear the

loss, as it does not appear that there are

any stocks of value on hand.”

(220 U. S., page 30; 55 L. Ed., 358.)

The investigation was made upon the theory

that West Virginia was entitled to a proper per

cent. of the assets, and upon the belief that, had they

been presented to the Court, they would have been

allowed. The sub-committee employed expert ac-

countants, who investigated as best they could, in

the time left them. the records of Virginia from the

year 1820 until the present time, with the result that

they reported to the Commission that Virginia had

4

appropriated to her own exclusive use, outside of pub-

lic buildings-—they were not taken into the account

at all—assets that had been purchased with the

common funds of the two States prior to January 1,

1861, and disposed of by Virginia, without any ae.

counting at all, since June 20, 1863, amounting in

actual value to $20,000,000.00 and more. Twenty-

three and one-half per cent. of this amount was

taken and deducted from the $7,182,507.46 of prin-

cipal ascertained by this Court to be West Virginia’s

equitable proportion of the debt, leaving a balance

of $2.327,195.27, which amount the West Virginia

Commission offered to the Virginia Commission to

pay in full satisfaction of the controversy. The pro-

position, however, was declined, and then the pres-

ent motion was made.

Such is the history of the motion: and

the proposed supplemental answer alleges that the

disposition and value of the assets now presented

were unknown to West Virginia at the time she filed

her original answer herein, and were likewise un-

known to her at the date of this Court’s opinion of

March 6, 1911.

Il.

VIRGINIA’S RESPONSE TO THE MOTION.

The main point in the response of Virginia to

the motion is an allegation to the effect that West

Virginia was fully informed all the time concerning

the common assets now presented by her, and 2314%

of which she claims as a credit upon her propor-

tion of the principal of the debt; that it is not true

LO ORE EEE! TEN RIGA ES POOGEOS SCOR Hey

aa a aes PEO SE POD ee

that she obtained her information in relation there-

to, as alleged in her proposed supplemental answer,

subsequent to the filing of her original answer, and

subsequent to the opinion of the Court of March 6,

1911; but that all of the matters and things now set

up by her were fully set forth in detail in the report

of a Commission appointed by her, known as the

“Bennett Commission”, in the year 1871, and here-

tofore embodied in the record of this cause.

In answer to this contention, it will be sufficient

to say that it is inaccurate and misleading.

‘In the first place, the proposed supplemental

answer does not allege that West Virginia had no

knowledge whatever of the fact that Virginia had

from time to time prior to the first day of January,

1861, invested certain of the common moneys of the

two States in works of internal improvement, but it

alleges that she did not know at the time of the

filing of her original answer of the disposition and

value of the stocks and securities evidencing these

investments ; that she only learned since the oppoint-

ment of, and through her recent Commission, that

these securities had any actual value at all, and that

they had been either retained by Virginia or sold

by her subsequent to June 20, 1863, and the proceeds

of such sales appropriated to her own exclusive use,

without any report of the fact or accounting unto

her cestui que trust, the State of West Virginia.

The Bennett report lists some, but not all, of

the investments of the Commonwealth of Virginia

in internal improvement companies, and contents

itself with stating the amount of moneys that had

been originally so devoted ; but it does not anywhere

at awe s |

WIM Ra 4

5g hed ETL EONS EEO AME

Bical iota acca loa Neaibahe Sts Saag xa

undertake to show which of these securities, if any,

were still on hand, or what the actual value of any

of them was. Neither does it show their disposition

or sale, or the appropriation of the proceeds thereof

by the State of Virginia. Indeed, the fact is that, with

rare exception, all of these assets have been disposed

of by the State of Virginia since the vear 1871; tnat

is to say, since the Bennett report.

West Virginia had no record of these sales, or

of the ainounts received thereon. She had no know-

ledge, us alleged in her answer, of the fact that they

had any value at all. These matters were not in her

archives, but in the archives and records of Vir.

ginia, which she has caused to be examined through

her Commission since the last continuance, and the

facts to be reported to her officially and reliably for

the first time.

it is now easy for Virginia to say that her

records were open all the time to West Virginia, and

that, if she had taken the pains to examine the same,

she would have been informed concerning these mat-

ters long since; but such was not the reception that

was given. as shown by the record in this cause, to

the West Virginia, or so-called Bennett Commission,

in the vear 1871.

In addition to this, attention is called to the

fact that. when this case was originally argued upon

demurrer, it was upon the theory that the settlement

was proceeding upon the basis of the Wheeling Ordi-

nance, which would not call for an ascertainment of

these assets. and the decree of reference was along

that line. After the report of the Master, however,

the Court reached the conclusion that a settlement

7

in accordance with the Wheeling Ordinance would

be arbitrary and inequitable, and proceeded to as-

certain West Virginia’s equitable proportion of the

principal of the debt by another and more equitable

method, and, finding no stocks or other securities

on hand of value, left the ascertainment at

$7,182,507.46 without abatement for any reason.

Ill.

REASONS WHY THE MOTION SHOULD

PREVAIL.

1. The assets in question constituted a trust

fund under the Constitution of Virginia of 1851, to

be devoted to the payment of the Virginia debt, and.

if Virginia has diverted this fund to other purposes,

she must account, and an accounting between her

and West Virginia, upon the basis of West Virgin-

ia’s liability as fixed by this Court, would compel

her to give credit to the latter for 2314% of the ac-

tual value of such assets.

New Orleans v. Warner, 175 U. S., 120.

Section 29 of the Constitution referred to reads

in part as follows:

“29. There shall be set apart annual-

ly, from the accruuing revenues, a sum equal

to 7% of the State debt existing ou the first

day of January, in the vear one thousand.

eight hundred and fifty-two. The fund thus

set apart shall be called the sinking fund,

and shall be applied to the payment of the

interest of the State debt, and the principal

of such part as may be redeemable.”

(Code of Virginia 1860, page 47.)

And Section 30 of said Constitution reads

“The Generally Assembly may, at any

time, direct a sale of the stocks held by the

Commonwealth in internal improvement

and other companies; but the proceeds of

such sale, if made before the payment of the

public debt, shall constitute a part of the

sinking fund, and be applied in like man-

ner.

(Code of Virginia 1860, page 47.)

y Ried cache (reer aa |

2. The debt in question was created in the pur.

chase of the assets presented, and, if West Virginia

must pay 2314% of the debt, she should, in equity,

receive a credit for 2314% of the actual value of the

assets.

5. The fact that these assets had any actual val-

ue was discovered by West Virginia since the last

continuance of this cause.

4. Virginia had full knowledge of the value and

disposition of these assets all the time, and the evi-

dence thereof was confined to her own records, but

she did not voluntarily disclose the same, although

her suit was instituted for the purpose of ascertain-

ing West Virginia's equitable proportion of the debt.

5. The decree of reference herein proceeded up-

on the theory that the Wheeling Ordinance was to

furnish the basis of settlement, and this basis did

not call for a disclosure of the existence, disposition

or value of these assets.

REEOO LY Lb IB ate ZG th MEE LILES NE NE ALES EYEE GLEBE DITIONS GEILE IOON GENCE A. OB AMANO MEE

6. This Court has wisely prescribed few rules

for the conduct of original proceedings before it, but

it has prescribed rules for the conduct of such pro-

ceedings in equity before inferior federal tribunals,

and, upon analogy to these rules, the supplemental

answer should be received.

Equity Rule No. 19 reads in part as follows:

“The Court may, at any time, in fur-

therance of justice, upon such terms as it

may deem just, permit any process, proceed-

ing, pleading or record to be amended, or

material supplemental matter to be set forth

in an amended or supplemental pleading

* * *K K * * * 7?

And Equity Rule No. 34 reads in part as follows:

“Upon application of either party, the

Court or Judge may, upon reasonable

notice, and such terms as are just, permit

him to file and serve a supplemental plead-

ing alleging material facts occurring after

his former pleading, or of which he was ig-

norant when it was made * * * * * * * *,”

7. “The case is to be considered in the untech-

nical spirit proper for dealing with a quasi-inter-

national controversy, remembering that there is no

municipal code governing the matter * * * *.”

Va. v. W. Va., 220 U. S., page 27.

8. Neither is it any answer to say, as has been

attempted. that such a proceeding would make an

endless chain of the litigation, because it must be

HEAR 2 Sate eee ey com aD 4

TRS as ; _

ial Raines

Sy aba eS

EER 8 TORIES

ue

10

remembered that the whole matter is always within

the discretion of the Court, and that it can, and will,

prescribe such terms and conditions in granting

this. or any other motion, as may be sufficient to

accomplish an equitable result.

Respectfully submitted,

A. A. LILLY,

Attorney General for West Virginia.

V. B. ARCHER.

CHARLES E. HOGG,

and

JOHN H. HOLT,

Associate Counsel

for West Virginia.

Office Serena Gew!, U. §.

Fi L E es OPY. FILED

MAR 29 1915

—— = JAMES D.MANER

eee sneer cme , PK

IN THE

Supreme Court of the United States.

October Term, 1913.

No. 2 Original.

COMMONWEALTH OF VIRGINIA

VS.

STATE OF WEST VIRGINIA.

EXCEPTIONS BY WEST VIRGINIA TO THE

REPORT OF SPECIAL MASTER

CHARLES E. LITTLEFIELD.

A. A. LILLY,

Atty. General for W. Va.

CHARLES E. HOGG,

JOHN H. HOLT,

Of Counsel for West Virginia.

IN THE

Supreme Court of the United States.

October Term, 1913.

No. 2 Original.

COMMONWEALTH OF VIRGINIA

VS.

STATE OF WEST VIRGINIA.

TO THE HONORABLE THE CHIEF JUS-

TICE AND THE ASSOCIATE JUSTICES OF THE

SUPREME COURT OF THE UNITED STATES:

The State of West Virginia, by A. A. Lilly, At-

torney General, prays leave to file the annexed ex-

ceptions to the report of the Honorable Charles E.

Littlefield, Special Master in the above entitled

cause, which report was filed in this Honorable

Court on the twenty-second day of January, 1915.

STATE OF WEST VIRGINIA,

By A. A. Lilly, Atty. General.

CHARLES E. HOGG,

JOHN H. HOLT,

Of Counsel.

——— PIN ATI TEA CRORE ERA TL TAS

i IN THE

} °

Supreme Court of the United States.

4 October Term, 1913.

” a gaara Es

Ria 2

No. 2 Original.

COMMONWEALTH OF VIRGINIA

VS.

STATE OF WEST VIRGINIA.

Benes tte TRG Si BS ARERR CIR AN ss

EXCEPTIONS BY WEST VIRGINIA TO

THE REPORT OF SPECIAL MASTER CHARLES

E. LITTLEFIELD, FILED IN THE ABOVE EN-

TITLED CAUSE ON JANUARY 22, 1915.

Now comes the State of West Virginia, by A. A.

Lilly, her Attorney General, and excepts to the fol-

lowing findings in said report:

RIP RL NP NE LUE SESS ATOR ER PROM

|

DEFENDANT'S FIRST EXCEPTION.

(INTEREST)

Although not a finding of fact, but a mere ex-

pression of opinion upon a question of law involved

in the cause, and to the end that silence may not be

treated as a waiver of the opposite view, the State

of West Virginia respectfully excepts to the follow-

ing conclusion and statement of the Master upon the

subject of interest, found at the bottom of page ten

and the top of page eleven of his report, to-wit:

“It is my conclusion, therefore * * *

that the liability of West Virginia for in-

terest begins on that date” (January 1,

1861), “by virtue of the contract between

her and Virginia, and runs at the rate pro-

vided for in the bonds that evidence the

debt, and make the interest an inseparable

part thereof.”

II.

DEFENDANT’S SECOND EXCEPTION.

(Richmond, Fredericksburg & Potomac R. R. Stock)

The defendant excepts to that portion of the re-

port of the Special Master wherein he values the

stock held by the State of Virginia in the Richmond,

Fredericksburg & Potomac Railroad Company, be-

cause he averages the book value and the dividend

value of said stock, instead of taking the book value

ee eC ee Te a |

SRE Ray GE NEARER SRS eS ee

4

alone, and reduces thereby the actual value of the

total stock held by Virginia on January 1, 1861, from

$412,800 to $323,167.36, thereby diminishing West

Virginia’s 2314% of the actual value of this stock

from $97,008 to $75,944.32, causing a loss to her of

$21,063.68; and for other reasons.

Said valuation and the reasons therefor are

found upon pages 32-4 of the Master’s report.

TIT.

DEFENDANT'S THIRD EXCEPTION.

(Orange & Alexandria R. R. Stock)

The defendant excepts to the valuation placed

by the Special Master upon the stock held by the

State of Virginia in the Orange & Alexandria Rail-

road Company, because he ascertains the same by

averaging its book and dividend values, instead of

taking its book value alone, thereby reducing the

value of said stock as of January 1, 1861, from

$932,566.80 to $573,672, and diminishing West Vir-

ginia’s 2314% of the actual value thereof from

$219,153.19 to $134,812.92, with a consequent loss

to her of $84,340.27; and for other reasons.

Said valuation and the reasons therefor are

found on pages 36-8 of his said report.

IV.

DEFENDANT’S FOURTH EXCEPTION.

(Richmond & Danville R. R. Stock)

The defendant excepts to the finding of the

Master with reference to the stock owned by the

5

State of Virginia in the Richmond & Danville R. R.

Co., because he subtracts from the book value there-

of of $137.87 per share 5% of its par for alleged

liquidation purposes, which reduction (Virginia

owning 12,000 shares) places the total value of the

stock held by Virginia on January 1, 1861, at

$1,588,440, instead of $1,648,440, and reduces West

Virginia’s 2314% interest therein from $387,383.40

to $373,283.40, with a consequent loss to her of

$14,100. Said finding is otherwise erroneous and

prejudicial to West Virginia.

Said valuation and finding, with the reasons

therefor, are found upon pages 39-41 of the Master’s

report.

V.

DEFENDANT'S FIFTH EXCEPTION.

(Richmond & Petersburg R. R. Stock)

The defendant excepts to the finding of the

Special Master in the case of the value of the stock

as of January 1, 1861, held by the State of Virginia

in the Richmond & Petersburg Railroad Company,

because he combines the book value with the divi-

dend value, instead of taking the book value alone,

thereby reducing the total value of the stock as of

that date from $469,892.16 to $441,126.40, and West

Virginia’s 2314% thereof from $110,424.65 to

$103,664.70, with a consequent loss to her of

$6,759.95; and for other reasons.

Said valuation and the reasons therefor are

found upon pages 42-4 of the Master’s report.

6

VI.

DEFENDANT'S SIXTH EXCEPTION.

(Virginia Central R. R. Stock)

The defendant excepts to the report of the Spe-

cial Master wherein he places a value upon the

stock owned by the State of Virginia in the Virginia

Central Railroad Company of $2,390,918.08, instead

of $2,481,115.26, a difference of $90,197.18, with a

consequent loss to West Virginia on account of her

231% interest therein of $21,196.34.

Said valuation is made by a combination of

book and dividend values, instead of taking the

book value alone, and is otherwise erroneous.

The finding and reasons therefor are set out

on pages 45-6 of said report.

AS Sa eed SERNAME IRI bas asl te AeBN SISA La lat Pll yA, Tema ANUS gw

VII.

DEFENDANT’S SEVENTH EXCEPTION.

