The federal character of a suit must appear in the plaintiff's
own statement of his claim, and where a defense has been interposed
the reply to which brings out matters of a federal nature, those
matters thus brought out by the plaintiff do not form a part of his
cause of action.
The treasury warrants in question in this case cannot be said
upon the evidence to have violated the Constitution of the United
States, or of the State of Texas.
A warrant, drawn by the authorities of a state in payment of an
appropriation made by the legislature, payable upon presentation if
there be funds in the treasury and issued to an individual in
payment of a debt of the state to him, cannot be properly called a
bill of credit or a treasury warrant intended to circulate as
money.
A deliberate intention on the part of a legislative body to
violate the organic law of the state under which it exists, and to
which the members have sworn obedience, is not to be lightly
indulged, and it cannot properly
Page 177 U. S. 67
be held that the receipt of the warrants issued in pursuance of
legislative authority in Texas, and in payment of an indebtedness
due the state from the individual paying them, is an illegal
transaction, and amounts in law to no payment whatever.
When a municipality contracts for a municipal improvement which
it is within its power to agree for, and engages to pay for the
same in bonds which it is beyond its power to issue, and the work
so contracted for is done, the municipality is responsible for it
in money, as it cannot pay in bonds.
Where the validity of a contract is attacked on the ground of
its illegal purpose, that purpose must clearly appear, and it will
not be inferred simply because the performance of the contract
might result in an aid to an illegal transaction.
On the principles laid down in
Baldy v. Hunter,
171 U. S. 388, the
contract in this case cannot be held to be unlawful.
When the officers of the state, pursuant to its statutes,
received warrants as payment, they acted for the state in carrying
out an offer on its part which the state had legal capacity to make
and to carry out, and the contract having been fully executed by
the company and the state, neither party having chosen to refuse to
perform its terms, neither party, as between themselves, can
thereafter act as if the contract had not been performed.
This proceeding was commenced by the State of Texas against the
defendant, the Houston & Texas Central Railroad Company
(hereafter called the company), to recover the amount due on
certain bonds issued to the state, and to foreclose the lien which
existed upon its property as security for the payment of such
bonds. The company is the legal successor of the two companies
which received the loans and gave their bonds, and no question of
liability arises on that ground. Judgment was given in the trial
court for the amount found due, and a lien was declared and a sale
of the property of the company ordered. From this judgment the
company appealed to the court of civil appeals for the state, where
it was modified and then affirmed. The company brings the case here
on writ of error.
The petition of the state by which the proceeding was commenced
showed that the predecessors of the plaintiff in error borrowed
money from the school fund of the state, and gave their bonds
therefor. These bonds were not paid according to their tenor and
effect, and the legislature therefore, on August 13, 1870, passed a
general act for the relief of railroad
Page 177 U. S. 68
companies indebted to the state, by which it was provided that,
if any company should on the first day of November, 1870, pay six
months' interest on the aggregate amount of the loan which, on the
first day of May, 1870, was due from it to the state, and one
percentum of the principal, and thereafter should make similar
semiannual payments, the state would not exact any other
payments.
(What was the aggregate amount of the loans due on the first of
May, 1870, from the two companies of which the present company is
the successor, is the question in controversy, and its answer
depends upon the validity of certain payments made by the companies
to the state in treasury warrants during the war. Part of the
discussion rests upon the meaning and effect of this act, and it is
therefore given in full in the margin.)
*
Page 177 U. S. 69
Subsequently semiannual payments of interest and sinking fund
were made by or on account of the Washington County Railroad
Company (one of the predecessors of the plaintiff in error) up to
and including the first of May, 1879, but no payment was made on
November 1, 1879, or at any time thereafter. Similar payments were
made by or on account of the Houston and Texas Central Railway
Company (the other of such predecessors) up to and including the
first day of May, 1893, but a portion only of the semiannual
interest claimed to be due in November, 1893, was paid, and nothing
has been paid since November 1, 1893. Judgment was prayed for the
sums of money stated to be due, with interest, for the foreclosure
of the lien, and for a sale of the property under execution, the
proceeds to be applied to the payment of the sum due with interest,
and for such other relief as might be necessary.
To this petition the defendant filed an answer, and therein,
among other things, alleged that after the commencement of the
civil war, the various railroad companies were unable to fulfill
their obligations to the state, and therefore the Legislature of
Texas, on the eleventh day of January, 1862, passed an act for
their relief, extending the time of payment of interest and sinking
fund amounts until the first of January, 1864.
Page 177 U. S. 70
The state legislature, on December 16, 1863, passed the first
act in relation to receiving treasury warrants from railroad
companies, which reads as follows:
"SEC. 1. Be it enacted by the Legislature of the State of Texas
that the comptroller of the state be, and he is hereby, authorized
to receive from the railroad companies in this state who are
indebted to the special school fund all interest on their bonds
that may now be or hereafter become due, provided the same is
tendered in state bonds or in state treasury warrants, previous to
the meeting of the next regular session of the state
legislature."
"SEC. 2. That for all sums so paid in, the comptroller and
treasurer shall issue to the special school fund the bonds of the
state bearing six percent interest."
The legislature also passed another act on May 28, 1864, which
reads as follows:
"SEC. 1. Be it enacted by the Legislature of the State of Texas
that the provisions of the act of which it is amendatory shall not
apply to railroad companies that fail or refuse to receive state
bonds or state treasury warrants at par for freight or passage at
the prices or rates established by law."
"SEC. 2. That whenever satisfactory evidence is produced or
furnished to the comptroller of the state that any railroad company
has failed or refused to receive the state bonds or state treasury
warrants at par for freight or passage at the rates established by
law, he is required to refuse to receive the state bonds or
treasury warrants for the interest due by said railroad upon its
bond."
"SEC. 3. That the president of any railroad in this state be,
and is hereby, required to post in a conspicuous place in the
railroad offices and in the passenger cars the provisions and terms
of this act, under a penalty of $100, to be recovered for the
benefit of the state by suit before any court of competent
jurisdiction, upon information of any party."
On November 16, 1864, still another act was passed by the
legislature which reads as follows:
"Be it enacted by the Legislature of the State of Texas that the
railroad companies of this state that are indebted
Page 177 U. S. 71
to the special school fund shall continue to be allowed the
privilege of paying the interest due said fund in the treasury
warrants and bonds and coupons of the state, and may also discharge
the whole or any part of the principal of their indebtedness to
that fund (in the same manner), provided such railroad companies
shall satisfy the comptroller that the treasury warrants and bonds
and coupons of the state are received by them at par with specie
for freight and passenger travel."
"That all treasury warrants and bonds and coupons of the state
so received into the state treasury shall be cancelled, and the
comptroller shall issue the bonds of the state, bearing six percent
interest, to the special school fund for the amount so paid in, and
this act take effect from its passage."
Upon the passage of these various acts and in reliance upon the
agreement and obligation of the state as evidenced thereby, the two
companies acquired treasury warrants upon good consideration, and
after the passage of the Act of May, 1864, they received treasury
warrants at par in payment of freight and passenger services
rendered by them to the various people who demanded the same, and
they subsequently paid treasury warrants to the comptroller of the
state in payment of interest due on their indebtedness (the amounts
of such payments are set forth in the answer), and upon such
payment and receipt of the warrants by the comptroller and
treasurer, they were cancelled as authorized and required by the
above-mentioned act, and thereupon the comptroller and treasurer
issued the bonds of the state bearing six percentum interest to the
special school fund for the amount so paid by the railroad
companies in treasury warrants. By reason of all which, it was
alleged that a valid and binding contract between the state and the
railroad companies was made, that the payments in treasury warrants
should be valid payments at their par value, upon the various loans
made by the state to the companies, and it was further alleged that
the payments by treasury warrants had been received by the
authorities of the state and cancelled, and a credit for the amount
thereof as payment given to the companies on the books of the
state, and that the transaction thereby became fully executed,
and
Page 177 U. S. 72
the state could not thereafter dispute or question the validity
of such payments or the right of the company to the credits given
it by the state.
