Folsom v. Ninety Six, 159 U.S. 611 (1895)

FOLSOM v. NINETY SIX.

certi fic ate fro m the cir cui t court of app eal s for th e

When a township has been created by law as a territorial division of a State, with no express grant of corporate powers, and with no definition or restriction of the purposes for which it is created, it is within the

power of the legislature, at any time, to declare it to be a corporation and to confer upon it such corporate powers, appropriate to be vested in a territorial corporation for the benefit of its inhabitants, as the legislature may think fit.

Notwithstanding the decision of the Supreme Court of South Carolina in Floyd v. Perrin, 30 So. Car. 1, the statute of South Carolina of December 24, 1885, which authorized townships (already defined by names and boundaries) to subscribe for stock in a railroad company, and county officials to issue bonds accordingly in their behalf, and to assess and levy taxes upon the property in the township for the payment thereof, and declared the townships to be bodies politic and corporate for the purposes of this act, with the necessary powers to carry out its provisions, and with rights and liabilities in respect to any causes of action growing out of its provisions, must be held by the courts of the United States, as to bonds issued and purchased in good faith before that decision, to be consistent with art. 9, sect. 8, of the constitution of South Carolina, ' authorizing the corporate authorities of townships to be vested with • power to assess and collect taxes “ for corporate purposes.”

This was an action, brought in the Circuit Court of the United States for the District of South Carolina, by George W. Folsom, against Township Ninety Six in the county of Abbeville and State of South Carolina, to recover the sum of $5100, the amount of coupons attached to bonds issued in behalf of that township in aid of the construction of a railroad ; and to compel the levy of a tax upon the property in the township to pay these coupons. The complaint contained the following allegations:

That the plaintiff was a citizen of the State of Tennessee; that the defendant was a corporation, duly chartered under and by virtue of an act of the general assembly of South Carolina of December 23, 1882, chartering the railroad company by the name of the Greenville and Port Royal Railroad Company, and of an act of December 24, 1885, amending its charter, and changing its name to the Atlantic, Greenville and Western Railroad Company; and that the defendant was a citizen and resident of the State of South Carolina.

That Township Ninety Six lay in Abbeville County, in the State of South Carolina, along the line of said railroad ; that, in pursuance of said acts, an election was duly held in the said township, and resulted in favor of a subscription to said railroad company to the amount of $20,800; and that, in pursuance of said acts, the board of county commissioners of Abbeville County, on March 25, 1886, duly executed and issued bonds of the township, numbered on their face, and aggregating $20,800, as authorized by those acts, with interest coupons attached at the yearly rate of seven per cent; the bonds and coupons payable at the First National Bank of Charleston, S. C.; and the bonds containing a recital that the township by virtue of those acts had subscribed for $20,800 of the common stock of the railroad company.

That the plaintiff, in 1886, relying upon the recitals contained in the bonds, and upon their being legal and valid obligations of the township, became the purchaser of certain of the bonds, with the coupons attached, and was now the legal owner and holder thereof.

“That at the time of the issue of said bonds, and of the purchase thereof by the plaintiff, the said bonds and coupons, and other bonds and coupons issued as obligations of other townships under said acts and similar acts enacted in 1872 and 1875, when the bonds were also issued, were regarded and treated as valid securities by the corporate authorities of said township, by the public, the legal profession, and by the legislative, executive and judicial departments of the State of South Carolina; and that they circulated freely in the market, and large sums of money were invested in them by citizens of South Carolina, as well as other States, believing them to be valid and valuable securities.”

That the plaintiff was now the owner and holder of unpaid coupons to the amount of $5100 upon his bonds; and that the defendant had failed and refused to assess and collect taxes, or to place money in the First National Bank of Charleston, for the payment of these coupons.

The defendant demurred to the complaint. The Circuit Court held the questions raised to be controlled by the case of Floyd v. Perrin, 30 So. Car. 1, which the Circuit Court was bound to follow; and therefore sustained the demurrer, and dismissed the complaint. 59 Fed.. Rep. 67.

The plaintiff took the case by writ of error to the Circuit Court of Appeals for the Fourth Circuit, which, desiring the instructions of this court upon certain questions or propositions of law, certified them to this court as follows:

“ First. Whether, upon the averments of the complaint, the Circuit Court was bound, in passing upon this case, by the decision of the Supreme Court of South Carolina in Floyd v. Perrin, 30 S. C. 1 ?

