1. Where a statute has authorized a municipal corporation to
issue bonds and to exercise the power of local taxation in order to
pay them, and persons have bought and paid value for bonds issued
accordingly, the power of taxation thus given is a contract within
the meaning of the Constitution, and cannot be withdrawn until the
contract is satisfied. The state and the corporation in such a case
are equally bound.
2. A subsequently passed statute which repeals or restricts the
power of taxation so previously given, is, insofar as it affects
bonds bought and held under the circumstances mentioned, a
nullity.
3. It is the duty of the corporation to impose and collect the
taxes in all respects as if the second statute had not been
passed.
4. If it does not perform this duty a mandamus will lie to
compel it.
The relator filed his petition in that court, alleging, among
other things, as follows:
At the June Term, 1863, and before that time, he was the owner
and holder of certain coupons on interest notes of the City of
Quincy. They were past due and unpaid. When issued and negotiated
they were attached to certain bonds made and delivered by that city
in payment for the stock of the Northern Cross Railroad Company,
and of the Quincy and Toledo Railroad Company, subscribed for
by
Page 71 U. S. 536
the city under and by virtue of certain Acts of the Legislature
of Illinois of the 17th of October, 1851, and 26th of January,
1853, and the 31st of January, 1857.
By the provisions of these
several acts, the city was authorized to collect a special annual
tax upon the property, real and personal, therein, sufficient to
pay the annual interest upon any bonds thereafter issued by the
city for railroad purposes pursuant to law. It was required
that the tax, when collected, should be set aside and held separate
from the other portions of the city revenue as a fund specially
pledged for the payment of the annual interest upon the bonds
aforesaid. It was to be applied to this purpose from time to time
as the interest should become due,
"and to no other purpose
whatsoever."
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 sued the city upon them in
the court below, and at the June Term, 1863, recovered a judgment
for $22,206.69 and costs. An execution was issued and returned
unsatisfied. The judgment was unpaid. The city still neglected and
refused to levy the requisite tax. He therefore prayed that a writ
of mandamus be issued commanding the city and its proper officers
to pay over to him any money in their hands otherwise
unappropriated, not exceeding the amount of the judgment, interest,
and costs and, for want of such funds, commanding them to levy the
special tax as required by the acts of the legislature before
referred to sufficient to satisfy the judgment, interest, and costs
and to pay over to him the proceeds.
The city filed an answer. It alleged that there was no money in
its treasury wherewith to satisfy the judgment, and as a reason why
a peremptory writ of mandamus should not issue, referred to an Act
of the Legislature of Illinois of the 14th of February, 1863, which
contains the following provisions:
"
Sec. 4. The city council of said city shall have power
to levy and collect annually taxes on real and personal property
within
Page 71 U. S. 537
the limits of said city, as follows:"
"On real and personal property within or which may hereafter be
within portions of said city lighted with gas, to meet the expenses
thereof, not exceeding twenty-eight cents on each one hundred
dollars per annum on the annual assessed value thereof."
"On all real and personal property within the limits of said
city, to meet the expenses of obtaining school grounds, and
erecting, repairing, and improving school buildings and school
grounds, and providing teachers and maintaining public schools in
said city, and to be devoted exclusively for such purposes, not
exceeding twenty-five cents on each one hundred dollars per annum
on the annual assessed value thereof,
provided that no more
than eighteen cents on each one hundred dollars aforesaid shall be
levied in any year for such purposes without the concurrence of a
majority of the votes of legal voters of said city, to be cast
at an election to be ordered by said city council, and held to
determine the rate percent so to be levied."
"On all real and personal property within the limits of said
city, to pay the debts and meet the general expenses of said city,
not exceeding fifty cents on each one hundred dollars per annum on
the annual assessed value thereof."
"
Sec. 5. All laws and parts of laws, other than the
provisions hereof, touching the levy or collection of taxes on
property within said city, except those regulating such collection,
and all laws conflicting herewith, are hereby repealed, but this
act shall not affect taxes of said city relating to streets or
alleys or to licenses of whatever nature, nor any sources of
revenue other than taxes upon real or personal property, and which
said act remains in full force and unrepealed."
The answer averred that the full amount of the tax authorized by
this act had been assessed, and was in the process of collection;
that the power of the city in this respect has been exhausted,
"and that the said fifty cents on the one hundred dollars, when
collected, will not be sufficient to pay the current expenses of
the city for the year 1864, and the debts of the said city."