It is also alleged that, after the passage of the Act of August
13, 1870, and about the first of November, 1870, the comptroller of
the state, with the concurrence and approval of the governor,
wrongfully and without authority of law recharged each of the
railroad companies respectively upon the books of the comptroller's
office with the several amounts theretofore paid by them
respectively in treasury warrants, and there was demanded from the
respective companies on the first day of November, 1870, six
months' interest and one percent for the sinking fund on the
aggregate amount of the loan, as made up by the comptroller, after
striking out the payments made by the company with the treasury
warrants. These amounts were paid under protest as being illegally
demanded and resulting in a violation of the contract existing
between the companies and the state. Payments on the same basis
were continued semiannually from that time, accompanied by a
protest similar to the one first mentioned, until, as the company
contends, the full amount due by it to the state had been paid,
provided the payments in treasury warrants were credited as valid
payments. Since that time, the company has refused to make further
payments. It claimed that the Act of August 13, 1870, as construed
by the state authorities, impaired the obligation of the contract
existing between the state and itself, and thereupon it prayed for
judgment.
To this pleading the plaintiff filed its first supplemental
petition, and therein specially set up that the three several acts
of the legislature of the state mentioned in the defendant's answer
as the authority for the payment upon the bonds of the company in
treasury warrants were unconstitutional and void because (1) the
warrants in which payments were authorized to be were issued for
the purpose of being circulated as money, and were in violation of
the state constitution; (2) also because they were bills of credit
emitted by the state, and therefore in violation of Section 10 of
Article I of the Constitution of the United States, and (3) because
the acts under which the
Page 177 U. S. 73
warrants were authorized to be paid, together with other acts
passed at or about the same time, plainly indicated that the
treasury warrants and other obligations in which payments were
authorized to be made, and which were made by the defendant, were
issued in aid of the rebellion against the United States of
America, and were therefore void.
Upon these pleadings, a motion was made by the company to remove
the case to the United States circuit court on the ground that, by
the filing of the plaintiff's last above-mentioned pleading, it
became apparent for the first time, from plaintiff's statement of
its own claim, that the case was one arising under the Constitution
or laws of the United States, and defendant was therefore entitled
to a removal. The motion was denied, and although further pleadings
were thereafter served on each side, they are not material to the
matters discussed in the opinion.
The case was tried without a jury, there being no dispute as to
the facts. The trial court held that the payments in treasury
warrants were illegal because they were issued to circulate as
money, in violation of the Constitution of the state. It also held
that they were issued, or at least some of them were issued, in
direct aid of the rebellion, and were therefore void; that the
burden rested with the defendant to show, if it could, which, if
any, of the warrants were valid. Judgment was given in favor of the
state.
The company then appealed to the Court of Civil Appeals for the
Third Supreme Judicial District of the state, where the judgment
was modified so as to render no personal judgment against the
company and to foreclose the lien of the state only upon that part
of the road which the findings showed was in existence on August
13, 1870, and as thus modified, it was affirmed solely on the
ground that the warrants were issued in violation of the state
constitution, as paper intended to circulate as money. A writ of
error was applied for to the Supreme Court of Texas, and by that
court refused. The company then brought the case here by writ of
error to the court of civil appeals. The defendant in error has
made a motion to dismiss the writ on the ground that this Court has
no jurisdiction, for reasons stated in the opinion.
Page 177 U. S. 74
MR. JUSTICE PECKHAM, after stating the foregoing facts,
delivered the opinion of the Court.
The motion to dismiss the writ of error must be denied. The case
involves a federal question under the contract clause of the
Constitution.
The claim on the part of the defendant in error, the plaintiff
below, is that the state court decided the case under the
provisions of the state constitution only, and without reference to
the act of 1870, which the plaintiff in error (the railroad
company) alleges to be an impairment of the contract set up by it
in the pleadings. Although the state court held that the payments
in dispute were made by means of state treasury warrants issued to
circulate as money, which were therefore void as in violation of
the constitution of the state, and that the delivery of the
warrants by the company amounted to no payment whatever, the
question still remains whether, by that decision, any effect was
given to the act of 1870. We think the judgment of the state court
did give effect to that act.
It will be seen that the third section provides that the state
will not exact of any railroad company not thereafter in default
the payment of the principal of the debt, excepting as paid by the
payments due the sinking fund under the provisions of the act; it
also provides in the second section that if a railroad company
failed to pay the amount required to be paid in section one at the
times designated thereby or within ten days thereafter, then the
whole debt of such company, principal and interest, should become
due, and the governor was directed to proceed as therein
stated.
The first thing to be done in order to be able to carry out the
provisions of the act was to ascertain what the aggregate
amount
Page 177 U. S. 75
of the loan was as that amount stood on the first day of May,
1870, because it was upon that amount that interest semiannually
was to be paid, and also one percent of principal to the sinking
fund. The authorities of the state determined what the aggregate
amount was as it stood on the first day of May, 1870, and they
arrived at that amount by refusing to recognize as valid any
payment which the company had made in treasury warrants, and in
that way they made the aggregate amount larger by those sums than
that made by the company, which claimed to be credited with the
amount of its payments in those warrants. Upon the aggregate amount
as determined by the authorities of the state, payment of the
interest and for the sinking fund was demanded under the act. This
demand was complied with by the company under protest, and
accompanied by a claim on its part that the aggregate amount due on
the loan was less than that stated by the authorities of the state
by just the amount of the payments which the company had made in
these treasury warrants. The protest was overruled and the claim
denied, and thereafter the same protest and the same claim were
made and the same action taken upon the part of the state
authorities on each semiannual occasion when payments were due and
made. This lasted until the payments made by the company in cash
and in the treasury warrants, upon the basis of the legality of the
payments in such warrants, paid the indebtedness due from the
company to the state, and from that time it has refused to make
further payments. The state did not acknowledge that full payment
had been made of that indebtedness, and thereupon commenced the
present proceeding to recover the amount it claimed to be due and
to foreclose its lien against the company. This it could not do
under the statute of 1870 unless the company had defaulted in
respect to the payments required under that act.
It is admitted that the company had not so defaulted, provided
the payments in treasury warrants were duly credited to it; nor is
it denied, on the other hand, that if those payments were not valid
payments and ought not to be credited to the company, then it had
defaulted in respect to the payments required by the act before the
commencement of these proceedings.
Page 177 U. S. 76
When the state court, therefore, decided that these warrants
were issued in violation of the constitution of the state, and that
payments in them were in fact and in law no payments, and gave
judgment accordingly, the effect of that decision was necessarily
to hold that the company had defaulted in respect to the payments
required under the act, and that the proceedings of the state to
collect the sum due were permitted by the act, and effect was thus
given to such act, although not one word was spoken in regard to it
in the opinion delivered in the state court.
If the railroad company had not failed to pay any amount
required to be paid in section one of the act, then the proceeding
herein could not have been taken, by reason of the provision
contained in the third section, and it is only after a failure to
pay for ten days that the second section permits the proceedings to
be taken to collect the amount. In giving judgment for the
plaintiff, therefore, the court has in effect determined that the
plaintiff was proceeding rightly under the act of 1870, and effect
was thus given to its provisions.
The judgment of the court of civil appeals gives an additional
effect to the act, because by its judgment there is struck out the
provision in the judgment of the trial court in regard to the lien
of the state, and it has limited that lien in accordance with the
third section of the act, so that it should not attach to any
extension of the railroad which had been constructed since its
passage. Although that modification may be a favor to the company,
it nevertheless gives effect to the act. The company has not
accepted that act, so that it cannot draw in question its validity
as construed by the state court, and hence no reason is shown for
the granting of the motion to dismiss on that ground. The only
acceptance consists in the payments made by the company to the
state after its passage. The very first payment made by the company
under the act -- namely, on the first day of November, 1870 -- was,
however, made while asserting the claim that payments in treasury
warrants were valid and should be acknowledged and credited to the
company, and upon the refusal of the state authorities to admit
those payments, the company paid the interest and percentage on the
larger sum demanded
Page 177 U. S. 77
by the state under protest that such demand was illegal and
improper, and every subsequent payment was made under the same
protest by the company. Payments so made show no such acceptance of
the act as to prevent the company from thereafter drawing in
question its validity as construed by the state authorities.