“ Second. Whether, if the bonds and coupons in question were issued, put in circulation, and came to the hands of plaintiff in error, in due course of trade, for valuable consideration and without notice, there having been at the time no decision of the Supreme Court of South Carolina adverse to these bonds, or identical bonds issued under similar statutes, the plaintiff in error was entitled to recover on the coupons mentioned in said complaint ?

“ Third. Whether the acts of December 23, 1882, and of December 24, 1885, were constitutional, and the township bonds issued thereunder, if in compliance with the acts, or m the hands of l)ona fide holders for value, constituted valid indebtedness of the township issuing the same?

‘‘ Fourth. Whether the act of December 19, 1887, had the effect to validate the bonds and coupons in question, and make them binding upon the township of Ninety Six ?

FOLSOM v. NINETY SIX. 61$

Jfr. John K. Shields, (with whom were J/A James T. Shields, Mr. U. J. Haynesworth, and Mr. L. W. Parher^) submitted on his brief for plaintiff in error.

Mr. IF. C. Miller submitted on his brief for defendant in error.

I. The bonds sued on in this case were declared, in Floyd v. Perrin, 30 So. Car. 1, to be void. The train of reasoning by which the court reached its conclusion in that case may be briefly stated thus:

Section 8, Article IX, of the constitution of the State provides : “ The corporate authorities of counties, townships, schooldistricts, cities, towns and villages may be vested with power to assess and collect taxes for corporate purposes,” etc.

Is Ninety Six township a corporation, and if so, are the corporate purposes of Ninety Six township of such a nature as will enable said township under the constitutional limitation, to assess and collect taxes in aid of a railroad ?

At the time of the passage of the act creating the Greenville and Port Royal Railroad Company, and attempting to authorize the township subscriptions to its bonds, the township of Ninety Six did not exist in South Carolina as a corporate organization.

“It will be conceded,” the court said, “ that at the time of the passage of the act chartering the Greenville and Port Royal Railroad Company, Ninety Six township was not a corporate body. . . . It is true that under the act of the legislature passed in 1868, the counties of the State were divided into townships, which were declared to be corporate bodies, with corporate purposes, and to be organized with various officials, moderators, town clerks, selectmen, constables, etc., and with all the machinery of a regular corporation ; but this act was repealed in 1870 by an ‘ Act to repeal an act entitled “ an act to organize townships and to define their powers and privileges,” ’ excepting however that portion of said act fixing the number, names and boundaries of the respective townships in the respective counties, which were left as territorial divisions but with no corporate powers, privileges or purposes.”

Exception has been taken to the ruling of the Circuit Judge upon the ground “ that the case of Floyd v. Perrin was not controlling because it is not a well settled decision of the said court, but is in effect overruled by the later cases of State v. Whitesides, 30 So. Car. 579, and State v. Neely, 30 So. Car.

587.”

Floyd v. Perrin is on the contrary followed and reaffirmed by the cases above mentioned as well as by others.

And in these cases the court held the act of 1888 to be constitutional, but not, however, as an act validating the act of 1885. On the contrary, it was held that the act of 1888 had no such effect and was not so intended. The court founded the constitutionality of the act upon the ground that while, under the constitutional limitations, the legislature could not authorize the levy of a tax by a township to meet a railroad subscription, which is not a corporate purpose so far as such township is concerned, the building of a railroad, which is regarded as an improved highway, is a public purpose from the standpoint of the State; and that for such purpose the legislature may not authorize the levy of a tax hy, but directly impose a tax upon, the townships created under the act of 1885. And thus these cases also reaffirm the doctrine of Floyd v. Perrin.

The question raised in these cases involves the meaning of “ township,” as used in the constitution of South Carolina, the corporate purpose of the township under that constitution, and the constitutional restrictions upon the power of the legislature of South Carolina to vest in such township the right of taxation.

The decisions of the state Supreme Court are not based upon general principles of lawT governing all commercial paper and applicable alike to all the States.

It is submitted that these cases, giving a construction by the highest court of the State to its constitution, should be followed by this court. Claiborne County v. Brooks, 111 IT. S. 400; Norton v. Shelby County, 118 IT. S. 425; Gormley v. Clark, 134 IT. S. 338; Stutsman County v. Wallace, 142 IT. S. 293.

Insisting that there has been a recognition of township bonds as valid securities by the legislature, through the several acts permitting the issuing of such bonds in aid of railroads, and by the courts through the cases above cited, appellant claims to have brought his case within the exception stated in the case of Pine Grove Township v. Talcott, 19 Wall. 666, to the rule that the Federal courts upon a question of this character will follow the decisions of the state tribunals.