It further alleged that about the year 1851, the city, under the
Act of November 6, 1849, issued to the Northern Cross Railroad
Company bonds to the amount of $100,000, and about the year 1854,
under the Act of January 26, 1853, other bonds to the amount of
Page 71 U. S. 538
$100,000, and that about the year 1856 it made and delivered its
other bonds to the amount of $100,000. It alleged that the bonds
last issued were wholly unauthorized, but that they were
subsequently ratified by the legislature by the Act of January 1,
1857. The relator's judgment, it averred, was founded upon coupons
belonging to bonds of these three classes.
The relator demurred to the answer, and judgment was given
against him.
The principal question in this Court was whether the Act of
February 14 impaired the obligation of a contract, and was
therefore void within the tenth section of the first article of the
Constitution, which prohibits any state from passing such an
act.
A second question was whether, if it did so, a mandamus would
lie against the city to compel it to levy a tax to pay the
debt.
Page 71 U. S. 548
MR. JUSTICE SWAYNE delivered the opinion of the Court, and after
stating the case, proceeded thus:
The demurrer admits what is set forth in the answer. On the
other hand, the answer, according to the law of pleading, admits
what is alleged in the petition and not denied.
It is then a part of the case before us that when the bonds were
issued and negotiated there were statutes of Illinois in
Page 71 U. S. 549
force which authorized the levying of a sufficient special tax
to pay the coupons in question as they became due. Such statutes
are so inconsistent with the provisions of the act of 1863, relied
upon by the city, and cover the same ground, in such a manner that
the act of 1863 unquestionably repeals them, if that act be valid
for the purposes it was intended to accomplish.
The validity of the bonds and coupons is not denied. No question
is made as to the judgment. The case turns upon the validity of the
statute restricting the power of taxation left to the city within
the narrow limits which it prescribes.
The answer says expressly that fifty cents on the hundred
dollars' worth of property, which is all the statute allows to be
levied to meet the debts and current expenses of the city, will not
be sufficient for those purposes. The expenses will, of course, be
first defrayed out of the fund. What the deficiency will be as to
the debts, or whether anything applicable to them will remain, is
not stated. So far, it appears that nothing has been paid upon
these liabilities. And it was not claimed at the argument that the
result under the statute would be different in the future.
The question to be determined is whether the statute, in this
respect, is valid, or whether the legislature transcended its power
in enacting it.
The duty which the court is called upon to perform is always one
of great delicacy, and the power which it brings into activity is
only to be exercised in cases entirely free from doubt.
The Constitution of the United States declares (Art. I, ยง 10),
that "no state shall pass any bill of attainder,
ex post
facto law, or law impairing the obligation of contracts."
The case of
Fletcher v. Peck [
Footnote 1] was the first one in this Court in which
this important provision came under consideration. It was held that
it applied to all contracts, executed and executory, "whoever may
be parties to them." In that case the legislature of Georgia had
repealed an act
Page 71 U. S. 550
passed by a former legislature, under which the plaintiff in
error had acquired his title by mesne conveyances from the state.
The court pronounced the repealing act within the inhibition of the
Constitution, and therefore void. Chief Justice Marshall said:
"The validity of this rescinding act might well be doubted were
Georgia a single sovereign power; but Georgia cannot be viewed as a
single, unconnected sovereign power, on whose legislature no other
restrictions are imposed than may be found in its own constitution.
She is a part of a large empire. She is a member of the American
Union, and that Union has a Constitution, the supremacy of which
all acknowledge, and which imposes limits to the legislatures of
the several states which none claim a right to pass."
This case was followed by those of
New Jersey v.
Willson, [
Footnote 2] and
Terret v. Taylor. [
Footnote 3] The principles which they maintain are now
axiomatic in American jurisprudence, and are no longer open to
controversy.
It is also settled that the laws which subsist at the time and
place of the making of a contract and where it is to be performed
enter into and form a part of it as if they were expressly referred
to or incorporated in its terms. This principle embraces alike
those which affect its validity, construction, discharge, and
enforcement. Illustrations of this proposition are found in the
obligation of the debtor to pay interest after the maturity of the
debt, where the contract is silent; in the liability of the drawer
of a protested bill to pay exchange and damages, and in the right
of the drawer and endorser to require proof of demand and notice.