(Alexandria, Loudoun & Hampshire Stock)

The defendant excepts to the finding of the

Master wherein he places a value as of January 1,

1861, upon the stock owned by the State of Virginia

in the Alexandria, Loudoun & Hampshire Railroad

Company of $35,096.85, instead of a value of

$993,248.00, as evidenced by the par and cost of the

stock, thereby reducing West Virginia’s 2314% in-

terest in this stock from $223,413.28 to $8,247.74,

with a consequent loss to her of $215,165.54.

Said valuation is otherwise erroneous, and is

™ omenenme coors ——

aan

ef

‘

found, together with the reasons therefor, upon

pages 48-9 of the Master’s report.

VIII.

DEFENDANT’S EIGHTH EXCEPTION.

(Virginia & Tennessee R. R. Loan)

The defendant excepts to the finding of the

Special Master wherein he places a value of only

$84,799.90, instead of $886,685, upon a loan of

$1,000,000 made by the State of Virginia to the Vir-

ginia & Tennessee Railroad Company, by which

finding he reduces the 2314% interest of West Vir-

ginia therein from $208,370.97 to $19,927.97, with a

consequent loss to her of $188,443.00.

Said finding and the reasons therefor are set

out upon pages 51-2 of said report.

IX.

DEFENDANT'S NINTH EXCEPTION.

(Norfolk & Petersburg R. R. Loan)

The defendant excepts to the report of the

Master wherein he reduces the value of the loan

made by the State of Virginia to the Norfolk &

Petersburg Railroad Company from $300,000 to

$108,415.45, thereby reducing West Virginia’s 23147

interest therein from $70,500 to $25,477.63, with a

consequent loss to her of $45,022.37.

Said finding, with the reasons therefor, appear

upon pages 55-8 of said report.

|

g

X.

DEFENDANT’S TENTH EXCEPTION.

(U. S. Government Loan)

The defendant excepts to that portion of the

report of the Master wherein he places a value of

only $164,584.30 as of January 1, 1861, upon the

claim of Virginia against the Government of the

United States, instead of a value as of that date of

$1,130,821.31, thereby diminishing West Virginia’s

2314% interest therein from $265,748.00 to

; $38,677.31, with a consequent loss to her of

F $227,065.69.

Said valuation and finding, with the reasons

therefor, are found upon pages 67-70 of the Mas-

. ter’s report.

ST ia watllabnabisa badhias ta Aaa Psat le Remicade 6

Ce) ae

XI.

DEFENDANT’S ELEVENTH EXCEPTION.

(Farrmer’s Bank of Virginia Stock)

The defendant excepts to that portion of the

Master’s report wherein he ascertains the value as

of January 1, 1861, of the stock held by the State of

Virginia in the Farmer’s Bank of Virginia by de-

ducting from the book value per share of said stock

of $107.89 five per cent. of its par value to meet the

supposed cost of liquidation, thereby reducing the

actual value of the stock tc $102.89 per share, which

reduction (Virginia owning 9626 shares) places the

total value of the stock at $990,419.14, instead of

7 =e 7 —

9

$1,038,549.14, and reduces West Virginia’s 2314% in-

terest therein from $244,059.04 to $232,748.49, with

a consequent less to her of $11,310.55.

Said valuation and finding, with the reasons

therefor, are found on pages 85-6 of the Master’s

report.

XII.

DEFENDANT’S TWELFTH EXCEPTION.

(Bank of Virginia Stock)

The defendant excepts to that portion of the

Master’s report wherein he ascertains the value as

of January 1, 1861, of the stock held by the State of

Virginia in the Bank of Virginia by deducting from

the book value of $74.99 per share of said stock 5%

of its par value to meet the supposed cost of liquid-

ation, thereby reducing the actual value of the stock

to $71.49 per share, which reduction (Virginia own-

ing 13,766 shares) places the total value of the stock

at $984,131.34, instead of $1,091,312.34, and reduces

West Virginia’s 2314% interest therein from

$256,458.39 to $231,270.86, with a consequent loss to

her of $25,187.53.

Said valuation and finding, with the reasons

therefor, are found upon pages 86-8 of the Master’s

report.

XIII.

DEFENDANT’S THIRTEENTH EXCEPTION.

(Bank of the Valley Stock)

The defendant excepts to that portion of the

Master’s report wherein he ascertains the value as

ee ESS SNe Crash & hime aciyack es a

Fe ee ATC BON ECMO KELP ERE

1¢

of January 1, 1861, of the stock held by the State

of Virginia in the Bank of the Valley by deducting

from the book value of $107.60 per share of said

stock five per cent. of its par value to meet the sup-

posed cost of liquidation, thereby reducing the act-

ual value of the stock to $102.60 per share, which

reduction (Virginia owning 4839 shares) places the

total value of the stock at $496,481.40, instead of

$520,676.40, and reduces West Virginia’s 2314% in-

terest therein from $122,358.95 to $116,673.12, with

a consequent loss to her of $5,685.83.

Said valuation and finding, with the reasons

therefor, are found on pages 88-9 of the Master’s

report.

XIV.

DEFENDANT'S FOURTEENTH EXCEPTION.

(Exchange Bank Stock)

The defendant excepts to that portion of the

Master’s report wherein he ascertains the value as

of January 1, 1861, of the stock held by the State of

Virginia in the Exchange Bank by deducting from

the book value of $107.20 per share five per cent. of

its par value to meet the supposed cost of liquid-

ation, thereby reducing the actual value of the stock

to $102.20 per share, which reduction (Virginia own-

ing 8755 shares) places the total value of the stock

at $894,761, instead of $938,536, and reduces West

Virginia’s 2314% interest therein from $220,555.96

SORA CRIN ie) 2c BPA ROT

11

to $210,268.83, with a consequent loss to her of

$10,287.13.

Said valuation and finding, with the reasons

therefor, are found on pages 89-90 of said report.

XV.

DEFENDANT'S FIFTEENTH EXCEPTION.

(Atlantic, Mississippi & Ohio R. R. Co.)

The defendant excepts to that portion of the

Master’s report wherein he finds that the entire val-

ue as of January 1, 1861, of the properties sold by

the State of Virginia to the Atlantic, Mississippi &

Ohio Railroad Company on December 20, 1870, at

the price of $4,000,000, and described in Class F

of the supplemental answer, was only $204,688.42,

instead of the sum of $4,276,044.39, thereby reduc-

ing West Virginia’s 2314% interest therein from

$1,004,870.43 to $48,101.77, with a consequent loss to

her of $956,768.66.

Said finding and the reasons therefor are found

on pages 95-8 of the Master’s report.

XVI.

DEFENDANT'S SIXTEENTH EXCEPTION.

(Manassas Gap R. R. Stock)

The defendant excepts to that portion of the

Master’s report wherein he ascertains that the

stock owned and held by the State of Virginia in

the Manassas Gap Railroad Company on the first

day of January, 1861, and of the par value of

te.

12

$2,105,000, was of no value, instead of finding that it

was worth at least par as of that date, thereby deny-

ing West Virginia a credit of $494,675.00, being

231% of said sum.

Said finding, with the reasons therefor, is found

upon pages 107-10 of the Master’s report.

XVII.

DEFENDANT’S SEVENTEENTH EXCEPTION.

(General Exception)

The said defendant further excepts to many

other errors apparent upon the face of said report,

| and prays that said exceptions, and each of them,

’ may be considered and sustained.

a a ee oh " a - ‘

Fe ene EE a ee nt ee ee

All of which is respectfully submitted.

A. A. LILLY,

Attorney General.

CHARLES E. HOGG,

JOHN H. HOLT,

Of Counsel for West Virginia.

|

:

4

7

;

.

a4

al,

FILE COPY.

IN THE

Supreme Court of the United States.

OCTOBER TERM, 1914.

NO. 2 ORIGINAL.

COMMONWEALTH OF VIRGINIA

vs.) IN EQUITY.

STATE OF WEST VIRGINIA.

BRIEF FOR WEST VIRGINIA UPON EX-

CEPTIONS TO THE MASTER’S REPORT AND

UPON THE SUBJECT OF INTEREST.

A. A. LILLY,

Attorney General,

CHAS. E. HOGG,

JOHN H. HOLT,

Associate Counsel for

April 19, 1915. West Virginia.

Poe Ie a |

TABLE OF CONTENTS.

Introduction. .... 1- 2

Discussion of Virginia’s Exception No. 1........... 3-10

«“ «“ «“ . No. 2.............10-11

« “ “ . ae 11-21

«“ «“ «“ “ No. 4............21-23

« «“ «“ NO. 5 neecoo-24-27

Discussion of Bondholders’ Exception No. 1.......27-28

«“ «“ «“ . No. 2... 28

«“ «“ “ % No. 3.......28-29

‘“ «“ “ as No. 4 29

«“ «“ “ . Nos. 5,

6, 7, 8 and 9...... 30

‘6 «“ “ P No. 10...... 30

“ ‘“ «“ os No. 11.....30-31

« « «“ . No. 12....31-33

Jiscussion of W. Va.’s Exception No. 1........... 33-34

“ “ 6 6 - ee 34-36

«“ “ @ « ” FI cnn 36-37

ew / i. No. 4... 37-38

«“ e « « 7 Whancenioninn 39

«“ op * : | ee 39-40

a“ va e ” i 40-43

«“ { « « 7 wo. ©............: 47-48

«“ *<¢-s ? ee 48-49

Discussion of W. Va.’s Exceptions Nos. 11, 12,

13 and 14....50-51

= are : a 51-53

| ¥ yd ae _ I aca 53

sf ie . a. Sees 58-55

; West Virginia’s Equities in Virginia’s Assets....55-58

b

: mare : 59-80

Equitable reasons why W. Va. should pay

no interest es ie Rca RI Pd ee EEE 59-63

: Other circumstances showing interest

; charge against W. Va. to be inequitable..63-66

1 Legal reasons why W. Va. should pay no

a eT cet SE

: I. Claim of Va. against V W. Va. 2. unliquid

ated . Re. .. 66-68

II. No promise on part of W. Va. to pay

NIE oisitacinmicidihhencedacaiacnemaaiee 68-71

III. W. Va. not chargeable with interest

as damages .. 71-72

IV. Unearned interest no part of public

debt of Va. existing prior to Jan-

uary 1, 1861 wisinint esta

Conclusion ... 80

Addendum |... 81

DN tt glia pe. Oe ei i te al le ee ee eee ee none oh

IN THE

Supreme Court of the United States.

OCTOBER TERM, 1914.

NO. 2 ORIGINAL.

COMMONWEALTH OF VIRGINIA

vs. ) IN EQUITY.

STATE OF WEST VIRGINIA.

BRIEF FOR WEST VIRGINIA UPON EX-

CEPTIONS TO THE MASTER’S REPORT AND

UPON THE SUBJECT OF INTEREST.

The State of Virginia and her bondholders con-

tended before the Master that the securities set up

in the supplemental answer of the State of West Vir-

ginia (2314% of the value of which, as contended

by West Virginia, should be credited to her in re-

duction of her liability upon her proportion of the

“public debt”) should be valued as of June 20, 1863,

2

that being the date of West Virginia’s admission

into the Union as a State, while West Virginia in-

sisted that these stocks, bonds and loans should be

valued as of the first day of January, 1861, that

being the date as of which the debt to the payment of

which she was to contribute was to be ascertained.

*The Master held with West Virginia, and valu-

| ed the securities in question as of January 1, 1861

(Master’s report, page 10), and he placed a total

value thereon as of that date of $14,511,945.74

(Master’s report, page 115). He then ascertained

that 2314,% of that total was $3,410,307.25, and that

that amount should be “credited to West Virginia in

reduction of her liability upon her proportion of the

‘public debt’ ” (Master’s report, page 116). But he

further found that West Virginia has received stocks

in various companies of the total valueof $541,467.76,

which amount he subtracted from the $3,410,307.25,

leaving a net credit to West Virginia of $2,868,839.49

to be applied upon her proportion of the principal of

the public debt of Virginia (Master’s report, page

116).

Virginia has excepted to the finding of the Mast-

er that the securities set up in the supplemental

answer of the defendant shou!d be valued as of Jai-

uary 1, 1861, instead of June 20, 1863, and further

excepted to his report upon the ground that his val-

uations, even as of that date, upon some of the securi-

ties involved, are too high. West Virginia, upon the

other hand, has excepted upon the ground that he

has placed a valuation too low upon many of these

securities.

This cause comes on now finally to be heard upon

the exceptations of the State of Virginia and of the

a Ra a a a ee ee ee tl

3

bondholders to the report of the Special Master filed

in this cause on the 22nd day of January, 1915, as

well as upon the exceptions of the State of West Vir-

ginia to said report, and upon the subject of interest,

and these subjects will be briefly argued in their

order.

We will first take the exceptions of the State of

Virginia.

VIRGINIA’S EXCEPTION NO. 1.

The first exception of Virginia is her most im-

portant one, and is addressed to and complains of

the finding of the Master wherein he values the assets

in question as of January 1, 1861, instead of as of

June 20, 1863, and it is asserted that such finding

is erroneous for the following reasons:

“Because:

(1) There was no such agreement as

the Master has assumed;

(2) There is no warrant for such a

construction found in the terms of the con-

or of separation between the two States,

and,

(3) The finding and conclusion of

the Master are in conflict with the decision

of this Court rendered March 6, 1911,

whereby the Court adopted as the mode

of arriving at the ag rg proportion of

the principal of the debt to be paid by the

defendant the comparative value of the real

and personal property of the two States at

the date of separation, June 20, 1863.”

SMe gerne:

Sta tts aN oath a Gil PAA RE ee,

+ Se a el a

4

With respect to the first ground of objection, it

is based upon the following statement of the Master:

“The only right that West Virginia

acquired as to these assets or investments

as against Virginia was the right to require

Virginia, on the date agreed upon, to apply

the assets or investments, at their fair value

at the time agreed upon, towards the liqui-

dation of her own debt, so that West Vir-

ginia could know, when the assets were so

applied, the amount of the real debt remain-

ing to which she would be obliged to contri-

bute. It was perfectly competent for the

two States to agree upon any date upon

which the debt and the value of the assets

and the investments, and the difference be-

tween the two, could be ascertained. West

Virginia’s rights do not depend upon any

title that she acquired to assets solely owned

by Virginia, as to which she did not and

could not acquire any title,but they do de-

pend upon the agreement of Virginia to ac-

count for these assets or investments, at

their fair value upon the date when the

amount of the debt is to be ascertained.

This is an absolute protection to West Vir-

ginia, as Virginia cannot recover any por-

tion of the debt of West Virginia until those

assets are thus accounted for and applied.

This construction is, in my judgment, plain,

clear, simple, equitable, just, and complete-

ly and adequately protects every legal and

equitable right of both of the parties there-

to.

It is my conclusion, therefore, that the

assets are to be valued.as of January 1,

1861.”

(Master’s Report, page 10)

5

The terms of the agreement between the two

States are measured by Section 8 of Article 8 of the

Constitution of 1861 of the State of West Virginia,

upon the faith of which she was admitted into the

Union through the enabling Act of Congress, and

with the consent of the State of Virginia; and,

while the contract does not in express terms mention

these assets, or any of them, yet the date as of which

the debt was to be ascertained to the payment of

which West Virginia was to contribute was named

and expressly fixed. It was January 1, 1861, and

necessarily, whatever credits were to be applied

thereto must be applied as of that date. The amount

of the debt could not otherwise be ascertained. With

a bonded indebtedness outstanding and a sinking

fund in existence applicable to its discharge, the real

debt to be apportioned could not be ascertained as

of January 1, 1861, without first applying the sink-

ing fund and striking the balance. The promise of

West Virginia was to assume “an equitable propor-

tion of the public debt of the Commonwealth of Vir-

ginia prior to the first day of January, in the year

one thousand, eight hundred and sixty-one’, and it

could not be ascertained what the debt was as of that

date without applying the credits existing at that

time; and the credits could not be then applied (con-

sisting of stocks) without valuing them as of that

date.

