1. As long as a city exists, laws are void which withdraw or
restrict her taxing power so as to impair the obligation of her
contracts made upon a pledge expressly or impliedly given that it
shall be exercised for their fulfillment.
Von
Hoffman v. City of Quincy, 4 Wall. 636, cited on
this point, and approved.
2. Although such laws be enacted, mandamus to compel her to
exercise that power to the extent she possessed it before their
passage will lie at the suit of a party to such a contract who has
no other adequate remedy to enforce it.
3.
Meriwether v. Garrett, 102 U.
S. 472, distinguished.
MR. JUSTICE FIELD delivered the opinion of the Court.
In March, 1876, the relator, Rebecca W. Wolff, recovered a
judgment in the Circuit Court of the United States for the District
of Louisiana against the City of New Orleans for the sum of
$13,000. Execution was issued upon it and returned unsatisfied. She
thereupon caused the judgment to be registered, under the act of
the legislature of the state of 1870 known as Act No. 5, of the
extra session of that year, to the provisions of which we shall
hereafter refer, and then called upon the mayor and administrators
of the city to pay it out of the contingent fund of the
corporation, or, if it could not be paid in that way, to levy a
special tax for its payment. The authorities having failed to
comply with this request, she applied for a mandamus to compel them
to pay it out of that fund or to levy a tax for that purpose,
setting forth in her petition the recovery of the judgment, the
issue of execution thereon, its return unsatisfied, and the refusal
of the city authorities, as stated. An alternative writ was
accordingly issued.
To this writ the city authorities appeared, and filed an answer
to the petition, in which they admitted the recovery of the
judgment, the issue of the execution, and its return unsatisfied,
and set up that the judgment was recovered on bonds of
Page 103 U. S. 359
the city issued to the New Orleans, Jackson, and Great Northern
Railroad Company, under the act of the legislature of the state,
approved on the 15th of March, 1854; that no tax for the payment of
the principal of those bonds was directed to be levied by that act,
or any other act of the state; that there was no contingent fund of
the city out of which the judgment could be paid; and that there
were no moneys to the credit of the fund for current expenses, not
otherwise appropriated; and that for these reasons they had not
budgeted the judgment or levied a tax for its payment, and could
not levy a special tax for that purpose. In an amended answer, they
further set up that at the time the bonds, upon which the judgment
was recovered, were issued, a general statute of the state
prohibited municipal corporations from incurring any debt or
liability unless in the ordinance creating the same full provision
was made for the payment of the principal and interest; and that a
special statute prescribing the form of the ordinance by which a
particular debt could be created, declared that such ordinance
should be submitted to the legal voters of the corporation, and
that the assent of the majority of them should be a condition of
its validity; that the ordinance thus submitted providing for the
issue of the bonds contained no provision for levying a tax to pay
the principal of them, but contained another provision deemed ample
for that purpose; and that therefore it was the evidence intention
of the legislature that the principal debt should be thus paid and
not by means of taxation.
The relator demurred to the return of the respondents, but it
would seem that when the demurrer was called, the case was
submitted upon the pleadings and certain proofs which had been
filed. The court decreed that the city authorities, exercising the
discretion vested in them according to section 3 of Act No. 5, of
the extra session of 1870, should appropriate from the money set
apart in the budget or annual estimate for contingent expenses a
sufficient sum of money to pay the judgment; but that if no
appropriation be made by the common council of the city, the
judgment should be paid according to its priority of filing and
registry in the office of the controller, from the first money in
the next annual estimate set apart for that purpose. The decree was
accompanied by a provision that
Page 103 U. S. 360
nothing therein should required the common council to assess or
levy any tax upon the city for the payment of the judgment, until
the legislature of the state should authorize the same, thus
assuming that existing legislation did not permit any such tax. To
reverse this decree the relator has brought the case to this
Court.
The act which authorized the issue of the bonds, upon which the
relator recovered judgment, provided that the railroad company
should issue to the city certificates of stock equal in amount to
the bonds received, and declared that the stock should remain
"forever pledged for the redemption of said bonds." It made no
other provision for the ultimate payment of the principal, but
provided that a special tax should be levied each year to pay the
annual interest. It is contended that only to the stock thus
pledged and the income from it were the bondholders to look for the
payment of the principal. The same position was urged in
United
States v. New Orleans, on the application by the relator in
that case for a mandamus to compel the city authorities to levy a
tax to pay judgments recovered upon similar bonds, and was adjudged
to be untenable.