These are as much incidents and conditions of the contract as if
they rested upon the basis of a distinct agreement. [
Footnote 4]
In
Green v. Biddle, the subject of laws which affect
the remedy was elaborately discussed. The controversy grew out of a
compact between the States of Virginia and Kentucky. It was made in
contemplation of the separation of
Page 71 U. S. 551
the territory of the latter from the former, and its erection
into a state, and is contained in an act of the Legislature of
Virginia, passed in 1789, whereby it was provided "that all private
rights and interests within" the District of Kentucky
"derived from the laws of Virginia prior to such separation
shall remain valid and secure under the laws of the proposed state,
and shall be determined by the laws now existing in this
state."
By two acts of the Legislature of Kentucky, passed respectively
in 1797 and 1812, several new provisions relating to the
consequences of a recovery in the action of ejectment -- all
eminently beneficial to the defendant, and onerous to the plaintiff
-- were adopted into the laws of that state. So far as they
affected the lands covered by the compact, this Court declared them
void. It was said:
"It is no answer that the acts of Kentucky now in question are
regulations of the remedy, and not of the right to the lands. If
these acts so change the nature and extent of existing remedies as
materially to impair the rights and interests of the owner, they
are just as much a violation of the compact as if they
overturned his rights and interests."
In
Bronson v. Kinzic, [
Footnote 5] the subject was again fully considered. A
mortgage was executed in Illinois containing a power of sale.
Subsequently, an act of the legislature was passed which required
mortgaged premises to be sold for not less than two-thirds of their
appraised value, and allowed the mortgagor a year after the sale to
redeem. It was held that the statute, by thus changing the
preexisting remedies, impaired the obligation of the contract, and
was therefore void.
In
McCracken v. Hayward, [
Footnote 6] the same principle, upon facts somewhat
varied, was again sustained and applied. A statutory provision that
personal property should not be sold under execution for less than
two-thirds of its appraised value was adjudged, so far as it
affected prior contracts, to be void, for the same reason.
In
Sturges v. Crowninshield, [
Footnote 7] the question related to a law
Page 71 U. S. 552
discharging the contract. It was held that a state insolvent or
bankrupt law was inoperative as to contracts which existed prior to
its passage.
In
Ogden v. Saunders, [
Footnote 8] the question was as to the effect of such a
law upon a subsequent contract. It was adjudged to be valid, and a
discharge of the contract according to its provisions was held to
be conclusive.
A statute of frauds embracing a preexisting parol contract not
before required to be in writing would affect its validity. A
statute declaring that the word "ton" should thereafter be held, in
prior as well as subsequent contracts, to mean half or double the
weight before prescribed, would affect its construction. A statute
providing that a previous contract of indebtment may be
extinguished by a process of bankruptcy would involve its
discharge, and a statute forbidding the sale of any of the debtor's
property, under a judgment upon such a contract, would relate to
the remedy.
It cannot be doubted either upon principle or authority that
each of such laws passed by a state would impair the obligation of
the contract, and the last-mentioned not less than the first.
Nothing can be more material to the obligation than the means of
enforcement. Without the remedy, the contract may, 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 against
invasion. The obligation of a contract "is the law which binds the
parties to perform their agreement." [
Footnote 9] The prohibition has no reference to the degree
of impairment. The largest and least are alike forbidden. In
Green v. Biddle [
Footnote 10] it was said:
"The objection to a law on the ground of its impairing the
obligation of a contract can never depend upon the extent of the
change which the law effects in it.
Page 71 U. S. 553
Any deviation from its terms by postponing or accelerating the
period of performance which it prescribes, imposing conditions not
expressed in the contract, or dispensing with those which are,
however minute or apparently immaterial in their effect upon the
contract of the parties, impairs its obligation. Upon this
principle it is that if a creditor agree with his debtor to
postpone the day of payment or in any other way to change the terms
of the contract without the consent of the surety, the latter is
discharged, although the change was for his advantage."
"One of the tests that a contract has been impaired is that its
value has, by legislation, been diminished. It is not, by the
Constitution, to be impaired at all. This is not a question of
degree or cause, but of encroaching in any respect on its
obligation -- dispensing with any part of its force. [
Footnote 11]"
This has reference to legislation which affects the contract
directly, and not incidentally or only by consequence.