Thus we see that, although the decision of the state court was
based upon the ground that the warrants in which these payments
were made had been issued in utter violation of the state
constitution, and were hence void, and that no payments made with
such warrants had any validity, and although this ground of
invalidity was arrived at without any reference made to the act of
1870, yet the necessary consequence of the judgment was that effect
was thereby given to that act, and in a manner which the company
has always claimed to be illegal and unwarranted by the act when
properly construed. The company has never accepted such a
construction, but, on the contrary, has always opposed it, and
raises the question in this proceeding at the very outset. Upon
these facts, this Court has jurisdiction, and it is its duty to
determine for itself the existence, construction, and validity of
the alleged contract, and also to determine whether, as construed
by this Court, it has been impaired by any subsequent state
legislation to which effect has been given by the court below.
Bridge Proprietors v. Hoboken
Company, 1 Wall. 116;
Northwestern University
v. People, 99 U. S. 309;
Fisk v. Jefferson Police Jury, 116 U.
S. 131;
New Orleans Water Works Company v. Louisiana
Sugar Refining Company, 125 U. S. 18;
Central Land Company v. Laidley, 159 U.
S. 103,
159 U. S. 109;
Bacon v. Texas, 163 U. S. 207,
163 U. S. 216;
McCullough v. Virginia, 172 U. S. 102.
In this case, we think we have shown that the judgment did give
effect to subsequent legislation which, as construed by the state
court, the company claims has impaired the obligation of the
contract between itself and the state. The writ of error was
therefore well brought.
The motion for the removal of this case to the United States
circuit court was properly denied. The statement of the cause of
action as contained in plaintiff's first petition did not show that
the suit was one arising under the Constitution, laws, or treaties
of the United States.
Page 177 U. S. 78
The suit, as it appears upon the face of the petition of
plaintiff, was upon the bonds given by the company for the loan of
a portion of the school fund, and to foreclose the lien of the
state upon the property of the company, and in the petition
reference was made to the act of 1870 for the purpose of stating
the amount due on the bonds for principal and interest. Nothing
upon the face of this petition showed any fact upon which federal
jurisdiction could be based. The company answered by alleging
certain payments in treasury warrants which, if properly credited,
would show that, with the other payments that had been made, there
was nothing due the plaintiff on the bonds. As an answer to this
defense, the plaintiff set up the invalidity of the laws providing
for payments in treasury warrants, that the warrants were issued by
the state in violation of both the state and federal Constitutions,
and that the payments were therefore illegal and void. This was no
part of the plaintiff's cause of action upon which suit was
brought, and that cause of action did not in any way involve a
question arising under the Constitution or laws of the United
States. The defendant therefore made out no case for a removal to
the United States circuit court.
Oregon &c. Railway Company
v. Skottowe, 162 U. S. 490,
162 U. S. 494;
Tennessee v. Union & Planters' Bank, 152 U.
S. 454;
Galveston, Harrisburg &c. Railway v.
Texas, 170 U. S. 226,
170 U. S.
235.
The result of the authorities is that the federal character of
the suit must appear in the plaintiff's own statement of his claim,
and that where a defense has been interposed the reply to which
brings out matters of a federal nature, those matters thus brought
out by the plaintiff do not form a part of his cause of action, but
are merely a reply to the defense set up by the defendant. The
review of the federal question by this Court is not thereby
precluded, for, it having been properly raised in the state court
and decided against the contention of the party setting it up, this
Court may review it on error to the highest court of the state.
This brings us to the question what, if any, contract existed
between the state and the company consequent upon the payments by
the company to the comptroller of the state in the treasury
warrants heretofore mentioned?
Page 177 U. S. 79
The company contends that, by the passage of the Acts of
December 16, 1863, May 28, 1864, and November 16, 1864, and by its
compliance with such acts and its payment of treasury warrants to
the comptroller, and their receipt by him and his cancellation
thereof, there was an executed transaction, and an implied contract
thereupon arose that such payments should remain and be regarded as
valid and effectual, and that this implied contract was entitled to
the protection of the Constitution of the United States, and its
obligation could not be impaired by any subsequent act of the
legislature of the state.
These acts have been already set forth. The company alleges that
it fully complied with all of them, and that, relying upon the
offers thus made, it paid to the state the warrants mentioned,
which were received by the comptroller and cancelled, and bonds of
the state for a like amount, bearing six percent interest, were
issued by him to the school fund.
The provision in the state constitution which it is alleged was
violated by the issuing of these warrants is contained in the
eighth section of article seven of the constitution of 1845, in
which, among other things, it was provided,
". . . and in no case shall the legislature have the power to
issue 'treasury warrants,' 'treasury notes,' or paper of any
description intended to circulate as money."
The same provision is found in the Constitution of Texas adopted
in 1861.
It is contended on the part of the state that these warrants
were issued in violation of that section of the constitution
inasmuch as they were treasury warrants intended to circulate as
money.
It is stated in the opinion delivered in the court of civil
appeals
"that the warrants of the state issued during the period of the
war after January 1, 1862, were intended to be used and circulated
as money. And in this connection it is well to say that we are of
the opinion, from all that is shown by the record together with
various acts of the legislatures during that time, that the
payments made in warrants by the railway companies upon the
obligations sued upon were in warrants issued after the time we
have declared they were intended to circulate as money. "
Page 177 U. S. 80
The question whether the legislature so intended is one to be
decided by an inspection of the act under which they were issued,
and possibly by reference to the text of other acts of the
legislature enacted at or about the same time. Whether an act
provides for the issuing of warrants that were intended to
circulate as money is in reality a question of law arising upon the
construction of the legislative act, and a finding by the court
that warrants issued under and by virtue of certain acts of the
legislature were issued with such intention is in the nature of a
legal conclusion, and not a finding of fact, and therefore it can
be reviewed by this Court.
To prove that these warrants were so issued, reference is made
to various acts of the legislature (in addition to those above
mentioned under which the payments were made by the company), among
which are the following:
The Act approved February 14, 1860, provided that, when an
account was presented for payment for which an appropriation had
been made, it was the duty of the comptroller to audit it if legal,
and to issue his warrant for the amount, and if there were any
money in the treasury to pay the demand the comptroller was
directed to issue his warrant upon the treasurer for the amount,
with ten percent per annum interest, and those warrants were to be
signed by the governor and indorsed by the treasurer. The act
further provided that these warrants should not circulate as money,
but might be assigned.
It is said that the warrants issued under this act were few, and
they are not classed among the warrants in which any payments were
made to the school fund. It is, of course, not contended that these
warrants were intended to circulate as money, but the act was
repealed in 1862, and the repealing act, while containing other
provisions, omitted the provision that the warrants to be issued
should not circulate as money, and that omission is regarded by
counsel as suggestive of the intention of the legislature that the
warrants issued under the act of 1862 should so circulate.
By the second section of that act, it was provided that the
comptroller, on presentation of any warrant bearing interest as
well as on presentation of any other legal claim for which an
Page 177 U. S. 81
appropriation had been made, should draw a warrant on the
treasury for the amount, and payment was to be made if there were
any money in the treasury, but if not, the comptroller was
authorized to issue one or more warrants for the amount that might
be due and payable to the party entitled to payment, or bearer,
"and said warrants shall be of such proportions of the claim as
may be expressly required by the holder; provided, that not more
than one tenth of the whole amount may be issued in warrants of one
dollar each and the balance of five dollars or more each, and said
warrants shall be indorsed by the treasurer, and every
interest-bearing warrant that is superseded shall be cancelled by
the comptroller."
The third section of the act provided that, when the warrants
were presented at the treasury and paid they should be cancelled,
and should not be reissued.
By the Act of January 11, 1862, it was provided that treasury
warrants not bearing interest, in addition to the other provisions
made for their reception in payment for lands (including
certificates therefor) should be receivable as money in the payment
of office fees, including fees for patents and land dues payable in
the general land office, taxes, and all other dues to be collected
for the state or in its name, with exceptions therein stated.