But the paramount controlling reason which induced the court to disregard the state decisions has already been assigned. It lay, not in the fact that the bonds had been recognized by the different departments of government, but that “the question before us belongs to the domain of general jurisprudence. In this class of cases this court is not bound by the judgment of the courts of the States where the cases arise. It must hear and determine for itself.”

If, therefore, appellee is right in the postulate that the question at bar is one involving the constitution of South Carolina and relating to the internal policy of that State, this case, as stated in the complaint, is still within the rule established in Claiborne County v. Brooks, unaffected by the decision of Pine Grove Township v. Talcott.

It is also averred in the complaint that the plaintiff, for full value and without notice of any defect or irregularity therein, purchased his bonds in reliance upon their recitals, etc.

This distinction has been clearly defined by this court. Coloma v. Eaves, 92 IT. S. 484; Dixon County v. Field, 111 IT. S. 83; Lake County v. Graham, 130 IT. S. 674.

II. It has been earnestly contended by the appellant in the argument before the lower court that his bonds were purchased before the decision in Floyd v. Perrin, and that that decision will not control this court. In no case has this fact alone determined Federal courts in following or disregarding the decisions of state courts. Whenever the decisions of this court have been so affected, it has been because of other considerations which are absent in the case at bar, viz.: (1) That before the decision of the state court was announced the question had been submitted to the Federal tribunal, and was being considered on its merits; (2) That before the state court had spoken, this court had announced its own judgment; or (3) That prior to the purchase of the bonds, earlier decisions of the state court had upheld their validity. Knox County v. Ninth National Bank, 147 IT. S. 91, citing Cass County v. Johnston, 95 LT. S. 360; Daviess County v. Tluidekoper, 98 IT. S. 98; Douglass v. Pike County, 101 IT. S. 677; Carroll County v. Smith, 111 IT. S. 556.

III. It is submitted that the corporation known as the “Township of Ninety Six” is not a township within the meaning of the constitution of South Carolina, nor is it otherwise such a municipal or political division of the State as that under the constitution it may be vested with the power to tax.

IV. The act of December 19, 1887, does not cure the invalidity of appellant’s bonds nor otherwise render them obligations of the township.

Mr . Jus ti ce Gray , after stating the case, delivered the opinion of the court.

•By the constitution of South Carolina of 1868, art. 9, sec. 8, “The corporate authorities of counties, townships, school districts, cities, towns and villages may be vested with power to assess and collect taxes for corporate purposes.” 2 Charters and Constitutions, 1659.

The situation arising out of the subsequent acts of the legislature and decisions of the courts of the State, with regard to bonds like those now in question, will be best understood by stating these acts and decisions in chronological order.

By the act of September 26, 1868, entitled “ An act to organize townships, and to define their powers and privileges,” the inhabitants of every township were declared to be a body politic and corporate, with power to sue and be sued, to hold and convey real and personal estate, to make contracts, to hold meetings, to elect town officers, to vote money for schools, burial grounds, highways and bridges, and to lay taxes for the purpose of keeping highways and bridges in repair; the lines of the townships were to be perambulated, and the marks and bounds renewed, once in every seven years forever; and the act was to take effect, as to each township, on the completion of the duties assigned to county commissioners under §§ 11,12, of another act of the same date, by which the county commissioners were directed to divide the counties into townships, to establish their boundaries, and to designate the name of each, and the time and place of holding its first meeting. 14 Statutes of South Carolina, pp. 128, 143-151.

By the act of January 19, 1870, the township act of 1868 was repealed, “ except that portion of the same fixing the number, names and boundaries of the respective townships of the respective counties.” 14 Statutes of South Carolina, p. 313.

The act of December 23, 1882, chartering the Greenville and Port Royal Railroad Company, as amended by the act of December 24, 1885, (both of which were declared to be public acts,) contained the following provisions :

“ Sec t . 6. That, in addition to the provisions contained in the preceding section for private subscription, it shall and mav be lawful for any city, town, county or township, interested in the construction of said road, to subscribe to its capital stock such sum as a majority of their voters, voting at an election held for that purpose, may authorize the county commissioners or proper authorities of such city, town, county or township, to subscribe, which subscription shall be made in seven per cent coupon bonds, payable in such instalments as the county commissioners or proper authorities of such city, town, county or township may determine, and to be received by said company at par; said bonds to be made payable in sixteen, twenty, twenty-four and twenty-eight years after the date thereof, and to be of the denomination of one hundred dollars, five hundred dollars and one thousand dollars: Provided that a sufficient sum realized from such bonds shall be retained to complete the grading through the county or township in which it is subscribed : Provided that no election shall be held in any of the towns, cities or townships in said counties unless one half of the owners of real estate situate and living in such town, city or township shall first petition for an election on the subject of subscribing to the capital stock, as hereinbefore provided; and no subscription shall be made by any of the towns, cities or townships until the conditions of this proviso shall have been complied with.”

