Ashton v. Cameron County Water Imp. Dist. No. 1 - 298 U.S. 513 (1936)
U.S. Supreme Court
Ashton v. Cameron County Water Imp. Dist. No. 1, 298 U.S. 513 (1936)
Ashton v. Cameron County Water Improvement District No. 1
Argued April 29, 1936
Decided May 25, 1936
298 U.S. 513
1. A district organized to furnish water for irrigation and domestic uses, which became a County Water Improvement District, all pursuant to the Constitution and statutes of Texas, with power to sue and be sued, issue bonds, and levy and collect taxes, held a political subdivision of the State. P. 298 U. S. 527.
2. The Act of May 24, 1934, added three sections (§§ 78-80) to the Bankruptcy Act, purporting to permit municipal corporations and other political subdivisions of States, unable to pay their debts as they mature, to resort to the federal courts of bankruptcy to effect readjustment of obligations. Plans involving a scaling down, compromise, or repudiation of debts, without surrender of any property whatever, if approved initially by creditors holding 30%, and finally by those holding 66 2/3%, of the indebtedness, could be enforced by the court, under conditions specified, though opposed by minority creditors. Held that the power claimed in support of the Act necessarily implies power in the Federal Government materially to restrict the States in the control of their fiscal affairs. Such authority is not found in the power of Congress to establish uniform laws on the subject of bankruptcies. Pp. 298 U. S. 527, 298 U. S. 530,
3. In determining the existence of a constitutional power, inquiry is not limited to the results of its attempted exercise; it is of the first importance to consider what might be the results of its future exercise. P. 298 U. S. 530.
4. It is the especial purpose of all bankruptcy legislation to change, modify, or impair the obligations of contracts. The Act in question expresses this design in plain terms; it undertakes to extend the supposed power of the Federal Government incident to bankruptcy over any embarrassed district which may apply to the court. P. 298 U. S. 530.
5. If their obligations may be subjected to the interference here attempted, States and their political subdivisions are no longer free to manage their own affairs; the will of Congress prevails over them. P. 298 U. S. 531.
6. State cannot constitutionally impair the obligations of contracts by a law in the form of a bankruptcy law, nor can she reach the same end by granting permission necessary to enable Congress to do so. P. 298 U. S. 531.
7. Neither consent nor submission by the States can enlarge the powers of Congress. The sovereignty essential to the proper functioning of a State under the Constitution cannot be surrendered, nor can it be taken away by any form of legislation. Id.
8. The same basic reasoning which leads to the conclusion that the taxing power of Congress does not extend to the States or their subdivisions requires a like limitation upon the power springing from the bankruptcy clause. P. 298 U. S. 532.
81 F.2d 905 reversed.
Certiorari to review the reversal of a Judgment of the Bankruptcy Court dismissing a petition filed by the Water District for a reduction of its bonded indebtedness.