By another act passed on the same day, January 11, 1862 (General
Laws, Texas, 1862, page 38), the treasurer and every other officer
of the state and of counties, who had received as public money,
among other things, the treasury warrants of the state, were
directed to disburse or transfer the same as money at par, if the
person or persons entitled to have a disbursement or transfer would
receive such warrants as money, and officers who were authorized to
receive public money were authorized and directed to receive these
warrants as money, except when expressly prohibited by some other
law. Treasury warrants of the state received by the treasurer
thereof were not to be reissued.
Also on December 16, 1863, another act was passed, section 2 of
which reads as follows:
"A tax of one-half of one percent shall be levied and
collected
Page 177 U. S. 82
in kind on all specie, treasury notes of the Confederate States
of America, treasury warrants of the State of Texas, and bank notes
held or owned in this state, and all foreign bills of exchange and
certificates of deposit, and other evidences of money upon deposit
or secured beyond the limits of the state, owned by persons
residing therein, shall be known as specie, and thereon shall be
levied a tax of one-half of one percent in specie."
The court below has construed these various acts in connection
"with well known matters of history relating thereto" and
considering also the character of legislation during the period of
the war as establishing the intention of the legislature that the
warrants should circulate as money. It is stated in the opinion
that the legislation, providing the purpose for which they could be
used and the small amounts for which they could be issued, and also
the size, shape, and color of the warrants, together with the
history of the times and the well known depleted condition of the
treasury during that period, and the scarcity of existing,
reliable, and available circulating medium, as money, all showed
that the purpose of the various acts of the legislature was to give
to the warrants issued during that time as much as possible a
standing and character as money. The court therefore held that the
warrants were void, as issued in violation of the constitution of
the state; the payment made in them was in law no payment; that no
contract arose between the state and the company by reason of the
use made of the warrants in surrendering them to the comptroller,
and that therefore no defense to plaintiff's cause of action was
established.
These warrants were issued pursuant to appropriations made by
the legislature and in payment of debts existing at the time in
favor of the individuals to whom they were delivered. They were
payable at once, and if there had been funds of the state in the
treasury, they would have been immediately paid and cancelled. It
was only because there was no money in the treasury that they were
not paid. The state therefore provided that they might be received
in payment of taxes or dues to the state, and that its officers
might disburse them in payment
Page 177 U. S. 83
of its debts to any person who would consent to receive them,
but that, when presented to the treasurer of the state and received
by him, they should be cancelled.
We have been referred to no act making provision for the size,
shape, or color of the paper to be used for the warrants, and such
size, etc., cannot be regarded as evidence of any weight as to the
intent on the part of the legislature that they should circulate as
money; nor does the depleted condition of the treasury or the
scarcity of a circulating medium necessarily or properly induce to
that conclusion. That the size of the warrant, both as to amount
and shape, might somewhat facilitate a holder, upon occasion, to
discharge a debt and in that way use it as money is not at all
sufficient, or indeed any proper, evidence of an unlawful intent on
the part of the legislature. The Act of December 16, 1863, is not
the slightest evidence on the subject. It simply provided for
taxing specie, treasury notes of the Confederate States, treasury
warrants of the state, and bank notes held or owned in the state.
It also provided a tax upon foreign bills of exchange and other
evidences of money on deposit or secured beyond the limits of the
state and owned by persons residing therein, and provided that they
should be known as specie. The fact that treasury warrants were
mixed up in such an act for the purpose of taxation with specie,
bills of exchange, certificates of deposit, etc., has not the
slightest tendency to prove the intent that the warrants should
circulate as money.
It does not seem to us that this legislation shows that the
warrants were thus issued within the meaning either of the state or
the federal Constitution. The only provision looking towards a
treatment of the warrants in any manner as money is the direction
to the state's own officers to receive them as payment for taxes
and dues to the state, and to pay them as money to such persons as
would receive then in payment of the indebtedness of the state to
them.
The fact that a creditor of the state, willing to receive
payment in these warrants, might demand that they should be issued
to him in small sums, and not in one single warrant, does not bear
with great force upon the intent of the legislature that the
warrants should thereafter circulate as money. It does not
Page 177 U. S. 84
show that those warrants were intended to so circulate between
individuals for the ordinary purposes of society and in the general
transactions of business between citizens. For the state to say
that the warrants should be transferred or disbursed by its own
officers as money, if the person entitled to a transfer or
disbursement from the state would receive them as money, simply
amounts to a declaration that the warrants should be issued to all
such persons as would accept them in payment of the debts due them
from the state. To encourage such willingness, the provision was
made that these warrants should be receivable as money -- that is,
as payment for certain debts due the state, as for taxes, etc. This
use of the words "as money" has, in our judgment, no further
significance, and has no force for the purpose of showing the
intention of the legislature to have the warrants circulate
generally as money and to form a circulating medium of that kind of
paper.
It must not only be that they are capable of sometimes being
used instead of money, but they must have a fitness for general
circulation in the community as a representative and substitute for
money in the common transactions of business. This is what is meant
by the expression "intended to circulate as money." These warrants
were payable to the individual to whom the state was indebted or to
bearer, and were issued to a creditor of the state. That the
legislature may have desired to facilitate the use of the warrants
by these provisions is perhaps true. But the members of the
legislature knew that to issue the warrants to circulate as money
would be to condemn them from the start. That the promise should be
made to receive them in payment of debts due the state would add to
their usefulness and to the willingness of people to take them in
payment of debts due them from the state, and that, while in their
hands, others might receive them in payment of debts was a
possibility or probability depending upon whether the person taking
them had opportunity to use them to pay some of his own debts to
the state. That he might on some occasion be able to so use the
warrant as to enable him to thereby discharge an obligation from
himself to a third person who was willing to accept it does not
bring the warrant so used within
Page 177 U. S. 85
the ordinary meaning of the term "money." It is not money in
that sense.
The provision in the state is substantially the same as that in
the federal Constitution, in that the legislature is prohibited
from issuing treasury warrants, treasury notes, or paper of any
description intended to circulate as money, while in the federal
Constitution the prohibition is against a state's emitting bills of
credit, and the necessity exists in both that the paper shall be
issued to circulate as money in order to be in violation of either
instrument. It has been held that the bills of credit prohibited by
the federal Constitution are those which were intended to circulate
as money, and hence the authorities as to the meaning of that
expression, when so used, are applicable here.
In
Craig v.
Missouri, 4 Pet. 410, Chief Justice Marshall, in
referring to the meaning of the clause in the Constitution
prohibiting a state from emitting bills of credit, said (page
29 U. S.
432):
"The word 'emit' is never employed in describing those contracts
by which a state binds itself to pay money at a future day for
services actually received, or for money borrowed for present use,
nor are instruments executed for such purposes, in common language,
denominated 'bills of credit.' To 'emit bills of credit' conveys to
the mind the idea of issuing paper intended to circulate through
the community for its ordinary purposes, as money, which paper is
redeemable at a future day. This is the sense in which the terms
have been always understood."
It is true the Court, in the
Craig case, held that the
certificates authorized by the State of Missouri were void because
they were in effect bills of credit. They were issued on account of
loans made from time to time to the state, and were held to have
been issued to circulate as money. The Court then consisted of
seven members, and Mr. Justice Johnson, Mr. Justice Thompson, and
Mr. Justice McLean did not concur in the judgment. Mr. Justice
Johnson thought that the term did not extend to certificates that
bore interest and the value of which varied with each passing day;
that they approximated to bills
Page 177 U. S. 86
drawn upon a fund, not to be withdrawn by any law of the state;
that the promise was also to receive in payment of debts and taxes
due the state, and the certificates did not depend for value upon
the faith of the state only, and hence they were not bills of
credit.
Mr. Justice Thompson thought they were not bills of credit, for
the reason, among others, that the act did not profess to make them
a circulating medium or a substitute for money; it made them only
receivable for taxes, etc., due the state, and those were special
and limited objects not sufficient to enable the certificates to
answer the purpose of a circulating medium to any considerable
extent.
Mr. Justice McLean thought that, to constitute a bill of credit,
it must be issued by a state, and its circulation as money enforced
by statutory provisions. At page
29 U. S. 454,
he said:
"Where a warrant is issued for the amount due to a claimant,
which is to be paid on presentation to the treasurer, can it be
denominated a bill of credit?"