Under such circumstances, two courses were

open, each leading to the same result; that is to say,

the debit column could be added, followed by an ad-

dition of the credit column, and, after the latter

amount had been subtracted from the former, 2314,%

IE ELLE I A REY

Ley aes ON ees es |

oy igi se ina ag tea tee ae eA aor

PR ene aa a eee

6

of the result could be taken and set down as West

Virginia’s equitable proportion of the principal of

the debt; or, as is now being done, after the total

indebtedness has been ascertained, regardless of

credits, and 2314% thereof taken, the credits are

ascertained and aggregated, and 2314,°. thereof

taken and deducted from the already ascertained

2314% of the debt, again arriving at West Virginia’s

equitable proportion of the principal of the debt.

The last method is pursued for the reason that,

at the time of the ascertainment by this Court of

West Virginia’s equitable proportion of the principal

of the Virginia debt, there was no evidence before it

of the existence of any credits in her behalf, or of the

value of any assets on hand; and, upon the bringing

to the attention of this Court by suppiemental answer

of the fact that credits in the form of securities of

value were in reality in existence on January 1, 1861,

and which had never been applied, this Court re-

opened and re-referred the cause, in order that their

actual value might be ascertained, and to the end

that equity might be done.

With respect to the second ground of objection

to the finding of the Master, that the assets should

be valued as of January 1, 1861, instead of June 20,

1863, viz., that “there is no warrant for such a con-

struction found in the terms of the contract of separ-

ation between the two States’, it is enough to say

that West Virginia’s equitable proportion of the debt

could not be ascertained in any other way. The debt

existed January 1, 1861, and the credits applicable

thereto were likewise then in existence; that is to say,

Virginia then owned all the securities set up in the

supplemental answer of the defendant, and consist-

7

ing of stocks, bonds and loans, and these assets, as

shown by her unbroken line of legislation in relation

thereto, had been intended for and devoted to the

payment of her public debt. If they had been ac-

quired subsequent to 1861, or if, having been ac-

quired prior to that date, had been disposed of before

that time, they would not and could not constitute

credits as of that date; but, being then on hand, and

being then of great value, how in equity could the

debit side of the account be added and the credit side

postponed until some later day, when the items con-

stituting it had been either greatly depreciated or

utterly destroyed in value? The bonds representing

the debt were valued as of January 1, 1861,—why

not the stocks and loans representing the credits

applicable thereto as between Virginia and West

Virginia? Suppose, instead of taking the bonds of

Virginia representing her debt in existence January

1, 1861, at par, for the purpose of ascertaining the

total of such indebtedness, their actual market value

had been taken for that purpose on June 20, 1863, as

Virginia would now have us take the securities rep-

resenting credits, what would have been the total

indebtedness to be apportioned between the two

States? It would have been the par of the bonds

measured in Confederate currency, which, when re-

duced to a gold basis, would have brought the debt

to be apportioned to a mininum.

When West Virginia promised to assume an

equitable proportion of the Virginia debt as it ex-

isted prior to the first day of January, 1861, the then

living members of her Constitutional Convention

may be supposed to have known that Virginia owned

8

at that very time assets applicable to its reduction

or discharge of the then value of many millions of

dollars, and she must have made her promise in the

light of that fact, and could have meant nothing else

by the use of the word equitable than a just propor-

tion of the balance of the debt after the then value

of the assets on hand had been deducted therefrom.

This supposition may be indulged in the light of the

testimony that has been taken before the Master

upon the present reference, although the existence

and value of these assets had since been lost sight

3 of in the lapse of time, and in consequence of the

3 fact that the records thereof were lodged with Vir-

3 ginia, and were not to be found in the archives of the

State of West Virginia. If there had been no prom-

ise on the part of West Virginia, Virginia would

have taken the benefit of all the assets and property,

and would have paid the whole debt; and, when

West Virginia assumed an equitable proportion of

the debt, she could be assumed to have had nothing

in mind except the application of those assets to the

debt before the apportionment of the latter between

her and the State of Virginia.

With respect to the third ground of objection

to the finding in favor of January 1, 1861, it is con-

tended that such a conclusion is “in conflict with the

decision of this Court rendered March 6, 1911, where-

by the Court adopted as the mode of arriving at the

equitable proportion of the principal of the debt to

be paid by the defendant the comparative value of

the real and personal property of the two States

at the date of separation, June 20, 1863.” But there

is no conflict here. The two conclusions relate to

iad SRR Saha RR SCE RIO ARAL AS aA SP awa

BORON REO SITE EEE AE FLA MTL IOLE LEBEL LALO URSE NYT, GE OEE IIS. * ILL

9

entirely different subject-matters. The one relates

to the ascertainment of the debt to be apportioned,

and the other fixes the ratio of apportionment after

the debt has been ascertained. The finding of the

Master relates simply to the ascertainment of the

debt, while the ruling of this Court referred to es-

tablishes the equitable basis of apportionment be-

tween the two States of the debt so ascertained.

Virginia contended before the Master for June

20, 1863, for other reasons than those now embodied

in her exceptions, and may repeat them in argu-

ment here; so it may not be amiss to notice them by

way of anticipation. One of her main contentions

was that the assets could not be valued as of Janu-

ary 1, 1861, because West Virginia had not become

a State at that time; that she had not then been

born, and that in this, the year of our Lord 1915,

she could not get the benefit as credits of the pre-

natal values of 1861; but, in the very next breath, she

complacently announced that West Virginia could

be saddled with the prenatal debts of 1861; and it

would seem to us that, if she were enough of an

entity to be charged with a debt created prior to her

admission into the Union, she was likewise enough

of an entity to receive a credit thereon existing at

the date of the creation of the debt, although that

may have been prior to her admission as a State.

Whoever has a capacity to be charged has a like ca-

pacity to be credited. Under the circumstances of

this case, the admission of West Virginia into the

Union has nothing in the world to do with the ques-

tion; for, after she has become a State, she may be

charged with any obligation imposed as a condition

eupsx

Coretta Bh cL Se

Fiat rk Gar ieaid aes Selein Be SBE AN ada

10

to her admission into the Union, and may be credited

with any amount necessary to make that obligation

equitable in accordance with the terms of the condi-

tion. In other words, the obligation in the one case

and the credit in the other spring out of circum-

stances existing prior to the creation of West Vir-

ginia, but the judgment charging her with the one

and crediting her with the other is not entered until

after she has become a State.

The reason why Virginia seeks to have the value

of these assets moved forward from the first day of

January, 1861, to the 20th day of June, 1868, is be-

cause the latter date would bring them within the

influence of the ravages of war, and measure their

value by the unspeakable standard of Confederate.

currency. To establish such a date would not only

violate the rules of bookkeeping, which require that,

in striking a balance, the credits and debits must be

taken as of the same date, but would impair and

practically destroy the equities of West Virginia,

which constitute the basis of her promise, and would

likewise enable the State of Virginia to take advan-

tage of her own wrong, because it was largely

through her efforts in conventions assembled, and

upon the field of battle, that these securities were

impaired.

VIRGINIA’S EXCEPTION No. 2.

Virginia’s second exception is to the failure of

the Master to fix June 20, 1863, as the date as of

which the assets in question should be valued, as

her first exception was addressed to the fact that he

did find January 1, 1861, to be the proper date, and

11

what has been said in response to exception No. 1

is applicable by way of reply to exception No. 2, and

need not be here repeated.

VIRGINIA’S EXCEPTION No. 3.

The third exception of Virginia relates to the

values placed by the Master upon the stocks owned

by the State of Virginia in the Richmond, Freder-

icksburg & Potomac Railroad Company, the Orange

& Alexandria Railroad Company, the Richmond &

Danville Railroad Company, the Richmond & Pet-

ersburg Railroad Company and the Virginia Cen-

tral Railroad Company, and to the method by which

he ascertained these values as of January 1, 1861.

The contention is that he relied solely upon book

values, “disregarding other and competent evidence”

and taking no account whatever “of the depreciation

and necessary cost of renewal of the physical prop-

erties of said Companies”.

It will be necessary to notice the findings of the

Master with respect to the various companies sep-

arately.

RICHMOND, FREDERICKSBURG & POTOMAC

RAILROAD CO.

Contrary to the statement in the exception, the

Master did not value the stock held by the State of

Virginia in this Company upon the first day of Janu-

ary, 1861, “solely” by its book value, which he should

have done under the circumstances of this case ac-

cording to our contention, as will be seen when we

come to discuss the exceptions filed by the State of

PW SS cc Fann eesti hc PS SAR E TRAARS D i RERAT RAEE E TET TE TTR TT

az

West Virginia to the Master’s report. On the con-

trary, he averaged the book value and the alleged

earning value of the stock. The book value on Jan-

uary 1, 1861, was $150.04 per share (the par being

$100), and the earning value (based solely upon divi-

dends declared) was $84.83 per share. These two

values were added together, making $234.87, and the

half thereof taken, placing the actual value per share

as found by the Master at $117.43. The number of

shares then owned by Virginia was 2,752, and the

total value thereof at $117.43 per share was placed

by the Master at $323,167.36. He did ignore the al-

leged market quotations on this stock, because they

were not dependable (Master’s report, pages 32-4).

The attack by Virginia upon this finding is in

effect two-fold, first, because he relied upon book

value, and, secondly, because he ignored market quo-

tations, and, in order that the reliability of the one

and the worthlessness of the other might be seen,

it will be necessary to examine the evidence upon

these two subjects, and, having done so in the case

of this particular road, it will be unnecessary to

again notice them thus in detail when we come to a

discussion of the value of the stocks in the other

railroad companies embraced in this exception.

BOOK VALUE.

The book value of this Company (Richmond,

Fredericksburg & Potomac Railroad Company) was

arrived at by taking its balance sheets, and thereby

ascertaining the surplus of its assets over its liabili-

ties, and calculating the consequent premium upon

its stock. The schedule or exhibit in relation thereto

PEL LODE TRE CIE LS, | NG NAIOP EINES IOC: AO LI PLS Nag CPt 1 Se (Tp ety ARE

13

is Defendant’s Exhibit No. 2, consisting of the main

exhibit with four sub-sheets or supporting exhibits,

and is found upon pages 2-12 of the printed exhibits.

Sub-sheet one (printed exhibits, page 4) shows the

trial balance of this road for the year ending March

31, 1859, and discloses a surplus of $461,134.54, and

a consequent book value of its stock as of that date

of $144.20 per share. Sub-sheet 2 (printed exhibits,

page 6) shows its trial balance for the year ending

March 31, 1860, and discloses a surplus of $505,403.22,

and a consequent book value of its stock upon that

date of $148.40 per share. Sub-sheet 3 (printed ex-

hibits, page 8) gives the trial balance for the year

ending March 31, 1861, and discloses a surplus of

$562,819.05, and a consequent book value of its stock

upon that date of $150.40 per share. Sub-sheet 4

(printed exhibits, page 10) covers the trial balance

for the year ending March 31, 1862, showing a sur-

plus of $656,577.85, and a consequent book value of

the stock upon that date of $157.40 per share.

From these calculations it will be seen that the

increase in the book value of the stock for the year

ending March 31, 1861, over the year preceding was

2%, but this overruns January 1, 1861, by one-fourth

of a year; so that, in order to get the book value for

January 1, 1861, instead of March 31, 1861, three-

fourths of said 2%, or 114%, should be added to the

book value of March 31, 1860, of $148.40, making a

book value for the first day of January, 1861, of

$149.90, or, as the schedule puts it, of $150 per share.

These exhibits were based upon the records in

the second auditor’s office of the State of Virginia,

and upon the annual reports of the Richmond, Fred-

fetta > Sir) Peet tR le etek |

KTS REEL ER a Mb ty iN

14

ericksburg & Potomac Railroad Company on file in

the office of its treasurer in the City of Richmond,

and both the main and the underlying exhibits were

checked by Mr. Potter, accountant for the State of

Virginia, and announced by him to be correct.

Under such circumstances, the book value was

dependable, and, if it had been solely followed, as

charged by Virginia, the resulting value of the stock

would have been correct. The book value at least

makes a prima facie case, and, in the absence of

proof to the contrary, must establish the actual val-

ue of the stock. Where the books of a company are

accurately and properly kept; that is to say, where

its assets and liabilities are properly invoiced and

set down, the book value of its stock must be its

actual value; and it must be borne in mind in this

case that not a single item contained in any balance

sheet of this company was attacked by the State of

Virginia, either upon the credit or the debit side;

but she contented herself (outside of alleged market

quotations) with trying to establish June 20, 1863,

instead of January 1, 1861, as the date as of which

the value of this stock should be ascertained.

The books and balance sheets of the Richmond,

Fredericksburg & Potomac Railroad Company are

prima facie correct.

L. & N. R. Co. v. Hart (Ky.), 75 S. W., 289.

Wilson v. Potter, 42 S. W., 836; 19 Ky. Law

Rep., 988.

Lambert v. Griffith, 44 Mich., 65; 6 N. W., 106.

Budeke v. Ratterman, 2 Tenn. Chy., 459.

Stuart v. McKichan, 74 IIl., 122.

15

The actual value of stocks may be shown by a

comparison of the assets and liabilities of the com-

pany issuing them.

Julia v. Critechfield, 147 Fed., 65.

Nelson v. First Nat’l Bank, 69 Fed., 798.

Henry v. North Am. etc. Co., 158 Fed., 79.

Butler v. Wright, 103 N. Y. App. Div., 463.

Cabbel v. Cabbel, 111 N. Y. App. Div., 426.

Vonau v. Magenheimer, 126 N. Y. App. Div.,

257; 196 N. Y., 510.

Leurey v. Bank of Baton Rouge, 58 So. Rep..,

1022 (La.).

Beaty v. Johnson, 66 Ark., 529.

McDonald v. Danahy, 196 IIl., 133.

Greer Mi Lafayette County Bank, 128 Mo.,

559.

State v. Carpenter, 51 Ohio State, 83.

White v. Jouett, 147 Ky., 197.

—, Hereford, 132 Mo., 513; 34S. W.,

Brinkerhoff-Farris Co. v. Lmbr. Co., 118

Mo., 461; 24 S. W., 129.

Tevis v. Ryan (Ariz.), 108 Pac., 461.

Felker v. Ryman (Tex. Civ. App.), 135 S.

W., 1128.

Milwaukee Trust Co. v. City of Milwaukee

(Wis.), 188 N. W., 707.

MARKET QUOTATIONS.

The alleged market quotations upon the stock

of this company were properly ignored by the Mas-

ter (Master’s report, pages 32-4). They appear as

plaintiff’s revised exhibit No. 2 (New Record, Vol.

2, page 334), and are compiled from the Richmond

Dispatch of various dates from November 2, 1860,

Bernt) esrsen<

16

to August 12, 1863. There was no stock exchange

in the City of Richmond at that time (New Record.