“That, for the purposes of this act, all the counties and townships in said counties, along the line of said railroad, or which are interested in the construction as herein provided for, shall be, and they are hereby declared to be, bodies politic and corporate, and vested with the necessary powers to carry out the provisions of this act ; and shall have all the rights, and be subject to all the liabilities, in respect to any rights or causes of action growing out of the provisions of this act.

“The county commissioners of the respective counties are declared to be the corporate agents of the counties or townships so incorporated and situate within the limits of said counties.” 19 Statutes of South Carolina, pp. 239-241.

The power of the legislature, under the constitution of the State, to authorize townships to subscribe for stock, and to direct the issue of the bonds, in aid of the construction of railroads, appears to have been assumed, as undoubted, by the Supreme Court of the State, April 15, 1885, in Chamblee n . Tribble, 23 So. Car. 70; and July 14, 1886, in Carolina Railway v. Tribble, 25 So. Car. 260, 266.

On November 30, 1888, an action by taxpayers in township Ninety Six to recover back taxes paid by them, under protest, to meet the interest on bonds issued by the county commissioners in behalf of the township under the acts of 1882 and 1885, was sustained by the supreme Court of South Carolina, by concurring opinions of Chief Justice Simpson and Justice McIver, upon the ground that by the act of 1870, repealing the act of 1868, townships were left as mere territorial divisions, with no corporate powers, privileges or purposes; that, as no duty was imposed on them, or right given them, by the acts of 1882 and 1885, except to subscribe to stock in this particular railroad and to assess taxes to pay the subscription, they were without any corporate purpose; and therefore those acts, as applied to them, were in violation of the provision of the constitution. Floyd v. Perrin, 30 So. Car. 1; Whitesides v. Neely, 30 So. Car. 31.

On December 14, 1888, petitions for rehearing of those cases were denied. 30 So. Car. 31, 33.

On December 22, 1888, an act, entitled “ An act to provide for the payment of township bonds issued in aid of railroads in this State,” was passed, to take immediate effect, beginning as follows: “ Whereas certain townships in this State have, by their vote, expressed their willingness to subject themselves to taxation for the purpose of paying bonds issued by them in aid of certain railroads; and whereas, by reason of a defect in the acts authorizing the issue of said bonds, they have been declared invalid: Now, therefore, for the purpose of carrying into effect the expressed will of the people of said townships,” it was enacted as follows:

Sect . 2. “No tax shall be levied under the provisions of this act to pay the interest on any township bonds until the railroad in aid of which they were subscribed shall be completed through such township and accepted by the railroad commissioners.” 20 Statutes of South Carolina, p. 12.

This statute is not mentioned in the questions certified, and, as it is not alleged or suggested that the railroad has been completed through this township, has no direct application to this case. We refer to it only as part of the history of legislation and decision in the State upon the subject.

On April 15, 1889, the Supreme Court of South Carolina held that, since, by its decision in Floyd v. Perrin, a township could not be authorized by the legislature to issue bonds in aid of the construction of a railroad, it followed that the act of 1888 could not be upheld as validating bonds issued by a township under the earlier acts, because the legislature could not ratify what it could not have authorized; but that the act of 1888 was an original exercise of the power of the legislature to authorize taxation for any public purpose, such as was the building of railroads in the State; and that the legislature, therefore, being satisfied of the consent of the township, had constitutionally fixed upon them the debt represented by the bonds previously issued without authority, and to be paid according to the provisions of the new act. State v. Whitesides, 30 So. Car. 579; State v. Neely, 30 So. Car. 587.