He thought not.
In the subsequent case of
Briscoe v. Bank of
Kentucky, 11 Pet. 257, the same question as to the
meaning of the term "bills of credit" arose, and Mr. Justice McLean
delivered the opinion of the Court.
The question was whether bank notes issued by the Bank of the
Kentucky, declared by the state act of incorporation to be
exclusively the property of the commonwealth, were bills of credit.
In the course of the opinion, the judge stated, page
36 U. S.
312:
"The terms 'bills of credit.' in their mercantile sense.
comprehend a great variety of evidences of debt, which circulate in
a commercial country. . . . But the inhibition of the Constitution
applies to bills of credit in a more limited sense. It would be
difficult to classify the bills of credit which were issued in the
early history of this country.
They were all designed to
circulate as money, being issued under the laws of the
respective colonies."
Reference is made in the course of the opinion to
Craig v.
Missouri, supra, and to the views of the two dissenting judges
(besides himself) as to the meaning of the expression, and he ends
the discussion of that part of the question by referring to
Page 177 U. S. 87
what Chief Justice Marshall had said, and adding:
"The definition, then, which does include all classes of bills
of credit emitted by the colonies or states, is a paper issued by
the sovereign power containing a pledge of its faith and designed
to circulate as money."
It was held that the bank notes in question did not fill that
definition. In
Woodruff v.
Trapnall, 10 How. 190,
51 U. S. 205,
the question was again referred to by Mr. Justice McLean in
delivering the opinion of the Court, and he said that the notes of
the banks therein mentioned were not bills of credit, upon the
authority of the
Briscoe case. To the same effect is
Darrington v. Bank of
Alabama, 13 How. 12, the opinion being also
delivered by Mr. Justice McLean. The state creating the bank in
that case was the only stockholder, and its credit was pledged for
the ultimate redemption of the notes of the bank.
The Court said it was impossible to hold that bills issued by
the bank came within the definition of bills of credit.
Briscoe
v. Bank, supra, was again referred to, and the definition
approved that the paper must be issued by a state, upon its faith,
designed to circulate as money, and to be received and used as such
in the ordinary business of life.
In
Poindexter v. Greenhow, 114 U.
S. 270,
114 U. S. 283,
the coupons in question were in the ordinary form, and one of them
was set out in the opinion of the Court, and is as follows:
"Receivable at and after maturity for all taxes, debts, and
demands due the state."
"The Commonwealth, of Virginia will pay the bearer thirty
dollars interest, due first January, 1884, on bond No. 2,731."
"Coupon No. 20. Geo. Rye,
Treasurer"
It was contended that this coupon was a bill of credit in the
sense of the Constitution because receivable in payment of debts
due the state and negotiable by delivery merely, and intended to
pass from hand to hand and to circulate as money.
It was in consequence of unrestrained is sues of paper money by
the colonial and state governments, based alone upon credit, said
the Court, that this clause in the Constitution prohibiting the
emission of bills of credit by the states was adopted, and
Page 177 U. S. 88
the proper definition of the term was not founded on the
abstract meaning of the words so as to include everything in the
nature of an obligation to pay money, reposing on the public faith
and subject to future redemption, but was limited to those
particular forms or evidences of debt that had been so abused to
the detriment of both private and public interests.
Speaking of these particular coupons, the Court said:
"They are issued by the state, it is true. They are promises to
pay money. Their payment and redemption are based on the credit of
the state, but they were not emitted by the state in the sense in
which a government emits its treasury notes or a bank its bank
notes -- a circulating medium or paper currency -- as a substitute
for money. And there is nothing on the face of the instruments nor
in their form or nature, nor in the terms of the law which
authorized their issue, nor in the circumstances of their creation
or use, as shown by the record, on which to found an inference that
these coupons were designed to circulate, in the common
transactions of business, as money, nor that in fact they were so
used."
The fact that the coupons were receivable in payment of taxes
and other dues to the state, and hence might circulate from hand to
hand as money, was held to fall far short of showing their fitness
for general circulation in the community as the representative and
substitute for money in the common transaction of business, which
the Court held was necessary to bring them within the
constitutional prohibition against bills of credit. This reasoning
applies with equal force to treasury warrants. Both classes of
paper must be intended to circulate as money, and the same
conditions regarding such intention, and the same evidence to prove
it, would be necessary in each case.
In the light of these authorities, it seems to us that it cannot
be properly said that the treasury warrants violated the
Constitution either of the state or of the United States, because
there is no evidence that they were intended to circulate as money
within the meaning of that term as already given. The record does
not show that the legislature intended that these warrants should
or that they could be so used as to circulate
Page 177 U. S. 89
among the people as money, to be used by them as a paper
currency or a circulating medium in their dealings with each other.
Small denominations of the warrants would certainly facilitate
their retirement through their use for payment of taxes and other
debts due the state, and would increase their convenience for
paying freight or passenger fare to the companies, which would then
have an opportunity to present them to the state in payment of
interest, and as the laws did not provide for their circulation as
money, but only to be received or paid by the officers of the state
between the state and its debtors and creditors and to the railroad
companies, as stated, it cannot be supposed from such evidence that
it was the intention of the legislature that these warrants should
be circulated as money, and should thus violate the provisions of
the Constitution.
A warrant drawn by the state authorities in payment of an
appropriation made by the legislature, where the warrant is payable
upon presentation if there be funds in the treasury, and which has
been issued to an individual in payment of the debt of the state to
him, cannot, as it seems to us, be properly called a bill of credit
or a treasury warrant intended to circulate as money. Although the
state directed its officers to receive the warrants as money in
payment of certain dues to the state, and to deliver them to those
who would receive them as money in payment of dues from the state
to such persons, yet, as we have already remarked, this direction
was only another mode of expressing the idea that, as between the
state and the individual, the delivery of the warrant should
operate as a payment of the debt for which the delivery was made.
When the warrants once came back to the treasurer of the state,
they were not to be reissued. The decisions of this Court have
shown great reluctance, under this provision as to bills of credit,
to interfere with or reduce the very important and necessary power
of the states to pay their debts by delivering to their creditors
their written promises to pay them on demand, and in the meantime
to receive the paper as payment of debts due the state for taxes
and other like matters.
If any fair doubt could arise, it should be solved in favor of
the validity of the paper. There must be an intention on the
Page 177 U. S. 90
part of the legislature that the paper should circulate as
money. There must, in other words, be an intention to violate the
constitution.
A deliberate intention on the part of a legislative body to
violate the organic law of the state under which it exists and to
which the members have sworn obedience is not to be lightly
indulged. The existence of such intention should be proved beyond
doubt or cavil, from the very acts themselves which are under
discussion, and, if it be reasonably possible to so construe them
as to render them valid, a proper respect for the legislative
department calls for such construction rather than one which
invalidates them because they were enacted with a direct purpose to
violate the state constitution.
But if for the purpose of this argument it should be assumed
that the warrants, although issued to those who were the creditors
of the state and in payment of the debts due from the state to
those creditors, were nevertheless issued to circulate as money,
and therefore in violation of the constitution, it cannot be
properly held, in our opinion, that the receipt of such warrants,
pursuant to legislative authority and in payment of an indebtedness
due the state from the individual paying them is an illegal
transaction and amounts in law to no payment whatever.
The state was debtor to the individuals to whom the warrants
were first issued in payment of that indebtedness, and all that can
be said is that it violated the law by giving this particular form
to the instrument by which it assumed to pay its debt. Surely if
for that reason the delivery of the warrants constituted no
payment, the state would have the right to make such payment in
some other way. If, by reason of the violation of the constitution,
its direction to the treasurer to pay the warrant was void, and no
action could be maintained upon the warrant by reason of its
invalidity (aside from the fact that the state would not be
suable), there is certainly nothing to prevent the state from
recognizing the debt it actually owed and which it assumed to pay
by issuing these warrants. That recognition may be contained in the
very law which authorizes their issue, or in some other law. When,
therefore, it passed the statutes providing that the warrants
should
Page 177 U. S. 91
be received in payment of taxes and other dues to it, and also
by the comptroller in payment of the interest and sinking fund due
from the railroad companies to the state, and when by virtue of
such authority the state officers actually did receive the warrants
for such payments, we see no illegality in the payments, and it
seems to us that credit therefor should be given accordingly.