Vol. 1, page 877). They are reported by Lancaster

& Son, and, while this firm of brokers may have been

a reputable one, and while the Richmond Dispatch

may have been a reputable newspaper of general

circulation in Richmond during this period, yet the

alleged quotations show no “bids” or “offers” during

the whole period; that is to say, from the second of

November, 1860, to the twelfth of August, 1863, and

show only four sales, one on November 2, 1860, an-

other upon November 9 of the same year, a third

upon the 27th of May, 1863, and a fourth upon the

twelfth day of August, 1863. In other words, no

sales are shown between November 9, 1860, and May

27, 1863; and the four sales that are shown in no in-

stance give the number of shares disposed of, or

tell us whether the sales were public or private, for

cash or upon credit. The sale may have been of one

share, and may not have been made under such cir-

cumtances as to afford competition to purchasers or

buyers. Notwithstanding these facts, the quotations

ran along in a separate column, with the statement

that they were based upon the last sales, and with

nothing to show the date of such last sales. Under

such circumstances, even if they met the require-

ments of the law, there is nothing to show that they

fell upon or near the date in question, viz., Janu-

ary 1, 1861.

In addition to the foregoing, it appears that the

firm making these reports (Lancaster & Son), ac-

cording to the testimony of Mr. Williams, a member

thereof, based its quotations so furnished to the

Richmond Dispatch solely upon its own transactions

ARPES a - / OLE LG,

17

although there were other brokers at the same time

engaged in the City of Richmond in the same busi-

ness. In other words, if they were to sell today a

share of stock in the Richmond & Danville Railroad

Company at seventy-five cents, their next market

quotation would be made at that price, regardless of

sales made by other brokers upon the same day of

the same issue of stock. It appears that they neither

knew nor cared in publishing these reports whether

other brokers were selling the same stocks at a less

or at a greater price; and how it would be possible

to make up market quotations in such a way it is

difficult to see. One broker might sell at ninety

cents, another upon the same day might sell the same

stock at ninety-five cents, and a third at one dollar.

How either price could be arbitrarily taken as repre-

senting the market price it is difficult to understand.

That such was the practice of Lancaster & Son ap-

pears from the testimony of Mr. John L. Williams

(New Record, Vol. 3, pages 127-8, cross questions

and answers 68-73).

Such quotations do not meet the requirements

of the law, and were properly repudiated by the

Master.

Whelan v. Lynch, 60 N. Y., 474.

N. & W. Ry. Co. v. Reeves, 97 Fed., 284.

Wigmore on Evidence, Vol. 3, Sec. 1704.

oe, v. Smith, 87 N. C., 367; 42 Am. Rep.,

Jones v. Ortel (Md.), 78 Atl., 1030.

Mr. Vernon Brewing Co. v. Terschner, 108

Md., 158; 68 Atl., 702.

St. Louis ete. R. Co. v. Pearce (Ark.), 101

S. W., 760.

18

Bullard v. Stewart (Tex. Civ. App,), 102

S. W., 174.

Meriwether v. Quincy etc. R. Co., 128 Mo.

App., 674; 107 S. W., 434 & 439.

big v. Buckingham (Iowa), 132 N. W.,

With respect to the criticism of Virginia upon

the use of book value as a standard for determining

actual values, because it does not take into account

“the depreciation and necessary cost of renewal of

the physical properties” of the companies involved,

it will be sufficient in the case of the Richmond, Fred-

ericksburg & Potomac Railroad Company to call at-

tention to defendant’s Exhibit No. 15 (New Record,

Vol. 1, page 753), which, at the request of the Mas-

ter, was furnished by the defendant for the purpose

of throwing light upon the character of the balance

sheet of the Richmond, Fredericksburg & Potomac

R. R. Company, wherein, among other things, it is

said—

“The cost is carried forward carefully

year to year, generally under classified

headings, such as ‘Engineering’, ‘Grading’,

‘Bridges’, etc., and contains no items that

are not legitimate.

They have a yearly report by directors

as to general conditions of road, and, in al-

most every instance, they report on road-

way and rolling stock, and the report is al-

ways in excellent condition, showing that

the repairs and renewals had taken care to

keep the road in good condition.

In addition to this, we have the follow-

ing items of ‘extraordinary’ expense

charged to operating expenses, which ex-

EEA LENGE IT CPN OTE LLE YP INL SEAS ARR EU wr POSER, VIE

19

tra expenses were additional items of cost

of road and equipment.”

These items then follow, continuing to the bot-

tom of page 754, where an aggregate of $132,843.93

is shown to have been devoted to improvements and

charged to operating expenses, thus showing, as

stated by the Master at page 33 of his report, “a

conservative policy as to depreciation”.

The book value of this stock was, therefore,

properly relied upon by the Master, and its alleged

market quotations were properly ignored by him.

How he improperly applied the earning power of the

company as affecting the value of its stock we will

undertake to show when we come to discuss the ex-

ceptions of West Virginia.

ORANGE & ALEXANDRIA R. R. CO.

RICHMOND & DANVILLE R. R. CO.

RICHMOND & PETERSBURG R. R. CO.

VIRGINIA CENTRAL RAILROAD COMPANY.

We find that the book value as of January 1,

1861, of the Orange & Alexandria Railroad Com-

pany, the Richmond & Danville, the Richmond &

Petersburg and the Virginia Central Railroad Com-

panies was ascertained by taking the last balance

sheet of these roads obtainable, viz., September 30,

1856, and ascertaining therefrom the surplus on

hand at that time, and, from the reports of said com-

panies to the State of Virginia, the profits for the

years 1857, 1858, 1859, 1860 and 1861, which were

added to the surplus, and the book value of the stock

was derived therefrom (New Record, Vol. 2, page 14,

ral

defendant’s exhibit No. 3, asset 1; asset 2, page 19:

asset 3, page 22, and asset 4, page 24).

The book value of the stock of the Orange &

Alexandria Railroad Company on January 1, 1861,

was thus ascertained to be $53.32 per share (the par

per share being $50), which was averaged with the

earning value of $12.28 per share, and its supposed

actual value thereby arrived at of $32.80 per share

(Master’s report, pages 36-8). There were no mar-

ket quotations in the case of this stock, and the fal-

lacy of averaging the book value with the supposed

earning value will be discussed when we come to the

exceptions of West Virginia.

The book value of the Richmond & Danville was

ascertained to be $137.37 per share (the par being

$100 per share), and this was taken by the Master

as the actual value of the stock, less 5% of its par

for liquidation purposes, or $132.37 per share. Mar-

ket quotations he ignored for the reasons given in

the case of the Richmond, Fredericksburg & Poto-

mac Railroad Company. In this case he did, as

charged by Virginia, rely “solely” upon the book

value of the stock; but, as we shall contend upon the

exceptions of West Virginia hereinafter noticed, he

erroneously deducted from this book value 5% of

the par of the stock for liquidation purposes, because

no such liquidation, or the expense thereof, was

called for or involved.

The par value of the Richmond & Petersburg

Railroad Company was $100 per share, and its book

value was ascertained for the year 1860 to be $121.86,

which was averaged by the Master with the alleged

earning value of $106.95 per share, making a value

LPL NERY IS GAS RETIN MES ET fe Ara CLG ee Spe MEMES TI

21

per share of $114.40 (Master’s report, pages 42-4).

Market quotations were ignored for the reasons giv-

en in the case of the Richmond, Fredericksburg &

Potomac Railroad Company.

The par value per share of the Virginia Central

Railroad Company was $100, and the Master, as in

the case of the Richmond & Petersburg Railroad

Company, ascertained the value thereof by averag-

ing its book value of $131.16 per share with its earn-

ing value of $116.95, making a value of $124.05 per

share as of January 1, 1861 (Master’s report, pages

45-6). Market quotations were ignored for the rea-

sons hereinbefore given, and the fallacy of reducing

the book value per share by averaging the same with

its alleged earning value will be hereinafter consid-

ered,

VIRGINIA’S EXCEPTION No. 4.

This exception is taken to the finding of the

Master upon an item of $149,984, being the value

fixed by him as of January 1, 1861, of a dividend

bond issued by the Richmond, Fredericksburg &

Potomac Railroad Company, and owned by the State

of Virginia. The ground of exception is that it was

paid off in Confederate currency, which, when re-

duced to a gold basis, amounted to only $19,111.11,

and that Virginia, having received only that amount

for the bond in lawful money, should be charged up-

on that basis, and West Virginia credited with

2314% of that amount, instead of 2314% of the face

of the bond (defendant’s exhibit No. 3, asset 19, New

Record, Vol. 2, page 44; also plaintiff’s exhibit No.

3, New Record, Vol. 2, page 363).

22

The first of these exhibits shows that Virginia

owned this bond on and prior to the first day of Jan-

uary, 1861, and that the principal thereof was paid,

$27,520 on the 13th day of March, 1863, and $122,464

on the first day of July, 1863, making $149,984. This,

of course, was in Confederate currency, and the sec-

ond exhibit shows that the value of that currency at

that time was $19,111.11; but the question is not

what the bond was worth in 1863, but what its value

was on the first day of January, 1861. Neither does

the fact that Virginia accepted a depreciated cur-

rency in its settlement, or a less amount than its

real value, affect the actual value of the bond, or the

size of the credit that West Virginia should receive

on account thereof.

In the first place, the presumption is that a bond,

whatever the rule may be with respect to stock, is

worth par.

—- v. North Am. Construction Co., 158

ed., 79 (C. C. A. 8 Cir., Nov. 29, 1907).

Appeal of Harris, 12 Atl. Rep., 743.

Brinkerhoff-Farris Co. v. Home Lmbr. Co.,

118 Mo., 447.

2 “— & Marshall on Corporations, page

70.

3 Sutherland on Damages (3 ed.), page 1921.

In the next place, as we have seen, the book val-

ue of the stock of the Richmond, Fredericksburg &

Potomac Railroad Company, the obligor in the bond,

on January 1, 1861, was at a premium, being worth

$150 per share, and it was at that time paying 7%

annual dividends, and its dividend bond in question

must at least have been worth par, the value put

TEE ONDE, LY EL INGD SPH A SIE ANE ES GENE LOL LSPS LIVEN SILO IN PEST OIAIT 04 PIP

23

upon it by the Master; and the Master gives a con-

clusive reason for this valuation. He says “the

Richmond, Fredericksburg & Potomac Railroad

Company was operated at a profit, and was able to

pay on January 1, 1861. I allow $149,984” (Master’s

report, page 73).

Some effort was made before the Master, and

may be repeated here, to show that the defendant,

in its supplemental answer, only claimed a credit

as to some of these stocks at least based not upon

their actual value as of January 1, 1861, but upon

the amount received by the State of Virginia on the

subsequent sales thereof. It is true that at more

places than one in the supplemental answer the

prices received by Virginia for these various stocks

were mentioned, but such mention was only made as

a part of the history of the transaction, and not for

the purpose of furnishing a standard for the meas-

urement of their value, or the measurement of West

Virginia’s credits on account thereof. On the con-

trary, the real contention of the defendant, as set

forth in its supplemental answer, is contained in the

following allegation:

“That this defendant was interested in

said assets to the extent of her just propor-

tion of the value thereof as of the first day

of January, 1861, and was the equitable

owner of and entitled to receive out of the

roceeds thereof, according to the basis of

iability fixed by this Honorable Court,

2314% of the sum of $20,810,357.98, and the

whole of $225,078.06 collected by Virginia

from West Virginia Counties, as aforesaid,

making an aggregate of $5,115,512.19.”

(Supplemental Answer, page 15.)

fa OL Sr et

The ROD eceEigge i a the LAG RES Bits Se tapas Salhi nec at ia SOS SE ade es |

24

VIRGINIA’S EXCEPTION No. 5.

This is addressed to the valuation placed by the

Master upon the stock of the State of Virginia in the

James River & Kanawha Company. Virginia owned

$10,400,000 at par of the stock of this company, and

the Master valued it as of January 1, 1861, at

$1,664,333 (Master’s report, pages 100-6). The

ground of the exception is twofold: First, because

the finding is in conflict with the Master’s former re-

port, and, secondly, because it is alleged that said

company was, to all practical intents and purposes,

insolvent on and after the first day of January, 1861.

The holdings of the State in this company

($10,400,000) constituted 91.77% of its entire capital

stock (New Record, page 1467). The company was

likewise indebted to the State in the sum of

$7,560,214.44 (New Record, page 1147), and, during

the year 1860, its net earnings, after deducting oper-

ating expenses, amounted to $151,000.14 (New Rec-

ord, page 1436). This, however, was not sufficient

to pay the interest on its indebtedness, and, in conse-

quence, it ran behind. However, by an Act of the

General Assembly of the State of Virginia passed on

the 23rd day of March, 1860 (New Record, Vol. 2,

page 67), the State exchanged the debts held by her

against the company for 74,000 shares of its 6% pre-

ferred stock, and thereafter the preferred stock of

the company was in a condition to receive, in the

shape of dividends, the net earnings over and above

operating expenses in lieu of interest on its debt.

In other words, the whole of the $151,000 net income

per annum would be applied to the 6% preferred

stock of the State, and this $151,000, capitalized at

25

6%, would give a value to said preferred stock of

$2,516,666. The fact that the State only owned

91.77% of the capital stock would make no difference

under such circumstances, because its stock was pre-

ferred, and was in sufficient amount to consume all

of the net earnings, so that the 91.77% of the pre-

ferred stock owned by the State in reality represent-

ed the whole stock, and would take the entire value

of $2,516,666; but the Master has only valued this

stock at $1,664,333, instead of $2,516,666; that is to

say, he has underestimated it to the extent of

$852,333 ; and West Virginia now excepts to his find-

ing in this particular, and requests that his report

be corrected so as to give this additional value.

The Master arrives at his resuit by taking the

average net receipts above operating expenses for a

period of twenty-five years, which he finds to be

$111,800 per annum, from which he deducts $11,940,

being the annual interest on an indebtedness owed

by the Company of $199,000, leaving a balance of

$99,860, which he captilizes at 6° giving him the

valuation aforesaid of $1,664,333 (Master’s report,

page 105).

Why should the average annual net earnings

from 1835 down to and including the year 1860 (a

period of twenty-five years) be taken, instead of the

actual net receipts of $151,000.14 accruing above

operating expenses during the year 1860, for the

purpose of ascertaining the value of the stock of the

Company in 1860?

There seem to have been two companies, the

James River Company, which owned and operated

the canal east of the Alleghany Mountains, and the

SOFC NG EY Re Re OS arent POETS ariaemU ee ge —— —

ve Sas PIE TRE ING Ba

cen RS bak ASR NG or EE

PRC DR FIG OS:

— o

Sei wwSs KCaias tela ey Daebeady

26

James River & Kanawha Company, which repre.

sented a steamboat connection on the Kanawha River

west of the Alleghany Mountains, and the two were

merged in the year 1835 under the name of the iatter,

the property of the former being put into the merger

or amalgamation at the price of $1,350,000. The

part of the property west of the Alleghanies repre-

sented still less capital, and its property consisted

of little more than winged dams at certain shoals in

the Kanawha River. it will be seen, therefore, that

the James River & Kanawha Company was a small

affair, representing little capital and small prop-

erty in the year 1835, the period when the Master's

average net earnings begin. It did not at that time

own the docks in the City of Richmond. These were

acquired in 1855 (New Record, Vol. 1, page 744),

and only a small portion of its canal was then com-

pleted and in operation. Afterwards, millions of

capital were added by the State, and the cana! was

completed and put into operation to Buchanan, a

distance of one hundred and ninety-five miles, with

a branch or extention from Balcony Falls to Lexing-

ton, Virginia, a distance of twenty-two miles, making

a total length of 217 miles (New Record, Voi. 1, page

727); and, when the averaging period was ended;

that is to say, in 1860, and on January 1, 1861, it

was a fully completed and equipped canai, with

water-ways, locks, dams and towpath, two hundred

and seventeen miles in length, and it owned, in ad-

dition to this, very valuable docks and water powers

in the City of Richmond, and really the James River

front from Seventh Street, in said City, to Twenty-

eighth Street (New Record, Vol. 1, page 741). Be-

27

sides, its tonnage for the year 1842, and it was pse-

sumably greater then than in 1835, was only 112,707

tons, as compared with a tonnage in 1860 of 244,273

tons, the volume of business in the latter year being

more than double that of the former (New Record,

Vol. 3, page 50-a).

