U.S. Supreme Court Von Hoffman v. City of Quincy, 71 U.S. 4 Wall. 535 535 (1866)
Von Hoffman v. City of Quincy
71 U.S. (4 Wall.) 535
ERROR OF THE CIRCUIT COURT OF THE UNITED
STATES FOR THE SOUTHERN DISTRICT OF ILLINOIS
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accordingly, the power of taxation thus given is a contract within the meaning of the Constitution, and cannot be withdrawn until the contract is satisfied.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
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
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
$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.
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
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, § 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
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
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
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.
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
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
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 ]
[ 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 ]
[ Footnote 13 ]
[ 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 ]
[ Footnote 16 ]
People v. Bell,
10 Cal. 570;
Dominic v. Sayre,
3 Sandlord 555.