The first question certified to this court by the Circuit Court of Appeals is, “ Whether, upon the averments of the complaint, the Circuit Court was bound, in passing upon this case, by the decision of the Supreme Court of South Carolina in Floyd v. Perrin, 30 So. Car. 1 ? ”

The general principles which must govern the decision of this question have been often affirmed by this court, and were stated by Mr. Justice Bradley, in delivering judgment, after great consideration, in the leading case of Burgess v. Seligman, as follows:

“The Federal courts have an independent jurisdiction in the administration of state laws, coordinate with and not subordinate to that of the state courts, and are bound to exercise their own judgment as to the meaning and effect of those laws. The existence of two coordinate jurisdictions in the same territory is peculiar, and the results would be anomalous and inconvenient, but for the exercise of mutual respect and deference. Since the ordinary administration of the law is carried on by the state courts, it necessarily happens that by the course of their decisions certain rules are established, which become rules of property and action in the State, and have all the effect of law, and which it would be wrong to disturb. This is especially true with regard to the law of real estate, and the construction of state constitutions and statutes. Such established rules are always regarded by the Federal courts, no less than by the state courts themselves, as authoritative declarations of what the law is. But where the law has not been thus settled, it is the right and duty of the Federal courts to exercise their own judgment; as they also always do in reference to the doctrines of commercial law and general jurisprudence. So when contracts and transactions have been entered into, and rights have accrued thereon under a particular state of the decisions, or when there has been no decision of the state tribunals, the Federal courts properly claim the right to adopt their own interpretation of the law applicable to the case, although a different interpretation may be adopted by the state courts after such rights have accrued. But even in such cases, for the sake of harmony and to avoid confusion, the Federal courts will lean towards an agreement of views with the state courts if the question seems to them balanced with doubt. Acting on these principles, founded as they are on comity and good sense, the courts of the United States, without sacrificing their own dignity as independent tribunals, endeavor to avoid, and in most cases do avoid, any unseemly conflict with the well-considered decisions of the state courts. As, however, the very object of giving to the national courts jurisdiction to administer the laws of the States in controversies between

citizens of different States was to institute independent tribunals which it might be supposed would be unaffected by local prejudices and sectional views, it would be a dereliction of their duty not. to exercise an independent judgment in cases not foreclosed by previous adjudication.” 107 U. S. 20, 33, 34.

In the case at bar, the statutes of the State of South Carolina, under which the bonds were issued, were passed in 1882 and 1885. The bonds were issued in behalf of the township, and were purchased by the plaintiff, in 1886. It is alleged in the complaint, and admitted by the demurrer, that he purchased the bonds, relying upon their being legal and valid obligations of the township; and that, at the times of their issue and purchase, these bonds and like bonds of other townships were regarded and treated as valid securities by the corporate authorities of the township, by the public, by the legal profession, and by the legislative, executive and judicial departments of the State. And the decisions of the Supreme Court of the State, during the same period, appear to have assumed the validity of such bonds. Chamblee v. Tribble, and Carolina, Railway v. Tribble, above cited.

The decision in Floyd v. Perrin, holding such bonds to be invalid, was by two judges only, against a strong dissent, and was not made until November 30,1888, and a rehearing was denied December 14,1888. Eight days after, on December 22, 1888, the legislature passed an act, to take immediate effect, declaring the bonds previously issued, in behalf of any township, to be debts of the township, and providing fortheir payment by taxation of the inhabitants. Five months later, on April 15,1889, the Supreme Court of the State, in two laboured opinions, the one by Chief Justice Simpson and the other by Justice McIver, declared that, it having been decided in Floyd v. Perrin that the legislature could not authorize the township to levy a tax to pay the bonds, it could not ratify the proceedings of the township; but yet that the statute of 1888 was a constitutional exercise of the unlimited legislative power to authorize taxation for a public purpose, with the consent of the township. In each of the two cases, however, Justice Me-

Gowan, who had dissented from the judgment in Floyd v. Ferrin, delivered a concurring opinion in these words: “ I concur. The meaning of the opinion of the court being that there is no necessity for the issue of any new bonds; but ‘ the debt ’ fixed upon the several townships by the act of 1888 shall be represented by the bonds heretofore issued, to be paid according to the provisions of the act; and I am authorized to say that such is the view of the other members of the court.” State v. Whitesides and State v. Neely, above cited.

As the debt thus held to be imposed upon the township by the act of 1888 was the debt represented by the bonds issued under the act of 1885; as the tax for the payment of that debt under the new act was to be levied upon the property in the township by county officials in substantially the same manner as under the earlier statutes; and as the constitution of the State did not authorize the legislature, with or without the consent of the township, to vest its corporate authorities with power to assess and collect taxes for any but corporate purposes; it is not easy to understand how the later taxation could be held constitutional while the earlier was held unconstitutional ; or how the result in State v. Whitesides and State v-Neely could be reached without practically overruling Floyd v. Perrin.