98 U. S. 381. The
court held that the indebtedness of the city was conclusively
established by the judgments recovered against it, and that their
payment was not restricted to any species of property or revenues,
or subject to any conditions. If there were any limitations upon
the means by which payment of the bonds was to be had, they should
have been insisted upon when the suits were pending, and have been
continued in the judgments. The fact that no such limitations were
there found was conclusive that none existed.
The court also held that if the question were an open one its
conclusion would be the same; that the declaration of the act, that
the stock which the city was to receive from the railroad company
should remain "forever pledged for the redemption of said bonds,"
only created a statutory pledge by way of collateral security for
their payment, and did not release the city from its primary
liability, and that the bondholder was not bound to look to that
security, but could proceed directly against the city without
regard to it.
The court further held that the statutes of the state
restraining
Page 103 U. S. 361
municipal corporations from creating any indebtedness, without
providing at the same time for the payment of the principal and
interest, were not limitations upon the power of the legislature to
authorize the creation of debts by such corporations upon other
conditions; and though as a general rule it was deemed expedient to
prohibit cities from incurring debts on their own motion without
making provision for their payment, it did not follow that the
legislature might not authorize the incurring of a particular
obligation without such provision, and in the instance mentioned,
the statute prescribed the details of the ordinance to be passed by
the city in execution of the authority conferred.
The views thus expressed dispose of the objections to the
mandamus in this case, founded upon what is contained in the
railroad act as well as what is omitted from it. Nothing new has
been presented to our consideration to lead us to doubt the
correctness of our conclusions. There is no occasion, therefore, to
repeat the reasons upon which they were founded.
But counsel also urge in their argument against the granting of
the mandamus, that the power of a city to levy a tax upon property
for all purposes, judgments included, is limited by acts of the
legislature to one dollar and fifty cents on every one hundred
dollars of valuation, and that the amount thus raised is
insufficient to meet the current expenses of the city and pay
previous judgments of other parties. They repeat the averments of
the answer, that there was no contingent fund of the city out of
which the judgment of the relator could be paid, nor moneys to the
credit of the fund for current expenses not otherwise appropriated.
They cite the charter of 1870, which requires a budget to be made
in December of each year, exhibiting the various items of liability
and expenditure for the ensuing year, and the Act of March 6, 1876,
which limits the right of taxation upon property by the city to one
dollar and fifty cents on every one hundred dollars of its assessed
value. They also insist that the conditions on which judgments
against the city are to be paid are prescribed in Act No. 5 of the
extra session of 1870.
This last act provides that no writ of execution or
fieri
facias shall issue from any of the courts of the state to
enforce the
Page 103 U. S. 362
payment of any judgment for money against the City of New
Orleans; but that such judgment, when the same shall have become
executory, shall have the effect of fixing the amount of the
plaintiff's demand, and that he may cause a certified copy of it,
with his petition and the defendant's answer, and the clerk's
certificate that it has become executory, to be filed in the office
of the controller of the city, and that thereupon it shall be the
duty of the controller or auditing officer to cause the same to be
registered and to issue a warrant upon the treasurer or disbursing
officer of the corporation for the amount, without any special
appropriation of money therefor,
"provided always that there be sufficient money in the treasury
to pay such judgment, specially designated and set apart for that
purpose in the annual budget or detailed statement of items of
liability and expenditure required to be made"
by sec. 124 of the act of March 20, 1856, amending the city
charter, or by subsequent legislation.
The act further provides that in case the amount designated in
the annual budget for the payment of judgments against the city
shall have been exhausted, the
"common council shall have power, if they deem it proper, to
appropriate from the money set apart in the budget or annual
estimate for contingent expenses, a sufficient sum of money to pay
said judgment or judgments, but if no such appropriation be made by
the common council, then all judgments shall be paid, in the order
in which they shall be filed and registered in the office of
controller, from the first money
next annually set apart for
that purpose."
The respondents contend that, under these provisions, no
judgment creditor can claim that his judgment shall be paid
absolutely, for its payment is made to depend upon the conditions
stated; or insist upon an appropriation in the budget for any fixed
sum, for this is controlled by the limit of taxation and the amount
of necessary expenditures to sustain the government of the city.