The right to imprison for debt is not a part of the contract. It
is regarded as penal, rather than remedial. The states may abolish
it whenever they think proper. [
Footnote 12] They may also exempt from sale under
execution the necessary implements of agriculture, the tools of a
mechanic, and articles of necessity in household furniture. It is
said:
"Regulations of this description have always been considered in
every civilized community as properly belonging to the remedy, to
be exercised by every sovereignty according to its own views of
policy and humanity."
It is competent for the states to change the form of the remedy
or to modify it otherwise, as they may see fit, provided no
substantial right secured by the contract is thereby impaired. No
attempt has been made to fix definitely the line between
alterations of the remedy, which are to be deemed legitimate, and
those which, under the form of modifying
Page 71 U. S. 554
the remedy, impair substantial rights. Every case must be
determined upon its own circumstances. Whenever the result last
mentioned is produced, the act is within the prohibition of the
Constitution, and to that extent void. [
Footnote 13]
If these doctrines were
res integrae, the consistency
and soundness of the reasoning which maintains a distinction
between the contract and the remedy -- or, to speak more
accurately, between the remedy and the other parts of the contract
-- might perhaps well be doubted. [
Footnote 14] But they rest in this Court upon a
foundation of authority too firm to be shaken, and they are
supported by such an array of judicial names that it is hard for
the mind not to feel constrained to believe they are correct. The
doctrine upon the subject established by the latest adjudications
of this Court render the distinction one rather of form than
substance.
When the bonds in question were issued, there were laws in force
which authorized and required the collection of taxes sufficient in
amount to meet the interest, as it accrued from time to time, upon
the entire debt. But for the Act of the 14th of February, 1863,
there would be no difficulty in enforcing them. The amount
permitted to be collected by that act will be insufficient, and it
is not certain that anything will be yielded applicable to that
object. To the extent of the deficiency, the obligation of the
contract will be impaired, and if there be nothing applicable, it
may be regarded as annulled. A right without a remedy is as if it
were not. For every beneficial purpose, it may be said not to
exist.
It is well settled that a state may disable itself by contract
from exercising its taxing power in particular cases. [
Footnote 15] It is equally clear
that where a state has authorized a municipal
Page 71 U. S. 555
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. [
Footnote 16]
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.
The circuit court erred in overruling the application for a
mandamus. The judgment of that court is reversed and the cause will
be remanded, with instructions to proceed in conformity with this
opinion.
[
Footnote 1]
10 U. S. 6 Cranch
87.
[
Footnote 2]
11 U. S. 7 Cranch
164.
[
Footnote 3]
13 U. S. 9 Cranch
43.
[
Footnote 4]
Green v.
Biddle, 8 Wheat. 92;
Bronson v.
Kinzie, 1 How. 319;
McCracken v.
Hayward, 2 How. 612;
People v. Bond, 10
Cal. 570;
Ogden v.
Saunders, 12 Wheat. 213.
[
Footnote 5]
42 U. S. 1 How.
297.
[
Footnote 6]
43 U. S. 2 How.
608.
[
Footnote 7]
17 U. S. 4 Wheat.
122.
[
Footnote 8]
25 U. S. 12 Wheat.
213.
[
Footnote 9]
Sturges v.
Crowninshield, 12 Wheat. 257.
[
Footnote 10]
21 U. S. 8 Wheat.
84.
[
Footnote 11]
Planters' Bank v.
Sharp, 6 How. 327.
[
Footnote 12]
Beers v.
Haughton, 9 Pet. 359;
Ogden v.
Saunders, 12 Wheat. 213;
Mason v.
Haile, 12 Wheat. 370;
Sturges v.
Crowninshield, 4 Wheat. 200.
[
Footnote 13]
Bronson v.
Kinzie, 1 How. 311;
McCracken
v. Hayward, 2 How. 608.
[
Footnote 14]
1 Kent's Commentaries 456; Sedgwick on Stat. and Cons.Law 652;
Mr. Justice Washington's dissenting opinion in
Mason
v. Haile, 12 Wheat. 379.
[
Footnote 15]
New Jersey v.
Wilson, 7 Cranch 166;
Dodge v.
Woolsey, 18 How. 331;
Piqua
Branch v. Knoop, 16 How. 331.
[
Footnote 16]
People v. Bell, 10 Cal. 570;
Dominic v. Sayre,
3 Sandlord 555.