The fact that the Company, after its rehabili-

tation under the Act of March 23, 1860, by the ex-

change of the Company’s bonds held by the State for

its preferred stock, ran behind again, showing a

deficit in the year 1861 of $69,809.54, in the year 1862

of $46,609.86, and in the year 186% of $129,036.25,

and that it had accumulated an indebtedness of

$1,877,912.83 at the time the whole of its property

was turned over to the Richmond & Alleghany Raii-

road Company on March 4, 1880, pursuant to an Act

of the General Assembly of Virginia passed April z,

1879 (New Record, Vol. 2, page 206, exhibit 7-e; page

208, exhibit 7-¢), makes no difference, because this in-

debtedness accrued during a period of nineteen

years subsequent to the date as of which the stock

of the Company should be valued, and must be at-

tributed in a large measure to the operation of the

canal during the Civil War.

BONDHOLDERS’ EXCEPTION NO. 1.

The first exception filed by the bondholding

creditors of Virginia relates to the date as of which

the assets presented in the supplemental answer of

the defendant should be valued, and objects to the

conclusion and finding of the Master wherein he fixes

January 1, 1861, as the proper date for that purpose,

instead of June 20, 1863. The exception is identical

Lo tn ot " a

a alee a RSID EATEN EF NEC NRS ORR ee

NPT Y

TT

28

with Virginia’s first exception, and the rep'y in both

cases would be the same, and need not be repeated

here.

BONDHOLDERS’ EXCEPTION NO. 2.

This exception is the same as No. 2 presented

by the State of Virginia, and complains of the fail.

ure of the Master to find that June 20, 1863, was

the proper date as of which the assets shouid have

been valued. It is for all practical purpose the same

as exception No. 1, and what has been heretofore

said in reply to the first exception of Virginia is an

answer to her second exception, as well as an answer

to the first and second exceptions of the bondholding

creditors.

BONDHOLDERS’ EXCEPTION NO. 3.

This exception is brief, and it is in the following

language:

“The bondholding creditors of Vir-

ginia respectfully except to the failure of

the Master to conclude or hold that the

assets are not to be valued in excess of the

price or amount that Virginia received

therefor.”

A sacrificial sale made by Virginia at a subse-

quent time would furnish no evidence of the value of

these assets as of January 1, 1861. Neither would

a subsequent sale at their then actual value, they

naving depreciated in the meantime through the in-

strumentalities of the War, furnish any such evi-

ea

29

dence, and certainly, if given away by Virginia, as

in the case of the property and stock of the James

River & Kanawha Compay, twenty-one years after

the date fixed by the West Virginia Constitution as

the time for the valuation of these securities, could

not weigh a feather’s weight in ascertaining their

value as of the time when they shoud have been valu-

ed. It may likewise be suggested that the squander-

ing of a trust fund by a trustee, either through im-

provident sales of the subject matter of the trust or

by unwarranted donations thereof, could not be per-

mitted to influence the subject of actual values. Ifa -

trustee could be compelled to account only for that

which he receives, the greater the misfeasance the

less the liability would be, and a monumental pre-

mium would be placed upon fraud.

BONDHOLDERS’ EXCEPTION NO. 4.

This exception, although somewhat different in

verbiage from No. 3, is not distinguishable there-

from in principle. The one complains of the “failure

of the Master to conclude or hold that the assets are

not to be valued in excess of the price or amount that

Virginia received therefor’, and the other complains

of the “failure of the Master to conclude or hold that

PEE LIC IE IDLE ELOISE FEAL LP PLN LL BLES AEGIS

taint! rere |

Li ih Na IN a arti 2 tin Se

30

BONDHOLDER®S’ EXCEPTIONS Nos. 5, 6, 7,8 & 9,

These exceptions are identical with the third

exception of the State of Virginia, and relate to the

findings of the Master of the value of the stocks of

the Richmond, Fredericksburg & Potomac, the Or.

ange & Alexandria, the Richmond & Danville, the

Richmond & Petersburg and the Virginia Central

Railroad Companies. Virginia embodied these find-

ings in one exception (No. 3), while the bondholding

creditors make a distinct exception in each case (Nos.

5, 6, 7, 8 & 9). The grounds of exception are the

same, and the reply thereto need not be here gone

over again.

BONDHOLDERS’ EXCEPTION NO. 10.

This is the same as Virginia’s exception No. 4,

and excepts to the valuation of $149,984 placed by

the Master as of January 1, 1861, upon a dividend

bond issued by the Richmond, Fredericksburg &

Potomac Railroad Company, and then owned by the

State of Virginia.

The book value of the stock of this Railroad

Company at that time was $150 per share (par$100).

It was then declaring 7% dividends, was being op-

erated, as found by the Master, at a profit, and was

able to pay its bond; and the same was worth at least

its par, if nothing more.

BONDHOLDERS’ EXCEPTION NO. 11.

This is taken to the finding of the Master in the

case of the James River & Kanawha Canal Company.

31

It is the same as Virginia’s fifth exception, and need

be discussed no further than to say that the record

(Vol. 8, page 1436) shows that the Canal Company,

for the fiscal year ending September 30, 1860, received

net, above operating expenses, $151,000.14, which,

capitalized at 6% would produce $2,516,666, or

$852,333 more than the Master allowed; and his find-

ing, instead of being diminished, should be increased

by that amount; and West Virginia excepts to his

finding for that reason and to that extent.

See defendant’s supplemental! exhibit 2, New

Record, Vol. 3, pages 1434-7; also New Record, pages

1428-9. *

BONDHOLDERS’ EXCEPTION NO. 12.

The exception criticizes the failure of the Master

to find that Virginia had the right to apply the assets

~ set down in the defendant’s supplemental answer,

first, “to the payment of $1,451,492.01 of the debt

of the undivided Commonwealth of Virginia owing

on January 1, 1861, and subsequently paid by Vir-

ginia at like cost to her, which debt was not included

in the bonded debt of the undivided Commonwealth

of Virginia”; secondly, “to the payment of

$12,693,807.32 of interest on the bonded debt of the

* NOTE: The new record consists of three vol-

umes. The first is paged from 1 to 1076, inclusive;

the second consists of the plaintiff’s and defendant’s

exhibits, and is paged from 1 to 443, inclusive, while

the third is a continuation of the paging of the first,

beginning with page 1077, and continuing to page

1633, inclusive.

ee

SSRN IC PONS WEEE DE Set Bi

32

undivided Commonwealth of Virginia accrued since

January 1, 1861, and paid by Virginia at a cost to

her on a gold basis of $10,436,101.19”, and, thirdly,

“to the payment of the further sum of $2,218,319.81

for interest after January 1, 1872, on bonds issued

by the present State of Virginia in exchange for the

old unfunded bonds of the undivided State, for which

Virginia issued her bonds in full’, making a tota!

claim of this character of $14,105,913.01.

With respect to the first amount ($1,451,492.01),

it was excluded by the opinion and finding of this

Court of March 6, 1911, from the indebtedness of

Virginia as it was found to exist prior to January

1, 1861 (Virginia v. W. Va., 220 U.S., page 1). It

was not a part of the public debt of the undivided

Commonwealth of Virginia within the meaning of

Section 8 of Article 8 of the West Virginia Consti-

tution of 1861; and, even if it had been, nearly 11/12

of the items that go to make up the amount, as shown

by the plaintiff’s exhibits, were paid between the

first day of January, 1861, and the 20th day of June,

1863, during which period West Virginia was still

a part of the Commonwealth of Virginia, and pre-

sumably contributed her due proportion to such pay-

ments. The exhibit relied upon by the plaintiff is

plaintiff’s supplementary exhibit No. 1, with its four

sub-schedules (New Record, Vol. 2, pages 289-95).

The payments embraced in sub-schedules one (page

290) show no debt at all. The payments in sub-

schedule two (page 291) bear no date, but, as they

show the various quarters when the amounts repre-

sented by them fell due, may be presumed to have

been made at maturity, and, if so, they were a]! made

between January 1, 1861, and June 20, 1863, except

33

the last five, aggregating $33,575.76. In the same

way the payments set down in sub-schedules three

(pages 292-3) appear all to have been made between

January 1, 1861, and June 20, 1863, except the last

nine, aggregating $69,370.95. The same is true with

respect to all the payments embraced in sub-schedule

four (pages 294-5), except the last fifteen, aggregat-

ing $18,765, making a total of $121,711.71 paid after

June 20, 1863, as against the claim of Virginia of

$1,451,492.01. In other words, taking even the con-

tention of Virginia, her claim is eleven times too

great.

The second item ($12,693,807.32, or

$10,436,101.19, when reduced to a gold basis) and

the third item ($2,218,319.81) both represent al-

leged interest payments by Virginia, the one being

of interest accruing since January 1, 1861, upon the

bonded debt of the undivided Commonwealth, and

the other of interest accruing after January 1, 1872,

on bonds issued by the present State of Virginia in

exchange for the old unfunded bonds of the undivided

State. The question here involved, therefore, is in

reality whether or not West Virginia should be charg-

ed with interest upon her equitable proportion of the

principal of the public debt of Virginia, and, as that

will be made the subject of separate discussion, the

exception need not be further noticed here.

WEST VIRGINIA’S EXCEPTION NO. 1

This exception of the State of West Virginia is

addressed to the expression of opinion by the Master,

found at the bottom of page ten and the top of page

eleven of his report, that West Virginia is liable for

PEA 0 cam nncees Cee eet te ee

> Pa TONLE OIE LE SALE EPO PGR ELE ADL

34

interest beginning with the first day of January,

1861, and its discussion is reserved until that portion

of the brief wherein the subject of interest is here.

inafter exclusively dealt with.

WEST VIRGINIA’S EXCEPTION NO. 2.

(Richmond, Fredericksburg & Potomac R. R. Stock)

Virginia, on the first day of January, 1861,

owned 2,752 shares of stock in the Richmond, Fred-

ericksburg & Potomac R. R. Company, of the par

value of $100 per share, making a total par value of

$275,200. The book value of the stock per share at

that time was $150, making a total actual value of

$412,800 (New Record, Vol. 2, pages 2-12,, being

defendant’s exhibit No. 2, with its sub-sheets 1, 2, 3

& 4). The Master, however, instead of taking the

undisputed and uncriticized book value as the ac-

tual value of the stock, averaged the book value per

share ($150) with the alleged earning value per

share of the stock ($84.83), and ascertained the

actual value as of January 1, 1861, to be $117.43

per share.

This was erroneous, for the following reasons:

First: Because he improperly ascertained the

so-called earning value of the stock. He averaged

the dividends declared thereon for a period of eleven

- years, ending with the year 1860, and found that the

average dividend per year during that period wes

5.09%, which when capitalized at 6%, gave him his

alleged earning value of $84.83 per share. [f he had

taken the average dividends for the fifteen ye:rs set

forth in defendant’s exhibit No. 2 (New Record. Vol.

35

2, pages 2 & 3), he would have found that the same

were nearly 7% per year instead of 5.09% ; and, if he

had taken the dividend declared in the year in ques-

tion, that is to say, in 1860, and in the year preceding,

that is to say, in 1859, he would have found that it

was actually 7% in each year, and this, capitalized

at 6%, would have produced a value per share of

$116.66 2/3, instead of $84.83, as declared by him to

be the earning value of the stock, which, when av-

eraged with the book value of $150 per share would

have made quite a difference;

Second: Because such an average in either

event would have been wrong, for the reason that the

book value, as shown by defendant’s exhibit No. 2

(New Record, Vol. 2, pages 2-12), was ascertained

by the surplus of assets over liabilities left after

all dividends had been declared. The surplus in the

case of this Company after the declaration of divi-

dends for the year ending March 31, 1859, as shown

by its balance sheet for that year, was $461,154.54

(New Record, Vol. 2, pages 4 & 5) ; for the year end-

ing March 31, 1860, $505,403.22 (New Record, Vol.

2, pages 6 & 7) ; for the year ending March 31 1861,

$562,819.05 (New Record, Vol. 2, pages 8 & 9), and

for the year ending March 31, 1862, $656,577.85

(New Record, Vol. 2, pages 10-12).

To average dividend values with book values

under such circumstances would be practically to add

the dividends in the liability column twice;

Third: Because some companies may be in a

condition to declare large dividends, but they may,

notwithstanding this fact, declare small ones, or none

at all, choosing rather to put all their net earnings

tosurplus. In such case, the dividends would furnish

OE LES LE LNIE ELE LO IEE IEE CD ILLS T LIN ERLE EEE SNR ARON REY

—

36

no or small evidence of the actual value of the stock,

and,

Fourth: Because the book value of stock rep.

resents its actual value, where the books are cor-

rectly kept; and, in the case of this Company, not a

single item, either in the asset or the liability column,

in any of its balance sheets for 1859, 1860, 1861 or

1862, has been criticized or called in question by the

State of Virginia, with the result that, presumtive-

ly, at least, its books have been correctly kept, and

its stock values actually shown.

The Master should, therefore, under the circum-

stances of this case, have taken the book value of $150

per share alone, which would have given to the 2,752

shares owned by the State of Virginia on January 1,

1861, a total value of $412,800, instead of

$323,167.36, making a difference in the valuation of

this stock as of that date of $89,632.64, 2314% of

which, or $21,063.68, represents the loss to West

Virginia.

WEST VIRGINIA’S EXCEPTION NO. 3.

(Orange & Alexandria R. R. Stock)

Virginia owned of the stock of this Company on

January 1, 1861, 17,490 shares, of the par value of

$50 per share, making an aggregate par value of

$874,500. The book value of this stock as of that

date was $53.32 per share (New Record, Vol. 2, de-

fendant’s exhibit 3, page 13; defendant’s exhibit 3,

asset 1, page 14). This book value was ascertained

by taking the last balance sheet of the Company, viz.,

September 30, 1856, and ascertaining therefrom the

a

surplus on hand at that time, and from the reports

of said Company to the State of Virginia the profits

for the years 1857, 1858, 1859 1860 and 1861, which

were added to the surplus and the book value of the

stock derived therefrom. All dividends paid upon

this stock were subtracted before the surplus was as-

certained, and the alleged earning power of the stock,

under such circumstances, could not be taken as a

standard for the measurement of its value. On the

contrary, and for the reasons set forth in the next

preceding exception (Richmond, Fredericksburg &

Potomac R. R. Co.), its book value should have been

taken alone, instead of averaging the book value, as

the Master did, with the alleged earning value. The

Master ascertained the earning value to be $12.28

per share (Master’s report, page 38), which, when

added to the book value of $53.32 per share, makes

$65.60, one-half of which, or $32.80, he ascertained

to be the actual value per share. This amount, mul-

tiplied by the number of shares (17,490), gave as

the total value of the stock, according to the finding

of the Master, $573,672.00. If the book value alone

had been used, the result would have been

$932,566.80, representing an increase of value over

the Master’s finding of $358,894.80, 2314% of which,

or $84,340.27, represents the loss to West Virginia.

