U.S. Supreme Court McGee v. Mathis, 71 U.S. 4 Wall. 143 143 (1866)
McGee v. Mathis
71 U.S. (4 Wall.) 143
ERROR TO THE SUPREME
COURT OF ARKANSAS
Where a state, in order to promote the drainage and sale of certain swamp lands belonging to it and which it was desirous of reclaiming, has passed, by way of encouraging purchasers, a law that such lands "shall be exempt from taxation for the term of ten years" and issued transferable scrip receivable for them, a repeal of the exemption act, so far as it concerns lands paid for either before or after the repeal, with scrip issued before the repeal, impairs a contract of the state with the holders of such scrip.
In 1850, the United States granted by act of Congress to the State of Arkansas all the swamp and overflowed government lands within its limits on condition that the proceeds of the lands or the lands themselves should be applied as far as necessary in reclaiming them for cultivation by means of levees and drains.
The state accepted the grant and by an act of the legislature in 1851 provided for the sale of the lands, for the issue of transferable scrip receivable for any lands not already taken up at the time of selection by the holder, for contracts for the making of levees and drains, and for the payment of contractors in scrip or otherwise.
In the fourteenth section of this act it was provided that
"To encourage by all just means the progress and the completing of the reclaiming such lands by offering inducements to purchasers and contractors to take up said lands, all said swamp and overflowed lands shall be exempt from taxation for the term of ten years or until they shall be reclaimed."
In 1855 this section was repealed and provision was made by law for the taxation of swamp and overflowed lands, sold or to be sold, precisely as other lands.
The plaintiff in error, before this repeal, had become the owner, by transfer from contractors, of a large amount of the script issued under the act of 1851, and with this scrip,
after the repeal, took up and paid for many sections and parts of sections of the granted lands lying in Chicot County.
In 1857, another act of the legislature, local in its nature, provided for the making of levees and drains in Chicot County, and authorized a special tax to meet the cost. This special tax was assessed upon the unreclaimed swamp lands of the plaintiff in error as well as upon other lands, and the defendant in error, under authority of the act, proceeded to take the necessary measures for the collection of the tax.
The Constitution of the United States ordains that "no state shall pass any law impairing the obligation of contracts."
The plaintiff in error filed his bill in the proper state court alleging that the acts of 1855 and 1857 impaired the obligation of the contract of the state with the United States, expressed in the grant by Congress in 1850 and its acceptance by the state and also the contract between the state and the levee contractors and other lawful holders of swamp land scrip issued under the act of 1851, that such scrip should be receivable for unlocated swamp lands, and that such lands should not be subject to taxation for ten years from the time when taken up, or until reclaimed, and prayed an injunction to restrain the defendant in error from the collection of the taxes authorized by those acts.
In his answer to the bill, the defendant stated that the state and county taxes imposed on the lands of the complainant had been stricken out of the assessment by order of the county court, and justified his proceeding as sheriff to collect the special levee tax under the act of 1857.
The cause was brought to hearing in the Supreme Court of Arkansas, by whose decree the bill of the complainant was dismissed, and it now came before this tribunal upon writ of error directed to that court.
THE CHIEF JUSTICE delivered the opinion of the Court, and after stating the case, proceeded:
The first question which requires consideration in the case before us is was the levee tax imposed in violation of any contract between the state and the United States?
It is not doubted that the grant by the United States to the state upon conditions, and the acceptance of the grant by the state, constituted a contract. All the elements of a contract met in the transaction -- competent parties, proper subject matter, sufficient consideration, and consent of minds. This contract was binding upon the state, and could not be violated by its legislation without infringement of the Constitution.
The contract required the state to appropriate the lands granted to the purpose of reclaiming them. The lands themselves might be conveyed to the levee contractors for work performed, or the contractors might be paid in money or in scrip representing land. If the state therefore, after acceptance of the grant and without applying the lands or their
proceeds in money or scrip to the purpose of reclamation, had sought, by means of taxation, to compel purchasers to pay for the levees and drains necessary to reclaim their land, it would certainly be difficult to say that the contract was not violated. But the case before us hardly comes within this description. The allegation and proofs do not show that the state had not applied all the lands granted and their proceeds to the making of levees and drains before proceeding to impose the special tax, and if this was done and the work of reclamation remained still incomplete, the imposition of such a tax for the completion or preservation of the work cannot be regarded as inconsistent with the obligation of the contract between the state and the United States.
The next and only remaining question is was the levee tax in violation of any contract between the state and the complainant?
It seems quite clear that the act of 1851, authorizing the issue of transferable land scrip and its receipt from locators of land in payment, and the provision in the fourteenth section, offering inducements to purchasers and contractors by exempting from taxation, for ten years or until reclaimed, all the swamp or overflowed lands, constituted a contract between the state and the holders of the land scrip issued under the act.
When the scrip was issued to a contractor, it represented a certain quantity of land untaxable for ten years, unless the land should be sooner made fit for cultivation. When transferred to another person, it represented to him a like quantity of like land. The contract of the state was to convey the land for the scrip and to refrain from taxation for the time specified. Every piece of scrip was a contract between the state and the original holder and his assigns. Now what was the effect of that contract when made? Did it not bind the state to receive the scrip in payment for swamp land, exempted for a limited time from taxation? The scrip, if not receivable for lands, was worthless. To annul the quality of receivability was to annul the contract. But the
exemption of the lands for which it was receivable from taxation was a principal element in its value, and repeal of the exemption was the destruction of this element of value. This was clearly an impairment of the contract. The state could no more change the terms of the contract by changing the stipulated character of the land to be conveyed in satisfaction of the scrip as to liability to taxation than it could abrogate the contract altogether by refusing to receive the scrip at all in payment for land.
We are constrained to regard the repeal of the exemption act, so far as it concerns lands paid for either before or after the repeal by scrip issued and paid out before repeal as impairing the contract of the state with the holders of the scrip.
It was strenuously urged for the defendant that the exemption contemplated by the statute was exemption from general taxation, and not from special taxation for local improvements benefiting the land, such as the making of levees, and many authorities were cited in support of this view. The argument would have great force if the provision for exemption had been contained in a general tax law or in a law in framing which the legislature might reasonably be supposed to have in view general taxation only. But the provision under consideration is found in a law providing for the construction of levees and drains and devoting to that object funds supposed to be more than adequate, derived from the very lands exempted, and the exemption is for ten years, or until reclaimed, and is offered as an inducement to take up the lands, and thus furnish those funds. It is impossible to say that this exemption was not from taxation for the purpose of making these levees and drains as well as from taxation in general. Any other construction would ascribe to the legislature an intention to take the whole land for the purposes of the improvement and then to load it with taxation for the same object in the hands of purchasers whom it had led to expect exemption from all taxation, at least until the land should be reclaimed.
The decree of the Supreme Court of Arkansas must therefore be reversed and the cause remanded, with instructions to enter a decree in conformity with this opinion.
N.B. The same order was made in cases Nos. 28, 29, 30, 31, 32, and 33, argued with the above case, and which THE CHIEF JUSTICE said were governed by its decision.