There not being shown to have been a single decision of the state court against the constitutionality of the act of 1885 before the plaintiff purchased his bonds, nor any settled course of decision upon the subject, even since his purchase, the question of the validity of these bonds must be determined by this court according to its own view of the law of South Carolina.

To aid in the building of a railroad is a public purpose, and, being for the general welfare of the ordinary municipal corporations, such as counties, cities and towns, through which the road is to pass, is a corporate purpose, within the meaning of a constitutional provision vesting in the legislature power to authorize municipal corporations to assess and collect taxes “for corporate purposes.” Livingston County n . Darlington, 101 U. S. 407, 411, 413; Harter v. Kernochan, 103 U. S. 562, 571; Anderson v. Santa Anna, 116 U. S. 356, 363; Bolles v. Brimfield, 120 U. S. 759; Johnson v. Stark County, 24 Illinois, 75, 88; Chicago dec. Railroad v. Smith, 62 Illinois, 268, 276; Nichol v. Nashville, 9 Humph. 252, 268; Brown v. Hertford Commissioners, 100 No. Car. 92.

This is well settled, as to counties, under the constitution of South Carolina. It was assumed by the Supreme Court of the State in State v. Chester de Lenoir Railroad, 13 So. Car. 290, 317, and in Connor v. Green Pond dec. Railway, 23 So. Car. 427, 436; and it was admitted by all the judges in Floyd v. Perrin. 30 So. Car. 1, 13, 19, 27. See also State v. Whitesides, 30 So. Car. 579, 584, and State v. Neely, 30 So. Car. 587, 604. It has also been affirmed, as to towns, by the Circuit Court of the United States for the District of South Carolina, and by the Circuit Court of Appeals for the Fourth Circuit. Darli/ngton v. Atlantic Trust Co., 63 Fed. Rep. 76, and 68 Fed. Rep. 849.

In Floyd v. Perrin, it was also admitted that townships, having been declared by the legislature in the act of 1885, in express words, to be bodies politic and corporate, must be held to be corporations. 30 So. Car. 12, 16, 25. But the ground on which the majority of the court in that case held that act to be unconstitutional was that the townships, having, under the existing statutes, no other corporate duty or right, except to subscribe to the railroad and to assess taxes to pay the subscription, were without any corporate purpose whatever, and therefore to authorize them to assess taxes to pay the subscription was in violation of the constitution.

We are unable to concur in that view, and are much better satisfied with the reasoning of the dissenting opinion. When a township has been created by law, as a territorial division of the State, with no express grant of corporate powers, and with no definition or restriction of the purposes for which it is created, we are of o.pinion that it is within the power of the legislature, at any time, to declare it to be a corporation, and to confer upon it such and so many corporate powers, appropriate to be vested in a territorial corporation for the benefit of its inhabitants, as the legislature may think fit ; and that the act of 1885 was therefore a constitutional and valid act, as far as regards all the kinds of municipal corporations named therein — cities, towns, counties and townships.

In Weightman v. Clark, 103 ü. S. 256, the statute held to be unconstitutional purported to confer the power to issue bonds in aid of the construction of a railroad upon school districts, established and existing for educational purposes only. In Lewis v. Pima County, 155 IT. S. 54, a territorial statute, purporting to confer upon a county the power to issue similar bonds, was held unconstitutional, because the fundamental law limited obligations of any municipal corporation to such as should be “necessary for the administration of its internal affairs.”

The result is, that the first question certified must be answered in the negative, and the second and third questions in the affirmative, and the fourth question becomes immaterial.

RUTLAND RAILROAD COMPANY v. CENTRAL

VERMONT RAILROAD COMPANY.

SAME v. SAME.

ERROR TO THE COURT OF CHANCERY OF FRANKLIN COUNTY IN THE STATE OF VERMONT.

Nos. 51, 472. Argued April 19, 22, 1895. —Decided November 19,1895.

When the highest court of a State, in rendering judgment, decides a Federal question, and also decides against the plaintiff in error upon an independent ground, not involving a Federal question, and broad enough to support the judgment, this court will dismiss the writ of error, without considering the Federal question.