The amount for judgments to be provided annually, they say, is to
be fixed by the discretion of the common council in framing the
budget; and this discretion is to be guided by the limit of
taxation for all purposes, and the amount required for police,
lights, paving streets, public schools, and
Page 103 U. S. 363
other necessary expenses of the city. These expenditures have
heretofore exhausted, and, if the limit of taxation prescribed by
the act of March 6, 1876, be enforced, will hereafter continue to
exhaust nearly all the funds raised. The balance remaining is, and,
with that limit of taxation, always will be, insufficient to pay
any considerable portion of the earliest judgments against the
city. So the relator must wait for an indefinite period -- perhaps
until the statute has barred her claim -- and take the uncertain
chance of obtaining from the city in the distant future any portion
of the sum due to her.
The Act of March 6, 1876, giving effect to what is known as the
"Premium bond plan," does not hold out to the bondholder the
delusive hope of payment in the distant future, which flitters
around Act No. 5 of 1870; it cuts him off absolutely unless he will
accept the conditions of the proposed plan. It recites in its
preamble that the total debt of the city, bonded and floating,
exceeds $23,000,000; that the taxable property of the city has
become so reduced in value as to require a tax at the rate of at
least five percent per annum to liquidate the debt; that a tax so
exorbitant will render its collection impossible; that the
continuation of a tax beyond the ability of the property to pay
would lead to a further destruction of the assessable property of
the city and to ultimate bankruptcy; and that the city has adopted
a plan for the liquidation of its indebtedness, looking to the
payment of its creditors in full, "obtaining thereby the indulgence
necessary for the public wellbeing and the maintenance of the
public honor."
The plan proposed was an exchange of outstanding bonds for
premium bonds, the latter to be of the denomination of twenty
dollars each, bearing five percent interest from Sept. 1, 1875,
payable at no designated period, the interest and principal to be
paid at the same time and not separately, and the maturity of the
bonds -- principal and interest -- to be determined by chance in
the drawing of a lottery. One million of these bonds is to be
divided into ten thousand series of one hundred bonds each. The ten
thousand series are to be placed in a wheel, and in April and
October of each year as many series are to be drawn as are to be
redeemed according to a certain schedule
Page 103 U. S. 364
adopted. The bonds composing the series thus drawn are to be
entered for payment three months thereafter, principal and
interest, and are to be receivable for all taxes, licenses, and
other obligations of the city. At the expiration of the three
months, the bond numbers of the drawn series are to be placed in a
wheel and 1,176 prizes, amounting to $50,000, are to be drawn and
distributed. Under this plan, the city is released from payment of
the principal or interest of its debt except such portion as may be
drawn from the lottery each year. As justly observed by counsel in
one of the cases before us, under this arrangement, whether a
creditor will be paid in one or in fifty years will depend upon the
turn of a wheel and the drawing of a lucky number. Of course this
plan disregards all the terms upon which the outstanding bonds of
the city -- and, among others, those held by the relator -- were
issued, and postpones indefinitely the payment of both their
principal and interest. To induce its adoption by the city's
creditors, the act, in its seventh section, provides that no tax
for the payment of the principal or interest of other than the
premium bonds shall thereafter be levied, repeals all laws
requiring or authorizing the city to pay any such tax, and declares
that it shall be incompetent for any court to issue a mandamus to
the officers of the city to levy and collect any interest tax other
than on the premium bonds.
For the interest on the premium bonds and other purposes of the
city, the act provides that a tax of only one and one-half percent
per annum shall be levied, and this limitation of the taxable power
of the corporation is
"declared to be a contract not only with the holder of said
premium bonds, but also with all residents and taxpayers of said
city, so as to authorize any holder of said premium bonds to
legally object to any rate of taxation in excess of the rate herein
limited."
It is plain that if the provisions of this act can be sustained
as a valid exercise of legislative power, the judgment of the
relator is practically annulled or rendered so uncertain of payment
as to be of little value.