37

WEST VIRGINIA’S EXCEPTION NO. 4.

(Richmond & Danville R. R. Stock)

Virginia owned 12,000 shares, of the par value

of $100 per share, of the stock of the Richmond &

Danville Railroad Company, making a total at par

areiininssicoe Sad 3

¥

‘

:

+

b

38

of $1,200,000. The book value, ascertained as in the

case of the Orange & Alexandria Railroad Company,

on the first day of January, 1861, was $187.37 per

share (New Record, Vol. 2, defendant’s exhibit 3,

asset 2, page 19). Besides, this stock, for the six

years preceding January 1, 1861, earned an average

profit of 9%, and a profit of 11% for the year 1860;

but this time the Master did not average the earning

value of the stock with its book value, but took the

book value alone, which we feel to be right; but it is

respectfully submitted that he erred in deducting

from the book value of $187.87 per share 5% of its

par value for liquidation purposes, thereby reducing

the value of a share to $282.87, which, when multi-

plied by the total number of shares (12,000) pro-

duced $1,588,440.00, or the amount of his allowance

(Master’s report, page 41).

This 5% reduction amounts to $60,000, and

2314% thereof represents a loss of $14,100 to West

Virginia.

Why should 5% of the par of this stock be de-

ducted from its actual value? It was not going

through liquidation, and there were no liquidation

expenses. Neither was it being transferred from

or to Virginia, and there could be no transfer ex-

penses. Virginia owned the stock on the first day

of January, 1861, and continued to own it there-

after. The stock was simply being appraised as of

that date, and its true value as of that time measured

the credit upon the debt to which it was applicable,

and it was not subject to any such deduction as if it

were passing through a bankruptcy or chancery

court.

——

39

WEST VIRGINIA’S EXCEPTION NO. 5.

(Richmond & Petersburg R. R. Stock)

The par of this stock was $100 per share, and

Virginia owned upon the date in question 2,856

shares, of a total par value of $385,600. The book

value, ascertained as in the case of the Orange &

Alexandria and the Richmond & Danville R. R.

Companies, was, on January 1, 1861, $121.86 per

share (New Record, Vol. 2, defendant exhibit 3, asset

8, page 22). Again the Master averaged this with

its alleged earning value, arriving at a value thereby

per share of $114,40, which, when multiplied by the

number of shares, gives his allowance of $441,126.40.

If the book value alone had been used, and it

should have been for the reasons given in the case of

the Richmond, Fredericksburg & Potomac R. R.

Company (West Virginia’s exception No. 2), the

result would have been a total value for this stock

as of January 1, 1861, of $469,892.16, making a dif-

ference of $28,765.76, 2314% of which, or $6,759.95,

represents West Virginia’s loss.

WEST VIRGINIA’S EXCEPTION NO. 6.

(Virginia Central R. R. Stock)

The holding of Virginia of this stock on Jan-

uary 1, 1861, was 18,916.70 shares, of the par value

of $100 each, or a total of $1,891,670.68. Its book

value, ascertained as in the case of the other rail-

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roads, was $131.16 per share (New Record, Vol. 2,

defendant’s exhibit 3, page 13, and defendant’s ex-

hibit 3, asset 4, page 24). The earning value, based

upon such dividends as were declared, was ascertain-

ed by the Master to be $116.95 per share (Master’s

report, page 46), and he bases his finding upon a

combination of the two, the average being $124.05

per share, giving a total value for all the shares of

$2,390,918.08, instead of a value of $2,481,115.26,

had he relied upon the book value alone, as he should

have done under the circumstances. This represents

a loss of $90,197.18 on the entire valuation of the

stock, 2314% of which, or $21,196.34, being the di-

minution of West Virginia’s credit.

WEST VIRGINIA’S EXCEPTION NO. 7.

(Alexandria, Loudon & Hampshire R. R. Stock)

This road was incorporated in 1853 (Master’s

report, 48), and between that date and January 1,

1861, a period of seven years, Virginia had expended

in the purchase of its stock in cash, $993,248, the

whole of which she still owned on that date.

Between January 1, 1861, and April 16, 1862, she

spent $24,000 more in the purchase of this stock, mak-

ing a total as of the latter date of $1,017.248.

On November 25, 1867, she sold all of her hold-

ings to the Road itself at $5.00 a share, or for the

price of $50,862.40; but West Virginia was interested

only in that part of the stock sold that was owned

by Virginia on January 1, 1861. The amount so then

owned seems to have been 97.64% of the whole stock

sold, and, therefore, $49,662.05 of the sale price would

41

be attributed to that portion of the stock held Jan-

uary 1, 1861; provided the amount received by Vir-

inia in 1867 for this stock could be taken as a stan-

dard for the measure of its value on January 1, 1861,

or could be considered as an element in fixing such

value.

The Master so valued the stock; that is to say,

he measured its value as of January 1, 1861, by its

sale price on November 25, 1867; or, worse than that,

he took such sum as its value on January 1, 1861,

($35,096.85) as would produce $49,662.05 by Novem-

ber 25, 1867, the latter sum being the sale price on

the latter date for that proportion of the stock that

was owned by Virginia on January 1, 1861 (Master’s

report, 48-9).

Even under ordinary circumstances, the sale

price would furnish no evidence of the value of a

chattel or security, especially seven years after the

date as of which it was to be valued; but, when we

reflect that West Virginia’s interest in this asset

must be determined as of a date before the Civil

War had begun, and that the Master has put a value

upon it based upon a sale price after the country

through which the road runs had been harried by a

four years war, we begin to see the utter worthless-

ness of the standard adopted. It must be borne in

mind that this road, beginning at Alexandria, Vir-

ginia, ran northwest through that State by way of

Leesburg, practically parallel to the Potomac River,

with Bull Run hard by upon the one side, and within

sound of the Federal guns at Washington, upon the

other; and, if we are to believe the history of the

times, to which counsel for the State of Virginia ap-

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pealed so persistently before the Master, the rail-

roads of the South, at the close of the war, were in

such a physical condition as to render them practi-

cally worthless. We are told that their embankments

were gone, cuts filled, and that now and then even

rails were removed and wrapped around trees.

What value, then, should be given to this stock

as of January 1, 1861? It must be confessed that the

evidence upon the subject is meager. We have no

evidence of the declaration of dividends, and little

knowledge of the physical condition of the road. All

we know is that it was incorporated in 1853, and,

during the seven years next following, was complet-

ed and put into operation from Alexandria, Vir-

ginia, to Leesburg, in that State (see map, New Rec-

ord, Vol. 2, page 283); that the par of its stock

was $100 per share, and that, between 1853 and the

first day of January, 1861, it bought at par, and paid

therefor in cash 9,932.48 of its shares (New Rec-

ord, Vol. 2, defendant’s exhibit 3, asset 6, page 28).

We have, then, the presumption (in the absence

of evidence to the contrary) that its stock was worth

par, strengthened by the fact that Virginia paid par

therefor in cash. This, to say the least, furnishes

much stronger evidence of its actual value than does

a mere sale price at the end of a destructive war.

If, therefore, it should be valued in this way, in-

stead of by the standard fixed by the Master, the

result would be that the total stock was worth on

the first day of January, 1861, the sum of $993,248,

instead of the sum of $35,096.85, as found by the

Master, and 2314% would give West Virginia a cred-

it of $223,413.28, instead of $8,247.74.

—7_

43

The reason why the Master, as shown by his re-

port (pages 48-9) found the value he did, instead of

the one here contended for, was because the expert

accountant for the State of West Virginia, in de-

fendant’s exhibit No. 3, asset 6 (New Record, Vol. 2,

page 28), only placed a value upon this stock of

$49,662.05, making the mistake of valuing it accord-

ing to the subsequent purchase price received by

Virginia, instead of according to our contention. His

exhibits, however, gave all the facts, and his mistake

was one of law, rather than of fact; and, almost in

the same breath, attention was called to the fact by

counsel for the State of West Virginia, and the

proper claim based upon the exhibit was made (New

Record, Vol. 1, page 416).

WEST VIRGINIA’S EXCEPTION No. 8.

(Virginia & Tennessee R. R. Loan)

On the first day of January, 1861, the Virginia

& Tennessee Railroad was a completed line in op-

eration from Lynchburg, in the State of Virginia,

to Bristol, in the State of Tennessee, a distance of

about two hundred miles (see map, New Record, Vol.

2, page 283).

The stock of this company was fully paid up

(Master’s report, 51).

Virginia owned therein stock of all classes

amounting to $2,300,000 (New Record, Vol. 2, page

167).

No evidence was introduced to show that any

dividends were paid on this stock prior to June 20,

1863; but a schedule was introduced for the purpose

aa ate ening art oe eee

44

eee ee aan

of showing dividends paid to the State of Virginia

thereon after the separation of the two States, and

it appears therefrom that she received as dividends

thereon on March 26, 1864, $100,000, and on April

first of the same year $38,000, making an aggregate

of $138,000, which would be 6% upon the par of her

: stock of $2,300,000 (New Record, Vol. 2, page 227);

but the Master says of this fact that “one dividend

; of about one-half of one per cent. was paid in 1864,

the only dividend for nearly thirty years” (Master’s

report, 51). By what warrant a dividend of 6% can

be turned into one of one-half of one per cent. we

are at a loss to understand.

The book value of this stock on June 30, 1860,

was $99.90 per share, the par per share being $100.00

(New Record, Vol. 2, defendant’s exhibit 6-a, page

57).

By virtue of an Act of the General Assembly of

Virginia passed February 9, 1853, a loan of

$1,000,000 was authorized to be made by the Board

of Public Works to this road for and on behalf of

the Commonwealth of Virginia, which loan was

made during the same year, and secured by a mort-

gage upon the property of the company, executed on

March 26, 1853 (New Record, Vol. 2, plaintiff’s ex-

hibit 19, page 423). This loan remained unpaid on

the first day of January, 1861, and was still owned

by the State of Virginia, at which time interest had

accumulated thereon to the amount of $280,000,

making a total of principal and interest of

$1,280,000 (New Record, Vol. 2, defendant’s exhibit

3, asset 8, sheet 1, page 30).

And, during the Civil War, there was paid into

the treasury of the State of Virginia in Confederate

wad aniaeaaaies

Sate SiR LIT TIENT ct

ee ee ne eee

45

currency to the credit of this loan $886,685. These

ayments were made in the following amounts, and

upon the following dates:

I en ntetiesnshotingliod $200,000

> } ene

iia ncxierceaseseemcosnncemacemntnncoti 100,000

= Sonn 100,000

Sep. 11, 1863...... mS ton mn he ee 186,685

Making a total of...............................$886,685

(New Record, Vol. 2, defendant’s exhibit 3, page

31.)

These payments the Board of Public Works for

the State of Virginia undertook to repudiate by reso-

lution passed on February 4, 1868, upon the ground,

among others, that it was paid to the Second Auditor

of Virginia, and that that officer had no right or

power to receive the same (New Record, Vol. 1,

pages 420-2) ; but it appears that the law of Virginia

at that time was that a warrant for these payments

could be obtained from the Second Auditor as well

as from the Auditor of Public Accounts (Act of

Virginia of 1860, Chap. 45, page 266, Sec. 2; Mas-

ter’s Report, 51).

Afterwards, that is to say, on December 22,

1870, Virginia sold whatever interest she had left

remaining in this loan, together with her stock in

this company and stock in certain other railways,

and her interest in certain other loans, to the Atlan-

tic, Mississippi & Ohio Railroad Company, at the

price of $4,000,000, secured by a second mortgage

upon the property of the purchasing company (New

Record, Vol. 2, defendant’s exhibit 6, page 56; Vol.

1, page 425).

EME ESL SECURE BIE EAE BS AERC RSI ifn 2 EPL E Py ees

46

West Virginia, in her schedules filed before the

Master, should have claimed a value for this loan as

of January 1, 1861, of $1,280,000, that being the prin-

j cipal with accumulated interest as of that date; but,

: instead, she only claimed $886,685, that being the

4 amount paid thereon to Virginia, as hereinbefore set

forth (New Record, Vol. 2, defendant’s exhibit 3,

page 13); and with this valuation she would have

been satisfied, but the Master, taking her at her min-

imum claim, and because that amount was paid to

Virginia thereon in Confederate currency during

the war, reduced the same to a gold basis as of the

dates upon which the payments were made, with the

: result that he places a total value upon this loan as

4 of January 1, 1861, of only $84,799.90, instead of

j $886,685. 2314% of the latter amount would be

$208,370.97, and of the former only $19,927.97, re-

sulting in a loss of West Virginia of $188,443.

As a matter of fact, transactions in Confederate

currency in 1863 can furnish no standard of value

for this loan as of January 1, 1861, before the war

began, and before Confederate currency was known.

At the true date as of which it should be valued

(1861), West Virginia was interested in the principal

loan of $1,000,000, with accumulated interest to the

extent of £280,000, the loan evidenced by bonds se-

cured by a mortgage upon a growing railroad, the

evidence further showing that the entire stock of

the company had been paid up, and that its stock

was worth almost par. Under such circumstances,

a prima facie case of par value for the bonds evi-

dencing the loan would be made, and, in the absence

of evidence introduced by the State of Virginia to

ito

47

the contrary, should prevail. At least a discount

and reduction from $1,280,000 to $886,685 should

not be disturbed because forsooth the loan was sub-

sequently paid off in part in Confederate currency.

WEST VIRGINIA’S EXCEPTION No. 9.

(Norfolk & Petersburg R. R. Loan)

Prior to January 1, 1861, the State of Virginia

loaned to the Norfolk & Petersburg Railroad Com-

pany $300,000, and this loan was still unpaid on that

date (New Record, Vol. 2, page 12-a).

$68,500 of the principal of this loan was paid to

Virginia in the year 1867, and, in the year 1868,

$68,500, making a total payment upon the principal

of $137,000. This was paid in Virginia bonds. Other

payments were made, but presumably upon interest

(Master’s Report, 57; New Rec., Vol. 2, page 34).

This left a balance of principal of $163,000, as shown

by the books of Virginia; and this balance was sub-

sequently sold by the State, along with other stocks

and loans, on December 22, 1870, to the Atlantic,

Mississippi & Ohio Railroad Company for the price

of $4,000,000, secured by a second mortgage upon the

property of the vendee company. The various stocks

and loans in this sale were all listed, and the amount

thereof in dollars and cents set down in the memo-

randum of sale made by Virginia to the Atlantic,

Mississippi & Ohio Railroad Company (New Rec.,

Vol. 2, page 56), except the balance of the loan of

$1,000,000 made to the Virginia & Tennessee Rail-

road Company, upon which the State had received

$886,685, as seen in the discussion of our exception

EER S URI he WR ERS rere

48

No. 8, and whatever interest Virginia might stil]

have in a loan of $800,000 made by her to the South.

side Railroad Company, to which loan the Master

has given no value (Master’s Rep., 53-4), and to

which finding we have filed no exception. The total

values so placed upon these stocks by the State of

Virginia in the schedule referred to amount to

$4,689,436.41, for which she accepted $4,000,000, as

aforesaid, or about 85% of the schedule price; and

85% of $163,000 (that being the unpaid balance on

the loan to the Norfolk & Petersburg Railroad Com-

pany) would amount to $138,550, which, when added

to the $137,000 already paid in Virginia bonds upon

the principal of the loan, would aggregate $275,550,

giving to the loan a value, if it is to be measured by

what Virginia received therefor, of said last named

amount. The Master, however, contents himself

with the $137,000 paid in bonds, and reduces that to

$98,607.09. as representing the present value as of

January 1, 1861, of $68,500 in 1867, and the same

amount in 1868.