Suppose that the state, intending to issue these warrants to
circulate as money, had paid them through its officers to its
creditors, and had then become convinced that the warrants were a
violation of the constitution of the state and ought not to have
been issued. Could not the state say to the creditors to whom these
warrants had been paid, if you will give them back, we will pay you
in a form that is not a violation of the constitution? Would
anybody suspect that surrendering these warrants to the state and
receiving other warrants in their stead, in a form which did not
violate the constitution, would be an illegal act on the part of
the state? The original warrants having been issued to various
creditors of the state, and they very likely having transferred
them to others, wherein would consist the illegality if the state
offered to and did receive those warrants from such others, and
paid their amount in valid obligations? Instead of paying their
amounts in valid obligations, where is the invalidity if the state
offers to receive them and to cancel obligations which the party
owes to it, to an amount equal to their face value? All this is but
another way of paying the indebtedness which the state originally
owed to the individuals to whom it issued these warrants, and when
it cancels obligations due to it of an amount which equals the face
value of the warrants, and receives the warrants in return, the
legal effect is the same as if the warrants had never been
transferred by the persons to whom they were originally issued, and
they had brought them back to the state, and the state had given in
exchange for them some valid evidence of indebtedness.
It seems to us that the same principle is involved as was
enforced in
Hitchcock v. Galveston, 96 U. S.
341,
96 U. S. 350,
where a city had contracted with the plaintiffs for the improvement
of its sidewalks, and agreed to pay for the same in bonds which
it
Page 177 U. S. 92
was beyond the power of the city to issue. It was held that the
invalidity of that promise was no reason why the city should not
pay for the benefits which it had received from the performance of
the contract. The Court said:
"If payments cannot be made in bonds because their issue is
ultra vires, it would be sanctioning rank injustice to
hold that payments need not be made at all."
Suppose in that case the bonds had been issued by the city in
violation of its charter. Could not the city thereafter, upon
discovering its inability to make such a contract, receive the
bonds back and make payment in some other way? Or could it not have
received the bonds as a payment to that extent of an indebtedness
due from their holder to the city?
Unless such transactions be legal, then it follows that the
state could obtain the property or labor of the individual, and pay
therefor in an obligation which it had no right to issue, and which
it could on that account subsequently repudiate, and then deny all
liability to pay at all. The character of the transaction is not
altered by the transfer of these warrants from the original holder
to other parties, and the state has full power to recognize in
favor of the bearer of the warrants, the validity of the debt which
they originally represented, and to pay the same by allowing a
credit to their bearers up to the value of the warrants. We see
nothing in morals or in law which should prevent the state from
recognizing and liquidating the indebtedness which was due from it
and which was represented by the warrants.
The other theory would prevent the state from ever redeeming
warrants in form invalid but which had been issued in payment of
debts due from the state to persons receiving them.
If payments such as were made in this case were not valid, but
absolute nullities, then any person who used the warrants to pay
his taxes with, although they were received by the collector and an
acquittance given, was nevertheless liable to pay those taxes
again. Such consequences ought not to follow from the fact that the
form of the warrant in which the payment was made rendered the
warrant itself illegal as issued in violation of the
constitution.
Page 177 U. S. 93
Their receipt by the state officers from the railroad company as
directed by the legislature is also justified, as appears by the
case of
Little Rock v. National Bank, 98 U. S.
308. This Court held that even if the bonds mentioned
therein were issued in violation of law, yet when the city accepted
their surrender and redeemed them by giving other bonds in lieu of
a portion and a credit on the books of the city for another portion
of them so surrendered, such transaction was valid, and the holder
of the bonds so given in lieu of the illegal ones could recover on
them and also upon the credit given on the books of the city. We
perceive no reason why the state could not, if it chose, receive
these warrants in discharge of the debt
pro tanto due it
from the company.
The next question is whether the payments made are void because
the warrants were issued as alleged, in aid of the rebellion.
If by reason of any fact existing at the time these transactions
occurred, and which appears in this record, the payments in
question were not valid, and no valid contract grew out of the
same, then the judgment should be affirmed, notwithstanding we
differ with the court below in regard to the effect of the payment,
on the ground taken by that court. Until we are able to say there
was a valid contract subsisting by reason of these transactions, by
which payments were received as payment
pro tanto of
interest and sinking fund, we cannot be called upon to discuss the
question whether any legislation subsequent to the making of the
alleged contract has impaired its obligation. We must therefore
pursue the inquiry in order to determine the existence and validity
of the contract.
It is alleged that at least some of these warrants were issued
in aid of the rebellion, and were therefore void, and no attempted
payments made in them could be recognized as legal or binding.
Various acts of the legislature have been referred to which
provided for the issuing of bonds in return for loans to the state
for military purposes. The findings of the trial court upon the
subject were as follows:
"I find that it has not been proved whether the warrants
actually used in making the payments were warrants issued for
Page 177 U. S. 94
indebtedness incurred prior to the civil war, or warrants issued
for the state indebtedness incurred after the war began, or, if of
the latter class, whether they were warrants issued for military
purposes or for civil indebtedness; but from the circumstantial
evidence, I conclude that neither the railroad company nor the
state discriminated as to the class of warrants the railroads
received for carrying services or paid on their indebtedness, and
that some of all kinds were used in making the payments."
"
* * * *"
"In reaching the foregoing conclusions of fact, I have excluded
from my consideration the statements made in official reports and
governors' messages to the legislature, having concluded that
defendant's objections that the statements contained in these
papers were not admissible as evidence proving or tending to prove
the facts therein stated were good. I have also eliminated from
consideration certain other evidence, as shown by explanations
attached to defendant's bills of exception."
Taking these findings, it seems that some of the warrants had
been originally issued for military purposes, while others had been
issued for civil indebtedness. It is also to be inferred from the
record that the warrants were in the hands of various people,
residents in the state, from whom they had been purchased by the
company for a fair and adequate consideration or had been received
by it at par in payment of freight or passenger services over its
lines of road. Assuming that the warrants were invalid as having
been issued in payment for services rendered or stores received for
use in aid of the rebellion, yet this contract between the state
and the company had no connection with the purpose for which they
were issued, nor was the consideration of the contract based in the
remotest degree with reference to that purpose. The warrants were
issued to other persons having not the slightest relation to the
company, and in payment of an indebtedness for purposes to which
the company was an entire stranger. The purpose of the company was
undoubtedly pursuant to the offers of the state made in the acts
mentioned, to use the warrants in payment of what might be due for
principal or interest on the bonds of the company held by the
state.
Page 177 U. S. 95
There is no proof that the company received the warrants for any
other purpose. No inference could properly, as we think, be drawn
from the evidence that there was any intent, design, or wish on its
part to aid the rebellion by the acquisition of these warrants,
and, so far as can be seen, it was a transaction in the way of the
business of the company, entered into for the simple purpose of
paying an indebtedness which it owed the state, and which, by these
acts, the state permitted to be paid in this way. Even though
portions of the warrants had been procured at less than par, of
which fact there is no affirmative evidence, still the transaction
on the part of the company did not thereby become one in aid of the
rebellion, and upon this point we do not see that the prices which
may have been paid for the warrants were material in the inquiry.
The contract between the state and the company did not in any way
aid the former in issuing them, nor did it aid the purpose for
which the state may have desired to issue them.
Where the validity of a contract is attacked on the ground of
its illegal purpose, that purpose must clearly appear, and it will
not be inferred simply because the performance of the contract
might possibly result in a remote, incidental, and unintentional
aid to an illegal transaction.
It is somewhat difficult to see how the offer to receive these
warrants, and their reception pursuant to the offer, can be said to
be illegal as based upon a consideration which looked to aiding the
rebellion by its performance.
It has been held that a contract between parties resident within
the lines of insurrectionary states, stipulating for payment in
Confederate notes issued in furtherance of a scheme to overturn the
authority of the United States within the territory dominated by
the Confederate States, was not to be regarded for that reason only
as invalid. Contracts thus made, not designed to aid an
insurrectionary government, it was held, could not, therefore,
without manifest injustice to the parties, be treated as invalid.