When the bonds were issued upon which the judgment was
recovered, the city was by its charter invested with "all the
powers, rights, privileges, and immunities incident to a
municipal
Page 103 U. S. 365
corporation and necessary for the proper government of the
same," and it could have provided the means by taxation for their
payment when they became due. As we said in the case already
cited,
"the power of taxation is an incident to such a corporation, and
may be exercised for all the purposes authorized by its charter or
subsequent legislation. Whatever the legislature empowers the
corporation to do is presumably for its benefit, and may, in 'the
proper government of the same,' be done."
Besides the power thus existing at the time the bonds were
issued, the act providing for their issue directed, as already
stated, a special tax to be levied each year to meet the annual
interest on them. Such being the case, the question is whether the
city has been divested of its power by the act of 1876 which we
have mentioned.
The argument in support of the act is substantially this: that
the taxing power belongs exclusively to the legislative department
of the government, and when delegated to a municipal corporation
may, equally with other powers of the corporation, be revoked or
restricted at the pleasure of the legislature.
It is true that the power of taxation belongs exclusively to the
legislative department, and that the legislature may at any time
restrict or revoke at its pleasure any of the powers of a municipal
corporation, including, among others, that of taxation, subject,
however, to this qualification, which attends all state
legislation, that its action in that respect shall not conflict
with the prohibitions of the Constitution of the United States,
and, among other things, shall not operate directly upon contracts
of the corporation so as to impair their obligation by abrogating
or lessening the means of their enforcement. Legislation producing
this latter result, not indirectly as a consequence of legitimate
measures taken, as will sometimes happen, but directly by operating
upon those means, is prohibited by the Constitution, and must be
disregarded -- treated as if never enacted -- by all courts
recognizing the Constitution as the paramount law of the land. This
doctrine has been repeatedly asserted by this Court when attempts
have been made to limit the power of taxation of a municipal body,
upon the faith of which contracts have been made and by means of
which alone
Page 103 U. S. 366
they could be performed. So long as the corporation continues in
existence, the Court has said that the control of the legislature
over the power of taxation delegated to it is restrained to cases
where such control does not impair the obligation of contracts made
upon a pledge, expressly or impliedly given, that the power should
be exercised for their fulfillment. However great the control of
the legislature over the corporation while it is in existence, it
must be exercised in subordination to the principle which secures
the inviolability of contracts.
The case of
Von Hoffman v. City of Quincy, reported in
4th Wallace, is a leading one on this subject. There, the
Legislature of Illinois had in 1851, 1853, and 1857 passed acts
authorizing that city to subscribe for stock of certain railroad
companies and in payment thereof to issue its bonds with coupons
for interest annexed. Those acts authorized the city to levy a
special annual tax upon the property therein, real and personal, to
pay the annual interest upon the bonds, and required that the tax
when collected should be set aside as a special fund for that
purpose. The city failed to pay the coupons held by the relator for
a long time after they became due, and refused to levy the tax
necessary for that purpose. The relator thereupon sued the city and
recovered judgment. Execution issued thereon being returned
unsatisfied, he applied to the Circuit Court of the United States
for the Southern District of Illinois for a mandamus to compel the
authorities of the city to apply to the payment of the judgment any
unappropriated funds they had, or, if they had no such funds, to
levy a tax under the acts mentioned sufficient for that purpose.
The court issued an alternative writ, to which the city authorities
answered setting up an act of the legislature of the state of
November, 1863, authorizing the city council to levy a tax for
certain special purposes, such as lighting the streets and erecting
buildings for schools, and also a tax on all real and personal
property to pay the debts and meet the general expenses of the city
not exceeding fifty cents on each one hundred dollars of the annual
assessed value thereof, and repealing all other laws touching taxes
except such as related to their collection, or to streets, alleys,
and licenses. And they alleged that the full
Page 103 U. S. 367
amount of taxes thus authorized was in process of collection,
that the power of the city in that respect was exhausted, and that
the fifty cents on the one hundred dollars when collected would not
be sufficient to pay the annual expenses for the year 1864 and the
debts of the city. The relator demurred to the answer and judgment
was given against him, but the case being brought to this Court,
the judgment was reversed. In delivering the unanimous opinion of
the Court, Mr. Justice Swayne said:
"It is well settled that a state may disable itself by contract
from exercising its taxing power in particular cases. It is equally
clear that where a state has authorized a municipal corporation to
contract, and to exercise the power of local taxation to the extent
necessary to meet its engagements, the power thus given cannot be
withdrawn until the contract is satisfied. The state and the
corporation in such cases are equally bound. The power given
becomes a trust which the donor cannot annul and which the donee is
bound to execute, and neither the state nor the corporation can any
more impair the obligation of the contract in this way than in any
other. The laws requiring taxes to the requisite amount to be
collected, in force when the bonds were issued, are still in force
for all the purposes of this case. The act of 1863 is, so far as it
affects these bonds, a nullity. It is the duty of the city to
impose and collect the taxes in all respects as if that act had not
been passed. A different result would leave nothing of the contract
but an abstract right -- of no practical value -- and render the
protection of the Constitution a shadow and a delusion."