WEST VIRGINIA’S EXCEPTION NO. 10.

(U. S. Government Loan)

The State of Virginia advanced moneys to the

Government of the United States during the war

of ’12. The money was returned, however, and the

Government of the United States always contended

that it had been settled in full. but the State of Vir-

ginia claimed that there was a balance of interest

due on the first day of July, 1814, amounting to

$298,369.74, and finally, by an Act of Congress passed

49

in the year 1902, the claim of Virginia was recogniz-

ed, and a settlement was had between the two govern-

ments as of February 11, 1894, wherein the Federal

Government turned over and surrendered to the

State of Virginia bonds of that State, and allowed

Virginia interest on her claim from July 1, 1814, to

February 11, 1894, a period of 79 years, 7 months and

10 days, and amounting to $1,425,212.79, which, when

added to the alleged principal of $298,369.74, made a

total of $1,723,582.58. The principal sum, with the

interest thereon from July 1, 1814, to January 1, 1861

(46 years and 6 months), amounted to $832,451.57,

or a total of principal and interest as of that date of

$1,180,821.381 (New Rec., Vol. 2, page 41). In other

words, this asset, principal and interest, was worth

on January 1, 1861, the sum of $1,130,821.31, and why

West Virginia was not interested in it to the extent

of 2314%, it is difficult to perceive. It may be that

the final settlement between Virginia and the Federal

Government was put upon an arbitrary basis, as sug-

gested by the Master (Master’s Rep., 67-70), but an

equity of some kind existed prior to January 1, 1861,

that was subsequently recognized by the Govern-

ment of the United States, and Virginia profited by

it. It was just as much West Virginia’s equity as

it was Virginia’s, and, although it may have stood

on a narrow basis, and was subsequently closed by

the Federal Government in a liberal way, yet it had

its foundation in a claim that existed prior to Jan-

uary 1, 1861, and whatever came out of it to Virginia

must, in equity, be shared with West Virginia.

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WEST VIRGINIA’S EXCEPTIONS Nos. 11, 12, 13

& 14.

(Farmer’s Bank of Virginia Stock)

(Bank of Virginia Stock)

(Bank of the Valley Stock)

(Exchange Bank Stock)

The exception to the valuation placed by the

Master upon the stock in each of these Banks is the

same, and they will be discussed together.

He took the book value of the stock in each Bank

as of January 1, 1861, but, instead of multiplying

that book value by the number of shares held and

owned by the State of Virginia in the particular

Bank, and thus arriving at its total actual value, he

took the book value per share, and deducted there-

from 5% of the par value of a share for liquidation

purposes.

The book value per share of the stock in the

Farmer’s Bank of Virginia was $107.89, and he re-

duced the same to $102.89 per share by deducting 5%

of its par, thereby placing a total value upon the

shares held by the State of Virginia in this Bank of

$990,419.14, instead of $1,038,549.14 (Master’s Rep.,

85-6).

The book value of the stock per share in the

Bank of Virginia was $74.99, and it was reduced in

the same way to $71.49 per share, which resulted in

a total value of Virginia’s stock in this Bank of

$984,131.34, instead of $1,091,312.34 (Master’s Rep.,

86-8).

The book value of the stock of the Bank of the

Valley was $107.6 per share, but this the Master re-

51

duced in the same way to $102.6 per share, resulting

in a total valuation of $496,481.40, instead of

$520,676.40 (Master’s Rep., 88-9).

The book value of the stock of the Exchange

Bank per share was $107.2, which was reduced by the

Master in the same way to $102.2 per share, resulting

in a total valuation of $894,761, instead of $938,536

(Master’s Rep., 89-90).

This stock was owned by Virginia on the first

day of January, 1861, and she continued to own it.

No transfer was necessary to put the title thereto in

her; neither were these Banks, or any of them, going

through a process of liquidation, and the $5.00 de-

ducted from the book value of each share was purely

an arbitrary discount that was required for no legi-

timate purpose, and performed no function, except

to diminish the value of the stock below its real

worth.

The balance sheets of these Banks will be found

in New Record, Vol. 2, pages 48-52.

WEST VIRGINIA’S EXCEPTION NO. 15.

(Atlantic, Mississippi & Ohio R. R. Co.)

On the first day of January, 1861, the State of

Virginia owned numerous shares of stock in the Nor-

folk & Petersburg, South Side, Virginia & Tennessee

and Virginia & Kentucky Railroad Companies.

The book value per share at that time of the

Norfolk & Petersburg was $89.52; the South Side

$105.98; the Virginia & Tennessee $99.90, and the

Virginia & Kentucky $100, and the total value of

Virginia’s holdings, measured by the book value,

a EC LEI LIES ONLI Se Pee ae

52

was $4,276,044.39 (New Rec.,Vol. 2, defendant’s ex.

hibit 6-a, page 57).

Virginia still owned these stocks in the month

of December, 1870, at which time she sold them, along

with certain loans she had made these Companies,

to the Atlantic, Mississippi & Ohio Railroad Com-

pany for the lump sum of $4,000,000, payable in eight

installments of $500,000 each, and took a second

mortgage upon the property of the Railroad Com-

pany to secure the payment of the same (New Ree.,

Vol. 2, defendant’s exhibit 6, page 56); but never

realized anything out of the transaction but the sum

of $500,000, which she received in the year 1882

(New Rec., Vol. 2, pages 165-7).

The Master placed a value on these stocks as of

January 1, 1861, of only $204,688.42 (Master’s Rep.,

98), which value was arrived at by apportioning the

$500,000 among the stocks of the four railroad com-

panies in the ratio of 10 2/3% to each, making an

aggregate of $464,642.72, which, when calculated

back to January 1, 1861, gave a present value of

$204,688.42.

The $500,000 received in the year 1882 for these

stocks, twenty-one years after the date as of which

they should have been valued, furnishes little, if any,

evidence of their value as of January 1, 1861. It

would be more just and equitable to have taken the

value placed upon them in the year 1870, both by the

seller and by the purchaser; that is to say, by the

State of Virginia and the Atlantic, Mississippi &

Ohio Railroad Company. This was only nine years

after January 1, 1861, and the price then named

($4,000,000) represented the judgment of both the

53

eller and the purchaser as to the value of the stock;

yr it would have been more accurate still to have gone

yack to the proper date itself, January 1, 1861, and

ylace a value on these stocks, as shown by the books

f the Company, of $4,276,044.39.

WEST VIRGINIA’S EXCEPTION NO. 16.

(Manassas Gap R. R. Stock)

The Master gives no value to this stock. The

ntire capital was $3,322,164.67, $3,188,312.97 of

vhich had been paid up in 1860. Virginia owned

32,105,000 of this stock at par (New Rec., Vol. 2,

page 61).

Virginia’s stock was fully paid up, and, on Jan-

lary 1, 1861, the road was constructed and in opera-

ion from Manassas to Mt. Jackson via Strasburg,

ind it was in process of construction from Mt. Jack-

on to Harrisonburg, Virginia (testimony of J. K.

Anderson, New Rec., Vol. 1, page 724-6). Par was

aid for this stock by the State of Virginia, and it

epresented an actual railroad in operation. It was

10t shown to have any debts, and, under such cir-

umstances, in the absence of evidence to the con-

rary, this stock was worth prima facie par.

WEST VIRGINIA’S EXCEPTION NO. 17.

(General Exceptions)

A.

It appears that certain Counties in West Vir-

rinia, after the latter State had been organized,

hat is to say, after June 20, 1863, paid taxes, fines,

a

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54

etc. to the State of Virginia to the amount of

$224,799.63 (New Rec., Vol. 2, defendant’s exhibit

10, page 224). $44,535.18 of this amount seems to

have been assessed prior to June 20, 1863, while the

residue, $180,264.45, was assessed after that time

(New Rec., Vol. 1, page 608).

The Master disallowed this item, for the follow.

ing reason: He says “no part of this sum, $180,264.45,

was paid by West Virginia, directly or indirectly,

Payment of this sum in taxes by individual taxpayers

creates no right in West Virginia to recover the

amount of Virginia * * * * ” (Master’s Rep., 113).

We do not understand that these taxes were paid by

individual taxpayers living in West Virginia Count-

ies to sheriffs and collectors of adjoining Counties

in Virginia, but that these taxes were collected by

West Virginia officials and turned over by them to

the State of Virginia; and, if this be true, the whole

money, in consequence, was covered into the treasury

of Virginia, although she had no interest therein or

title to the same, or to any part of it, and should be

compelled to account for the whole thereof unto

the State of West Virginia.

B.

The Master likewise charges us with having

received frum the restored government of Virginia

$170,771.46, with which he charges us (Master’s Rep.,

116). This consisted of money paid by Governor

Pierpont, of the restored government of Virginia,

to Governor Boreman, of West Virginia, but it had

been collected, as appears from the record, from

West Virginia territory, and she should not in equity

55

be charged with it as if it had been raised from

Virginia territory.

WEST VIRGINIA’S EQUITY IN THE VIRGINIA

ASSETS.

If the division of the old Commonwealth of

Virginia into two States had taken place without

any agreement upon the part of the State of West

Virginia to assume an equitable proportion of the

pre-existing debt, out of analogy to the rule that

obtains in the division of municipalities, Virginia

would have taken all the property originally owned

by the old Commonwealth, excepting the physical

property actually situated within the new State,

and would have become responsible for the entire

debt.

Dillon Mun. Corp., Vol. 1, Sec. 188, page

216 (3 ed.).

Mt. Pleasant v. Beckwith, 100 U. S., 514;

25 L. Ed., 699.

Comrs. of Laramie County v. Comrs. of Al-

a County, 92 U. S., 307; 23 L. Ed.,

552.

The text of Dillon above cited is as follows:

“So it has been frequently held that, if

a new corporation is created out of the ter-

ritory of an old corporation, or if part of

its territory or inhabitants is annexed to an-

other corporation, unless some provision is

made in the Act respecting the property and

existing liabilities of the old corporation,

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56

the latter will be entitled to all the property

= be solely answerable for all the liabi-

ities.”

Likewise, the first point of the syllabus in the

case of Mt. Pleasant v. Beckwith, supra, reads as

follows:

“Where a new town is formed from por-

tions of an old one, the old corporation owns

all the public property within its new limits,

and is responsible for all the debts of the

corporation contracted before the Act of

separation was passed, unless the legisla-

ture otherwise provide.”

(Syl. L. Ed.)

And the second point of the syllabus in the case

of Laramie County v. Albany County, supra, reads:

“Where the legislature does not pre-

scribe any different regulations, the rule is

that the old corporation owns all the pub-

lic property within its new limits, and is re-

sponsible for all debts contracted by it be-

fore the Act of separation was passed,

which debts it must pay without any claim

for contribution from the new sub-division.”

(Syl. L. Ed.)

But, as further said by Dillon,

“Upon the division of the old corpora-

tion and the creation of a new corporation

out of part of its inhabitants and territory,

or upon the annexation of part to another

corporation, the legislature may provide for

—

57

an equitable appropriation or division of

the property, and impose upon the new cor-

poration, or upon the people and territory

thus disannexed the obligation to pay an

equitable proportion of the corporate

debts.”

(Dillon Mun. Cor. Sec. 189, Vol. 1, page

216; 3 ed.)

It will be seen, therefore, that, under such cir-

cumstances, an equitable division of the property

and the payment of an equitable proportion of the

debts go hand in hand, and it becomes quite evident

that, when West Virginia promised to assume “an

equitable proportion of the public debt of the Com-

monwealth of Virginia prior to the first day of Janu-

ary, in the year one thousand, eight hundred and

sixty-one”, she meant that she should receive a like

equitable proportion of the property owned by the

old Commonwealth. In other words, and under the

rule, if she paid no part of the debt, she should re-

ceive no part of the property; but if, upon the other

hand, she should pay an equitable proportion of the

debt, she should receive an equitable proportion of

the property.

In the next place, it is stipulated in this case,

and is a fact, that the stocks, securities and other

properties presented in this case by West Virginia

for valuation, to the end that the same proportion

of such valuation may be applied as a credit upon

her part of the debt as her part of the debt bears

to the whole debt, were actually purchased out of

the proceeds of the very bonds that evidence the debt

to the payment of which she is compelled to con-

tribute (New Record, Vol. 1, page 711); and it fol-

bu POLE LEE PESO GLENN NEY IEE as VIN echo epee -

CE PRIKG NIGEL I

;

§

DNR RAIN.

nil ah. CO RS sl sarge ee

nM) el

PE RE NS ae ee tal rey tL

ee eee eee ee

58

lows as a corollary that, if she is compelled to pay

any part of a debt representing purchase money,

she is entitled to receive a corresponding part of the

value of the thing purchased.

Again the assets in question here were devoted

by the Legislature of Virginia to the payment of her

public debt, and the same have, in consequence, be-

come trust funds.

Act of Gen. Assembly of Va. of 1838, new

Rec., Vol. 1, p. 661-4.

Sections 28, 29 & 30, Art. 4, Constitution of

Va. 1851, New Rec., Vol. 1, p. 651.

Act of Va. passed March 26, 1853, New Rec.

Vol. 1, p. 652-6.

Act of Gen. Assembly of Va., approved

March 31, 1875, New Rec., Vol. 1, p.

656-8.

Joint Resolution of Gen. Assembly of Va. of

1866, New Rec., Vol. 1, p. 705-6.

Resolution concerning Canal Co., New Rec.,

Vol. 2, p. 198-9.

Sec. 1 of an Act. of Gen. Assembly of Va.,

approved Feb. 18, 1870, New Rec., Vol.

1, p. 706.

Message of Gov. Letcher of Va., New Rec.,

Vol. 1, p. 665-6.

Message of Bas Walker of Va., New Rec.,

Vol. 1, p. 667-73.

And, in the last place, the Supreme Court hav-

ing held that West Virginia is compelled to pay

2314% of the debt, West Virginia should receive

2314% of the value of the assets.

Virginia v. West Virginia, 220 U. S., p. 1;

55 L. Ed., 358

59

INTEREST.

EQUITABLE REASONS WHY WEST VIRGINIA

SHOULD PAY NO INTEREST.

This is not a suit brought by the State of Virgin-

ia against the State of West Virginia upon interest-

bearing securities. The suit is not upon bonds at all,

—Virginia could not sue herself; but it is based upon

a constitutional promise made by West Virginia to

Virginia, and not to the bondholders. This promise

was to assume an equitable proportion of the

public debt of Virginia as it existed prior to January

1,1861. That public debt was evidenced by interest-

bearing bonds, and the question at once arises wheth-

er a promise to assume or pay an equitable proportion

of an interest-bearing debt constitutes a promise to

pay an equitable proportion of the interest accruing

on that debt. Can there be an equitable apportion-

ment of an interest-bearing debt without apportion-

ing the interest upon the same basis as the principal?