Thorington v.
Smith, 8 Wall. 11;
Delmas v.
Insurance Co., 14 Wall. 661.
The receipt of these warrants, like the contract to receive
payment in Confederate notes, was not for that reason only
Page 177 U. S. 96
unlawful, although the state was the party that received them.
The company was not an agent of the state in putting them in
circulation, nor is there any proof that in fact it circulated any
of them. The company did not take them for the purpose of giving
currency to them, but in order to consummate a transaction which,
when consummated, was simply a business one on the part of the
company, and if by any possibility it could
"indirectly or remotely promote the ends of the
de
facto government organized to effect a dissolution of the
Union, it was without blame except when proved to have been entered
into with actual intent to further invasion or insurrection."
Thorington v.
Smith, 8 Wall. 1,
75 U. S. 12;
Baldy v. Hunter, 171 U. S. 388,
171 U. S.
394.
A specimen of the contract condemned under the rule is to be
found in
Sprott v. United
States, 20 Wall. 459, where the plaintiff sought to
recover from the defendant the value of certain cotton which he had
purchased from and paid the price in money to the Confederate
government, and which the Union forces took from its possession in
the last days of the existence of that government. The Court held
that, in the transaction, the plaintiff gave aid and assistance to
the rebellion in the most efficient manner he possibly could; that
he could not have aided that cause more acceptably if he had
entered its service and become a blockade runner, or under the
guise of a privateer had preyed upon the unoffending commerce of
his country. The plaintiff asked the Court to in effect carry out
his void contract with the Confederate government. That is very
different from holding that these warrants were so far void that
they could not form the basis of payment of debts by their holders,
who had not received them from the state, but had taken them in the
course of business from other parties, and who then offered them in
payment of their debts due the state.
This whole subject has recently been gone over in
Baldy v.
Hunter, 171 U. S. 388,
where many other cases are commented upon, and the principle of
that and the other decisions of this Court therein referred to
would seem to hold this contract not unlawful.
But suppose these warrants were issued in aid of the
rebellion
Page 177 U. S. 97
and were therefore void, and that the subsequent offer of the
state to receive them in payment of the debt of the company, under
the provisions of the legislative acts already referred to, was,
while unexecuted, also void on that ground, still, their actual
receipt and the acquittance given were not for that reason void as
between these parties.
A contract in aid of the rebellion has been held illegal because
it belonged to that class of contracts which are
mala in
se, whose consideration is immoral and founded upon a criminal
purpose. If a state were a party to such a contract, it would not
be void on the technical ground that it was
ultra vires as
beyond the contractmaking power of the state, but because of the
illegal nature of its consideration. The contract would be void for
the same reason that it would be void as between individuals -- not
because they had no capacity to make it, but because, being founded
upon an illegal consideration, no court would recognize its
validity or enforce its provisions. A state as a sovereignty has
power generally to make contracts, unless there be some
constitutional inhibition as to certain classes of contracts, and
if the consideration of a particular contract is bad or immoral,
the contract is illegal because of the character of its
consideration, and not because the contract would be beyond the
general scope and power of the state. Hence, as between the parties
to it, the state might, if it chose, perform all its requirements,
and if the acts of its officers were performed in obedience to
legislative authority, their performance in executing the contract
would be the act of the state. If, on the other hand, the
constitution of the state had prohibited its officers from ever
receiving anything but gold in payment of this debt of the company,
a delivery of something else in assumed payment of the debt, though
received as such by its officers under the authority of the
legislature, would be no payment. That would be a case where the
payment would be absolutely void because beyond the capacity of the
state to authorize and equally beyond its capacity to ratify. It
would be
ultra vires in the strict sense of the term. In
such event, it would be true that the act of the officer would be
his individual act, and in no sense would he represent or bind the
state by his action. Such
Page 177 U. S. 98
an attempted payment might therefore be regarded by any
subsequent officer of the state as wholly void and ineffectual for
any purpose.
The distinction between the two cases is obvious. In the one,
the contract is void because of the illegality of the
consideration, not because of the legal incapacity of either party
to make the contract, while in the other, there is an entire lack
of power to make it under any circumstances. When, therefore, the
officers of the state pursuant to its statutes received the
warrants as payment, they acted for the state in carrying out an
offer upon its part which the state had the legal capacity to make
and to carry out, and which it in this manner did carry out. The
state in such case had the same power to carry out its contract (so
far as the parties to it are concerned) as individuals would have
had to carry out the same kind of a contract, and when the warrants
were received by the officers acting for the state in payment of
the interest, and the bonds of the state were issued to the school
fund, and acquittance given to the company, the transaction was
finished and completed, in the case of the state, just as it would
have been in like circumstances in the case of the individual, and
by such action (as between the parties) the state is bound; the
acts of its officers are its own acts, and it must be judged in the
same way as an individual would be judged. In other words, the
contract having been fully executed by the company and the state,
neither party having chosen to refuse to perform its terms, neither
party as between themselves can thereafter act as if the contract
had not been performed, nor can the state pass any act which shall
impair the obligation which springs from its performance. After the
complete execution of the transaction, it must be that each party
thereupon and at once became possessed of certain legal rights
arising from its performance. Neither party could undo what had
been fully executed and completed, and the law therefore implies a
contract that neither party will attempt to do so, or, in other
words, the law implies a contract that the payments made shall not
be thereafter repudiated or denied. Any subsequent statute of the
state which repudiated or permitted the repudiation
Page 177 U. S. 99
of the payments would impair the obligation of the contract
which the law raises from the transaction itself.
That a contract will be implied under such circumstances is
stated in
Planters' Bank v. Union
Bank, 16 Wall. 483,
83 U. S. 500.
There, the Court said:
"Some of the authorities show that though an illegal contract
will not be executed, yet when it has been executed by the parties
themselves, and the illegal object of it has been accomplished, the
money or thing which was the price of it may be a legal
consideration between the parties for a promise,
express or
implied, and the court will not unravel the transaction to
discover its origin."
So in this case. The illegal object was fully executed and
accomplished, and upon its accomplishment and by reason of the
whole transaction, there arose an implied contract that the
settlement should be conclusive upon all parties to it. This
principle calls for no aid from the court in the enforcement of a
void contract. The parties have already fully complied with all its
terms, and by reason thereof, the implied contract has arisen.
The state cannot now be permitted to repudiate or set aside the
acts of its former officers, done in pursuance of the direction of
the legislature of the state, and effectually and forever closed
long before the present proceeding was commenced. As between the
parties to those transactions, this cannot be done.
The action of the present officers of the state in bringing this
proceeding has been undoubtedly prompted by the best motives and
from a desire to promote the true interests of their state, but we
nevertheless are unable to see how the proceeding can be successful
without overturning those principles of law which must guide and
control our judgment.
We are then brought to the question whether the subsequent
legislation of the state has in any manner impaired the obligation
of the contracts made by the state at the times when these various
payments were made.
We have shown, in the treatment of the motion to dismiss, how
the judgment of the court below gave effect to the subsequent
Page 177 U. S. 100
act of 1870. In giving such effect, was the obligation of the
contract between the parties impaired thereby?
If the state had passed no act, the question of contract could
not have been raised in this Court, the payments might have been
repudiated, and the court have held them illegal, and we would have
no jurisdiction to review its judgment. But the state has passed a
statute, and said that, if the company would pay interest and a
certain proportion semiannually upon the aggregate amount of the
loan as it stood May 1, 1870, no further exaction would be made.
The court has construed this to mean that if the company will pay
such proportion semiannually on the amount of the loan, to be
ascertained by striking out the payments in warrants, then no
default will be incurred, but if not, then it will have made
default, and the act of 1870 provides in such case for proceedings
to collect the amount due. We say the court below has so construed
the act, and we say so notwithstanding it has not mentioned it in
any such connection. It has said so, however, by implication
necessarily arising from the judgment it has given, when taken in
connection with the provision of the act which permits proceedings
only to be taken on a default, which does not exist in this case if
the company be credited with these warrants as payments. By
permitting the proceedings, the court has necessarily construed the
act as meaning that there is a default when payments are not made
on the basis of the invalidity of the payments in warrants. The
obligation of the contract which we hold existed between the state
and the company, growing out of the transactions mentioned, has
therefore, by this construction of the act by the state court, been
materially impaired.