71 U. S. 4 Wall.
535,
71 U. S.
554.
The prohibition of the Constitution against the passage of laws
impairing the obligation of contracts applies to the contracts of
the state and to those of its agents acting under its authority, as
well as to contracts between individuals. And that obligation is
impaired in the sense of the Constitution when the means by which a
contract at the time of its execution could be enforced -- that is,
by which the parties could be obliged to perform it -- are rendered
less efficacious by legislation operating directly upon those
means. As observed by the Court in the case cited,
"without the remedy, the contract may
Page 103 U. S. 368
indeed, in the sense of the law, be said not to exist, and its
obligation to fall within the class of those moral and social
duties which depend for their fulfillment wholly upon the will of
the individual. The ideas of validity and remedy are inseparable,
and both are parts of the obligation which is guaranteed by the
Constitution. The obligation of a contract 'is the law which binds
the parties to perform their agreement.'"
The restraint upon the legislature, to the extent mentioned, by
the contract clause of the Constitution against revoking or
limiting the power of taxation delegated by it to municipal bodies
as the means of carrying out the purposes of their incorporation or
purposes designed for their benefit is a different matter from that
of exempting property from taxation, and even in the latter case it
has been adjudged in repeated instances that one legislature can
bind its successors. The restraint in no respect impairs the taxing
power of the existing legislature or of its successors or removes
any property from its reach.
These views are not inconsistent with the doctrine declared by
the decision of the Court in the recent case of
Meriwether v.
Garrett, 102 U. S. 472.
There, the charter of the City of Memphis had been repealed, and
the state had taken the control and custody of her public property
and assumed the collection of the taxes previously levied and their
application to the payment of her indebtedness. The city with all
her officers having thus gone out of existence, there was no
organization left -- no machinery -- upon which the courts could
act by mandamus for the enforcement of her obligations to
creditors. The question considered, therefore, was whether the
taxes levied before the repeal of the charter but not paid were
assets which the court could collect through a receiver and apply
upon judgments against the city.
Here, the municipal body that created the obligations upon which
the judgment of the relator was recovered, existing with her
organization complete, having officers for the assessment and
collection of taxes, there are parties upon whom the courts can
act. The courts therefore, treating as invalid and void the
legislation abrogating or restricting the power of taxation
Page 103 U. S. 369
delegated to the municipality, upon the faith of which contracts
were made with her and upon the continuance of which alone they can
be enforced, can proceed and by mandamus compel, at the instance of
parties interested, the exercise of that power as if no such
legislation had ever been attempted. And that the relator seeks to
have done here.
Following the doctrine of
Von Hoffman v. City of
Quincy, we are of opinion that the Act of March 6, 1876, the
provisions of which we have stated, is invalid so far as it limits
the power which the city possessed, when the bonds upon which the
relator has recovered judgment were issued, to levy a tax for their
payment. In thus limiting the power without providing other
adequate means of payment of the bonds, the legislature has
impaired the obligation of the contract between her and the
city.
The judgment of the court below must therefore be reversed and
the cause remanded with directions to issue the writ as prayed in
the petition of the relator, and it is
So ordered.
MR. JUSTICE HARLAN.
I concur in the opinion just delivered, except the paragraph in
which reference is made to
Meriwether v. Garrett,
102 U. S. 472. The
present case does not require us to determine any question as to
the effect which the repeal of a municipal charter may have upon
the rights of existing creditors. Nor do I wish to be understood as
assenting to the correctness of the statement in the opinion as to
what was involved and decided in
Meriwether v.
Garrett.