The answer to this question must depend upon the

circumstances. What would have been equitable

between the two States on January 1, 1861, in conse-

quence of Virginia’s subsequent conduct, may not

be equitable today. If the State of Virginia, by neglect

or arbitrary conduct, has prevented the settlement

of this debt, or the ascertainment of its principal,

until the interest on West Virginia’s proportion

thereof should be, if allowed to run from January 1,

1861, four times the principal, so that when a decree

should be at last entered it would start with a new

principal, composed of the origina! equitable pro-

portion of the principal and fifty odd years of ac-

SR AEE ET EE TLE NEE Te REN ra ee SPIEL ot

60

cumu!ated interest thereon, with interest to run upon

the whole from the present time unti! paid, then, and

in that event, Virginia wou'd be permitted to profit

by her own wrong, and become the beneficiary of

her own default.

Let us see what has been the conduct of the two

States with respect to the ascertainment of this debt,

and answer our question in the light of that conduct.

West Virginia has not been at fault, but has been

helpless. Virginia, upon the other hand, has been

and is, solely responsible for the present status of

afiairs, and ought not to be permitted to reap mil-

lions of interest as a reward for her misconduct.

The equitabie proportion of this public debt was

. a question for decision. The amount had to be ascer-

tained, and it could be done oniy in one of two ways—

either by the agreement of the parties, or by the

decree of this Court. West Virginia couid not as-

certain the amount for herself. Neither was it ap-

propriate for her to sue her creditor. From January

1,1861, to June 20, 1865, she was not a State, and

could do nothing. From 1863 to April, 1866, a state

of war existed, and she could not negotiate with Vir-

ginia. Even had she known what her just proportion

of the debt was, and had had the money wherewithal

to pay it, she could not have gone to the City of Rich-

mond 2nd covered it into the treasury of Virginia.

To have done so would have been an act of treason

against the Government of the United States. From

the Fall of 1866 down until! the 6th day of March,

1871, a suit was pending in this Court that had been

instituted by Virginia against West Virginia, where-

in the integrity of the latter’s domain was attacked,

and, until that had been decided, she did not know

FORD pe REP GIF ALLIS TIE LEI LEI SG BLE. LE LEGG. ELISE LO HS

61

her own territorial extent, and upon that territorial

extent depended her equitable proportion of this debt.

At the very first moment when the opportunity pre-

sented itself, she sent a commission to treat with Vir-

ginia about this matter. Her commission went to

Richmond within a very few days after Mr. Justice

Miller had delivered the opinion of this Court in the

case of Virginia v. West Virginia, to which reference

has been made, and which is reported in 11 Wallace,

and there she was met with the statement that Vir-

ginia had no commission to treat with her, aud that

the statute upon which her former commission had

been based had been repealed. Thereupon, the West

Virginia commissioners went home, after having

made a bona fide effort in the name of their State

to settle this controversy of long standing. During

and within fifteen days after the appointment of the

West Virginia Commission, the same year (1871),

Virginia passed her funding bill, wherein she arbi-

trarily declared that she owed only 2/3 of this debt,

and that West Virginia owed the residue; and, in all

her efforts thereafter to negotiate with West Virgin-

ia, she made the recognition of that fact upon the

part of West Virginia a condition precedent to the

negotiation, and there the matter stood until she, for

the first time, took proper steps looking to the settle-

ment of this conroversy. She brought this suit in

1906, that is to say, forty-five years after January 1,

1861. She could have brought this suit in 1866 when

she brought her first suit against West Virginia,

and, indeed, they were so closely related, West Vir-

ginia’s equitable proportion of this debt being de-

pendent somewhat upon the extent of her territory,

that she should have presented this question for set-

Senereenenenercnees es

I OCT TLL OID CUES SACI Rat

62

tlement then. In other words, there has never been

an hour that West Virginia could have done a thing,

either through negotiation or by appeal to the courts,

and, upon the other hand, there has never been an

hour during the whole time when Virginia could not

have made her appeal to this Court, and have

brought this controversy to a close. She neglected

to do it; she postponed her rights; she allowed the

matter to sleep, evidence to be cst and complications

to set in, and it would not be equitable to permit her,

by acts of def2ult and neglect of this character, to

multiply the principal of West Virginia’s debt four-

fold. If by the decree of this Court at this time sev-

en millions, without 2h otement, should be taken as

the part of the principal of this debt that West Vir-

ginia should contribute, and interest should be al-

lowed thereon from 1861 until now, the interest, in

round numbers, would amount to $23,000,000, which,

when aided to the seven, would give a new principal

of thirty millions, upon which interest would run.

In other words, Virginia, by her own delay and de-

fault, would be permitted to multiply West Virgin-

ia’s debt by four.

LACHES.

it may be said that laches may not be attributed

to the Crown, and that this doctrine cannot be invok-

ed against a sovereign State. We take it, however,

that that would depend altogether upon the language

of the contract under which the Court was acting at

the time, and we find here the word “equitable”

used; and, if it would be inequitable to permit such

a result in consequence of the helplessness of one

63

State and the delay of another, then, and in that

event, would the principles of laches be invoked and

applied.

There is another reason why an exception to

the rule might be allowed, and it is this: Virginia

is acting for the most part here as a trustee for these

bondholders, and, while the doctrine of laches might

not be applicable to a sovereign, if the sovereign

were acting in a fiduciary capacity, there is no rea-

son why the doctrine might notwithstanding reach

the cestui que trust.

It might be suggested that West Virginia should

have moved by way of the courts as well as Virginia,

and that she would be equally chargeable with laches

in consequence of her failure so to do; but the doc-

trine of laches is never employed except to defeat a

claim, and, as West Virginia had and has no claim

against Virginia to enforce, the doctrine could have

no application to her, because, if so applied, it would

have only one result, and that would be to enable her

to entirely escape from the payment of any claim.

OTHER CIRCUMSTANCES SHOWING INTER-

EST CHARGE AGAINST WEST VIRGIN-

IA TO BE INEQUITABLE.

There are other equitable reasons why West

Virginia should not pay interest on her debt to Vir-

ginia, except from the time of its ascertainment, ev-

en if she should pay any interest from any date.

Some of these will now be suggested and briefly out-

lined, rather than discussed in detail.

First: At the time West Virginia was cut off

from Virginia and admitted into the Union as a sep-

NPE SEI TIP NSS AEE RE EA one my

meine Sawasia aris

64

arate and independent State, her territory was

wilderness. Almost trackless forests stretched from

the Alleghanies to the Ohio. Her lands were up.

cleared, and in large part were uncultivated. Her

minerals, for the most part, were undiscovered, and

she had then no mining industries. Her population

was sparse, and railroads she had none; neither had

she canais. Mountain trails constituted almost her

entire means of communication. She had no public

buildings, and her State institutions had yet to be

provided. She inherited none of these from Virgin-

ia, but was under the necessity of providing them

one and all for herself, without assistance or contri-

bution from the mother State.

Second: Virginia, upon the other hand. had

left within her territory, constructed and eq. «pped

out of the common funds of the undivided State, a

commodious capitol, with its grounds and libraries;

a penitentiary at the City of Richmond; a State asy-

lum at Staunton, and one at Williamsburg, with

their respective equipments; and a State university

at Charlottesviile, established and equipped through

the common contributions of the two sections extend-

ing over the period of a century, and with an csvv-

lished reputation that was not confined to the South,

but extended throughout the Nation, and, in fact,

was known throughout the world. All! these things

West Virginia left behind and Virginia inherited,

without making contribution of any kind or char-

acter.

Third: In addition to the foregoing institu-

tions, the territory left to Virginia was not only

OTM EI NEON ULATED a= AT A

65

traversed by public canals, built at the common ex-

pense, but was grid-ironed by railways that trav-

ersed, developed and enriched her counties, furnish-

ing communication between her citizens, and add-

ing taxable value to her property; and, independent-

ly of any stock ownership she may have had thereir,

the indirect benefit resulting to her remaining ter-

ritory after the division outweighed by far any dir-

ect investment she may have had in these roads.

And, when we turn to the map filed in this cause

(New Rec., Vol 2, page 283), we find that all the

rail and water-ways were left with the old State,

and that West Virginia did not have a single foot of

canal in operation, and less than twenty miles of

railway. Directly and indirectly, Virginia received

many millions of value in this way, while West Vir-

ginia received practically nothing. Her territory

was blank and empty, and, if she were compelled to

provide herself, as she was, single-handed and un-

aided, with public institutions, and make public im-

provements, and, at the same time, should be com-

pelled to pay interest upon securities issued by Vir-

ginia in the establishment and construction of pub-

lic works, buildings and institutions in which she

has no interest at all, she would be paying rather

dearly for her right of separation.* She would be

paying without consideration, and such payment

would be inequitable.

Fourth: Virginia herself has not paid one dol-

lar of interest upon one-third of her own debt which

has accrued since January 1, 1861. She was reliev-

ed from this one-third, together with the interest

thereon, by agreement with her creditors, the con-

PPE E OE Sl Ae AAS et ATO Re -

> MER LET EL LEER ATWO AGE Syne

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ese

66

sideration being that she should turn over to them

whatever she might recover on her claim against

West Virginia in this suit. Why should West Vir.

ginia pay Virginia interest on this third, or any

part of it?

LEGAL REASONS WHY WEST VIRGINIA

SHOULD PAY NO INTEREST.

I.

CLAIM OF VIRGINIA AGAINST WEST VIRGIN.

IA UNLIQUIDATED.

By the very language of the contract upon

which the present suit is based, Virginia’s claim

against West Virginia is uncertain, indefinite and

unliquidated. There has never been an hour since

the adoption of the West Virginia Constitution of

1861 that West Virginia knew what portion of the

debt of Virginia she should pay. The language of

her promise was an “equitable” proportion. The

very term indicates the necessity of investigation,

evidence, ascertainment and decision. There has

never been a time, although her treasury might have

been full, that West Virginia could have drawn

thereout a definite sum to meet a definite purpose.

Whether it was one million, or would be ascertained

to be five, she knew not. All she knew was that Vir-

ginia had arbitrarily decided her own case, and fixed

the amount at one-third. West Virginia knew, how-

ever, that this was wrong, and without authority,

and could not bind her or relieve Virginia, and she

was compelled to go along in this way without know-

ing on what sum, if interest should be charged, it

would be calculated. She had no method or means

67

by which to stop this accumulation, if forsooth it can

accumulate upon unascertained amounts. Had she

known upon what principal she was to be charged,

she could have negotiated her own bonds and paid

Virginia off, leaving her own securities outstanding,

and perhaps running only on a rate of interest one-

half as great as the rate that is borne by the present

bonds of Virginia.

Unliquidated amounts do not bear interest, and

it cannot be said that interest follows the principal

as the shadow does the substance; for, until the

amount is ascertained, there is no principal, and

there is no substance.

Redfield v. Ystalyfera Iron Co., 110 U. S.,

174; 28 L. Ed., 109.

Stevens v. Phoenix Bridge Co., 139 Fed.,

248.

I Sedgwick on Damages (9 ed.), 614.

Barrow v. Reab, 9 How. (U. S.), opinion,

p. 371.

Wittenberg v. Mollyneaux, 59 Neb., 200;

80 N. W., 824.

Swanson v. Andrus, 83 Minn., 505; 86 N. W.,

465.

Dady v. Condit, 209 IIl., 488; 70 N. E., 1089.

Brownell Imp. Co. v. Critchfield, 197 IIl.,

61; 64 N. E., 332.

Excelsior, ete., Co. v. Harde, 181 N. Y., 11;

73 N. E., 494.

Macomber v. Bigelow (Cal.), 58 Pac., 312.

Bright v. James, 35 R. I., 492; 87 Atl., 316.

Bennett v. Fed. C. & C. Co. (W. Va.), 74

S. E., 318.

Courtney v. Stand. Box Co. (Cal. App.), 117

Pac., 778.

16 Am. & Eng. Enc. Law (2 ed.), 1016, cit-

ing many cases.

PIR OAT ANA LL AEN OTN RAT SATE ROS IN st

68

The Virginia authorities upon the subject are:

Auditor of Pub. Accts. v. Dugger & Foley,

3 Leigh (Va.), 241.

Phillips v. Williams, 5 Gratt. (Va.), 258.

M’Connico et al., Exrs. of Holloway, v. Cur-

zen, 2 Call (Va.), 358.

Skipwith v. Clinch, 2 Call (Va.), 253.

Waggoner v. Gray’s Admrs., 2 H. & M.

(Va.), 603.

Stearns v. Mason, 24 Gratt. (Va.), 484.

a v. Amherst County, 115 Va.,

sites Hot, tit " — i a , ’

pel T ED ident RS coi aba ne add Kata. Se eet Sar Bs

II.

NO PROMISE ON THE PART OF WEST VIR-

GINIA TO PAY INTEREST.

IRL BGs Bante asc

It was urged in argument on behalf of West

Virginia that, if the Legislature of this State must

ascertain the equitable proportion of the debt as-

sumed by the defendant, and this constituted a part

of the contract between the two States, the Court

was without jurisdiction, and that this part of the

contract was binding upon both parties, and that

the question of the amount of this debt assumed by

West Virginia must be referred to her own Legis-

lature as the sole body to ascertain the extent of

West Virginia’s liability.

The Court, in answer to this argument, used

the following language:

“But again, it was argued that, if this

contract should be found to be what we

69

have said, then the determination of a just

proportion was left by the Constitution to

the Legislature of West Virginia, and that,

irrespectively of the words of the instru-

ment, it was only by legislation that a just

proportion could be fixed. These arguments

do not impress us. The provision in the Con-

stitution of the State of West Virginia that

the Legislature shall ascertain the propor-

tion as soon as may be practicable was not

intended to undo the contract in the preced-

ing words by making the representative and

mouthpiece of one of the parties the sole

tribunal for its enforcement. It was sim-

ply an exhortation and command from su-

preme to subordinate authority to perform

the promise as soon as might be, and an in-

dication of the way.”

220 U. S. 1.

It is now beyond discussion that the Court re-

gards the first clause of section 8 of article VIII,

Constitution W. Va., as constituting the terms of the

contract between the parties to this controversy, and,

as this clause makes no mention of interest, it is

idle to contend that there is any promise upon the

part of West Virginia to pay interest.

To hold a State to the payment of interest upon

an obligation which she has contracted there must be

an express promise to pay interest. In the absence

of such express promise there is no liability for in-

terest.

This is the settled law of this country as an-

nounced by the Federal and State Courts.

PARAS IEE REVS PIM LI IS OLGA NE TREN a Ors At i —

70

United States v. North Carolina, 136 U. S.,

211, 216, 34 L. ed., 336.

This case was followed in South Dakota v.

North Carolina, 192 U. S., 268, 48 L. ed.

448, the Court declining to allow inter-

est on the decree rendered therein.

} See also Molineaux v. State, 109 Cal., 378,

50 Am. St. Rep., 49.

“ Carr v. State, 127 Ind., 204, 22 Am. St. Rep.,

i 624, 11 L. R. A., 870.

a

eo v. Hoyt, 34 Or., 266, 75 Am. St. Rep.,

1

Board of Co. Com’rs v. Kaul (Kan.), 96

Pac., 45,17 L. R. A. (N. S.), 552.

eat

In Seton v. Hoyt, supra, quoting from the re-

port thereof in 75 Am. St. Rep. at page 643, the

Court said:

ati As Tt ET E'S 2

“There is some conflict in the authori-

; ties upon the question whether a sovereign

; State is required to pay interest unless self-

: imposed, but the weight thereof seems to

: support the contention that it is not. The

Supreme Court of the United States has

adopted the rule that interest is not allow-

able on claims against the government,

whether they originate on contract or tort,

or arise in the ordinary business of adminis-

tration, or under private Acts for relief,

passed by Congress on special application.

But it recognizes the existence of two well

established exceptions—one wherein the

governmen

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