It is alleged on the part of the state that the acceptance of
the treasury warrants in payment of money loaned from the school
fund was a violation of the Constitution of the State of Texas as
being an illegal diversion of that fund. Upon that point we agree
with the court below, which held that there was no such diversion
for the reasons given by that court.
We have examined the various objections of the defendant in
error which it has made because of the alleged failure of the
Page 177 U. S. 101
plaintiffs in error to properly bring the federal question
before the Court, but we think they are not well taken.
We are of opinion that the judgment of the Court of Civil
Appeals should be reversed, and the case remanded to that court
with directions to remand the case to the district court with
directions to reverse its judgment, and for further proceedings not
inconsistent with the opinion of this Court, and it is so
ordered.
*
"
An Act for the Relief of Railroad Companies
Indebted"
"
to the State for Loans from the Special School
Fund"
"Whereas the political disturbances since the year 1860, by
unsettling the business of the country, have largely contributed to
prevent compliance on the part of railroad companies indebted to
the state for loans from the special school fund, with their
engagements respecting the payment of the principal and interest of
said loans, and"
"Whereas, it is desired to relieve said companies from the
liability of their railroads to sale consequent upon their
noncompliance as aforesaid: Therefore,"
"SEC. 1. Be it enacted by the Legislature of the State of Texas
that any railroad company indebted to the state for loans from the
special school fund may avoid the sale of its railroad for the
nonpayment of principal or interest by the payment into the
treasury of the state, on the first day of November, A.D. 1870, of
six months' interest on the aggregate amount due on account of said
loans, principal and interest, as said aggregate amount stood on
the first day of May, A.D. 1870, and by the payment, in addition,
on said first day of November of one percent upon said aggregate
amount, to be applied toward the sinking fund provided for by
existing laws in respect to said loans, and by continuing to pay
into the treasury of the state six months' interest, and one
percent on account of said sinking fund semiannually thereafter,
to-wit, on the first day of May and November in each year."
"SEC. 2. That if any railroad company shall fail to pay any
amount required to be paid in section one of this act at the time
designated thereby, or within ten days thereafter, then the whole
debt of such company, principal and interest, shall become due, and
the governor shall proceed without delay to cause the railroad of
said company and its franchises and property, so far as the lien or
mortgage of the state covers the same, to be sold, the sale to be
in all respects (when not in conflict with this act) conducted
according to the provisions of the statute of August 13, A.D. 1856:
Provided, however, That in case the governor should (for
the protection of the school fund) deem it necessary, he may buy in
any road to be sold under this act, in the name of the state:
Provided, further, That if the whole principal and
interest which may become due as aforesaid, and all costs attending
the advertisements and proposed sale, shall be paid before the day
of sale, then the proceedings for sale shall be stopped."
"SEC. 3. That the State of Texas will not exact of any railroad
company not hereafter in default in respect to any of the payments
required in this act the payment of the principal of the debt of
said company, excepting said payments on account of the sinking
fund as aforesaid, but that any company may pay the same in full at
any time on thirty days' notice to the governor, and that said lien
or mortgage of the state shall not attach to any extension of its
existing road hereafter constructed by any of said companies."
"SEC. 4. That this act shall take effect from and after its
passage."
Approved, August 13, 1870.
MR. JUSTICE Brown concurring:
I concur in the conclusion of the Court, but from so much of the
opinion as holds that the treasury warrants in question were not
bills of credit within the meaning of the Constitution of the
United States I am constrained to dissent.
It is admitted that these warrants fulfill all the conditions of
bills of credit except, as it is said, they were not intended to
circulate as money. I am unable to concur in this view of the
intent of the legislature. By the Act of February 14, 1860,
authorizing interest-bearing warrants on the treasury, it was
expressly provided that these warrants should not circulate as
money, but might be assigned. This act was repealed, however, in
1862 by another act providing that warrants should be drawn for
legal claims against the state, and payment made if there were
money in the treasury but if not, the comptroller was authorized to
issue warrants payable to the party entitled to payment, or bearer,
which warrants should be of such proportions of the claim as were
required by the holder, one tenth of the whole amount of which
might be issued in warrants of one dollar each, and the residue in
warrants of five dollars or more each. There was an omission in
this act, which appears to me extremely significant, of the proviso
of the former act that such warrants should not circulate as money.
By another act, approved the following day, it was provided that
treasury warrants of the state, not bearing interest, should be
receivable "as money" in the payment of taxes, office fees
(including fees for patents), and land dues payable in the general
land office of Texas, and all other dues to be collected for the
state, with
Page 177 U. S. 102
certain specified exceptions. By another Act of December 16,
1863, the comptroller was authorized to receive from the railroad
companies indebted to the special school fund all interest on their
bonds that might be or might thereafter become due in state
treasury warrants. This act was amended May 28, 1864, by providing
that the act of 1863 should not apply to railroad companies which
refused to receive these bonds or treasury warrants at par for
freight or passage at the prices or rates established by law.
The railway companies were thus compelled to receive these
warrants as money from their patrons in order to be able to avail
themselves of them in payment of interest upon their bonds. In
addition to this, the warrants were in the form of bank notes,
printed upon peculiar paper, such as is ordinarily used by banks
for their circulating notes, and contained a brief and
unconditional promise of the state to pay the amount to a party
named, or bearer, and were declared on their face to be receivable
for public dues.
If these facts be not decisive of an intention that these
warrants should circulate as money, it is difficult to say what
additional facts were needed to manifest that intent. Indeed, the
opinion of the Court seems to me to practically eliminate from the
Constitution the provision that the states shall not emit bills of
credit, as well as to overrule the opinion of this Court in
Craig v.
Missouri, 4 Pet. 410. In that case, the Legislature
of the State of Missouri authorized the officers of the state
treasury to issue certificates, of denominations not exceeding ten
dollars nor less than fifty cents, in the following form:
"This certificate shall be receivable at the treasury of any of
the loan offices in the State of Missouri, in discharge of taxes or
debts due to the state, for the sum of _____ dollars, with interest
for the same at the rate of two percent per annum from this
date."
These certificates were receivable at the treasury in payment of
taxes or moneys due to the state or to any municipality, and by all
officers, civil and military, in the discharge of salaries and fees
of office. If simple certificates of the state containing no
promise to pay are bills of credit, much more, it seems to me,
should these obligations of the State of
Page 177 U. S. 103
Texas issued in denominations of one dollar and upwards, in the
size, shape, and color of bank notes, and receivable in discharge
of all taxes and debts due the state, to which a forced circulation
was given as between railways and their patrons, be held to be
obnoxious to the same provision of the Constitution. As was said by
Chief Justice Marshall in that case:
"The denominations of the bills, from ten dollars to fifty
cents, fitted them for the purpose of ordinary circulation, and
their reception in payment of taxes and debts to the government and
to corporations, and of salaries and fees would give them currency.
They were to be put into circulation -- that is, emitted by the
government. In addition to all these evidences of an intention to
make these certificates the ordinary circulating medium of the
country, the law speaks of them in this character, and directs the
auditor and treasurer to withdraw annually one tenth of them from
circulation. Had they been termed 'bills of credit,' instead of
'certificates,' nothing would have been wanting to bring them
within the prohibitory words of the Constitution."
But I fully concur with the Court upon the second point, that
the state, having issued these warrants for a valuable
consideration, having put them in circulation, having expressly
authorized the railroad companies to pay them in discharge of their
interest upon their bonds, and having received them without
objection at the time, it is too late now to claim that they did
not operate as payment. Though the warrants may have been issued
without authority, it was competent for the state to recognize
them, and to refuse now to admit them as payment upon these bonds
appears to me a plain violation of the public faith. Upon the
theory of the court of civil appeals, I see nothing to prevent the
state, unless there be a statute of limitations operative against
it, from bringing suit against everybody who paid these warrants to
the state for taxes or for dues, and recovering the amount a second
time.