A statute of a State imposed a tax upon the gross earnings of railroad companies, and provided that the tax upon a leased railroad should be paid by the lessee, and deducted from the rent. A lessee paid the tax upon the railroad of its lessor, and deducted it from the rent, and was sued in equity by the lessor for the rent, without deduction for the tax. The highest court of the State gave judgment for the lessee; and held that the statute, so far as it imposed a tax upon gross earnings derived from interstate commerce, was contrary to the Constitution of the United States; but that the provision for the payment of the tax by the lessee, and its deduction from the rent, was constitutional; and further held, independently of the question of constitutionality, that, as between the lessor and the lessee, it was the duty of the lessor to pay the tax; that the lessee having been compelled by law to make the payment to discharge an obligation of the lessor, the law implied a promise to repay; that the lessor having made no suggestion that the statute was unconstitutional, and no offer to indemnify the lessee, the lessee could not, in prudence, do otherwise than pay the tax, and was under no duty to incur the expense, delay and perils of litigation to test the constitutionality of the statute; and that the lessor, in a court of equity, could not have relief for what, as between the parties, itself should have done, and what, by its own laches it had suffered to be done, professedly in its behalf, by the lessee. Held> that this court had no jurisdiction to review the judgment.

Thes e were two writs of error to review decrees of the Court of Chancery for the county of Franklin and State of

Vermont, denying, in accordance with mandates of the Supreme Court of the State, the right of the Rutland Railroad Company, which had leased its railroad to the Central Vermont Railroad Company, to recover the amount of taxes assessed upon the gross earnings of that railroad under the laws of the State, and paid by the Central Vermont Railroad Company, and by it deducted from the rent due to the Rutland Railroad Company under the lease. The case appeared by the record to be as follows :

On December 30, 1870, the Rutland Railroad Company leased its road, including a branch known as the Addison Railroad, for twenty years, to the receivers of the Vermont Central and Vermont and Canada Railroad Companies at a fixed rent, payable semi-annually. On June 21, 1873, the Central Vermont Railroad Company became the receiver of the Vermont Central and the Vermont and Canada Railroad Companies, and took possession of the Rutland Railroad under the lease. Disputes arose between the parties, and on February 23, 1876, they made an agreement in writing, modifying the lease, and by which the rent was made payable monthly, and was to be a certain proportion of the gross earnings, which the lessee guaranteed should be not less than $250,000 a year. Neither of the contracts contained any provision for the payment of taxes.

Under the statutes of Vermont of 1874 and 1876, railroads were taxed by the mile in the towns through which they passed; and the Supreme Court of Vermont, at January term, 1878, in Rutland County, in a case between these parties, not reported, but stated in the opinion of the court below in this case, held that the lessor, and not the lessee, was bound to pay such taxes. See 63 Vermont, 12, 25, 26.

As required by this statute, blank returns of statements of gross earnings were sent in August, 1883, by the commissioner of state taxes to the Central Vermont Railroad Company; and that company filled out the returns, and paid the taxes on such earnings under protest.

A large part of the gross earnings so returned and taxed accrued from the transportation of persons and property between other States and countries through Vermont, and between Vermont and other Statesand countries.

The Central Vermont Railroad Company paid the rents, when due according to the agreement, until July 31, 1883; but afterwards delayed such payments, and deducted therefrom the sums paid for taxes on gross earnings.

On September 19,1883, the treasurer of the Rutland Company, by direction of its officers, wrote a letter to the treasurer of the Central Vermont Railroad Company, claiming that the tax was invalid against the Rutland Company, and demanding payment of the rent in full, without deduction on account of the tax. The president of the Rutland Company afterwards, in conversation with the president of the Central Vermont Company, without intending to limit, or being understood to limit, the grounds of objection of the Rutland Company to the payment of the taxes, stated that it had no gross earnings, and therefore could not be liable for the taxes. No other reason for the denial of its liability for the taxes under the statute of 1882 was ever given to the Central Vermont Company.

By an order of court of January 19, 1884, the Central Vermont Railroad Company was discharged of the receivership, and ordered to transfer and make over all the property in its hands, including the lease of the Rutland Railroad, to the Consolidated Railroad Company of Vermont. On June 30, 1884, the transfer was made accordingly; and on the same day, the latter company leased all the railroads to the Central Vermont Railroad Company, which afterwards continued in possession and operation thereof.

On November 9, 1886, the Rutland Company filed in the Court of Chancery a petition, praying that the Central Vermont Company and the Consolidated Railroad Company of Vermont be ordered to pay the rent due in full, with interest, and without deduction for taxes. The two defendant companies filed an answer denying their liability. The case was referred to a master, upon whose report, embodying the facts above stated, the Court of Chancery, on January 1, 1889, dismissed the petition.

“ In the matter of the petition of the Rutland Railroad Company, it is considered, adjudged and decreed as follows:

“ The act of the legislature of Vermont, entitled ‘ An act to provide a revenue for the payment of state expenses,’ approved November 28, 1882, so far as it imposes a tax upon the gross earnings of railroads derived from interstate transportation of persons or property, is unconstitutional and void, as being in conflict with that clause of the Federal Constitution which confers upon Congress the exclusive power to regulate commerce among the States.

“ That section 14 of said act, providing that taxes assessed under said act upon the earnings of railroads operated by lessees thereof shall be paid by such lessees, and charged against and deducted from the rents due to the lessor of such railroads, is constitutional and valid.

“ That all taxes paid to the State by the respondent, in accordance with the provisions of said act of 1882, notwithstanding its invalidity, as above held, were, as against the petitioner, valid payments, and so,pro tanto, payments in extinguishment of rents due the petitioner.

“ That the petitioner is entitled to recover interest upon the deferred payments of monthly rent, mentioned in the master’s report, from the last day of the month on which it is held such monthly instalments of rent respectively fell due under the lease and the modification thereof mentioned in said report.

“ The decree of the Court of Chancery is reversed, and the cause remanded. ”

In August, 1891, the Court of Chancery entered a decree, purporting to pursue the mandate; and allowed an appeal taken to the Supreme Court of the State by the respondents, claiming that the decree did not conform to the mandate. The petitioner, on September 8, 1891, sued out a writ of error from this court to review that decree.

The defendants in error moved to dismiss both writs of error for want of jurisdiction; the first, because the decree which it sought to review was not a final one ; and both, because no Federal question was involved.

Mr. George F. Edmunds and Mr. C. F. Prouty for plaintiff in error. On the question of jurisdiction, on which the case turned in this court, they said:

If the decision of the Vermont court, that the act, although invalid as a regulation of commerce, would nevertheless protect the defendant, was erroneous, this court has jurisdiction to review that judgment.

The Federal Constitution declares that no State shall pass a law which regulates commerce between the States, or which impairs the obligation of a contract. The defendant has promised to pay the plaintiff a sum of money. It concedes that it has not paid according to its contract. As an excuse for not paying it sets up the statute of the State of Vermont. It makes no other excuse. The only question before the Vermont court is whether that statute protects the defendant. The plaintiff says it does not because it is repugnant to the Constitution of the United States, and upon that question comes to this court. The power to declare that act unconstitutional carries with it, by necessary implication, the power to further declare that, as an act, it is not binding upon the plaintiff; and unless that be so, the right of appeal in this case is a senseless formality.

If the Vermont court could say that this law was to be treated as valid, because so declared by judicial interpretation, it might also say that it was presumed to be valid until declared invalid by some court of competent jurisdiction, and that, therefore, whatever was done under an unconstitutional act was to be regarded as rightfully done until this court had pronounced it unconstitutional. Would not such a decision present a case for the interposition of this court? If not, what protection has the citizen ?

The remedy is an essential part of the obligation. It has been repeatedly held that the legislature cannot take away nor materially change the remedy existing when a contract is entered into without impairing its obligation. When this contract was made the plaintiff could enforce the payment of its stipulated rent. Under the decision of the Vermont court that right is absolutely taken away. That decision must be reviewable here. Gunn v. Barry, 15 Wall. 610; White v. Hart, 13 Wall. 646; Hoffman v. Quincy, 4 Wall. 535; Edwards v. Kearzey, 96 U. S. 595; Louisiana n . Pilsbury, 105 U. S. 278.

The authorities all hold that when the validity of a statute under the Federal Constitution is drawn in issue, this court has the fullest power to review every incidental matter which enters into the determination of the question. Does the judgment of the state court infringe the right of the citizen, so far as that right is guaranteed under the Constitution of the United States ? The state court cannot escape this power of review by resting its judgment upon some principle of general law, provided that judgment gives effect to the statute drawn in question. Bridge Proprietors v. Hoboken Co., 1 Wall. 116; Jefferson Branch Bank v. Skelly, 1 Black, 436; Delmas v. Insurance Co., 14 Wall. 661; University v. People, 99 U. S. 309; Given v. Wright, 117 U. S. 648.

Notwithstanding this decision the lands were regularly assessed and the taxes paid down to 1876, when proceedings were begun in the state court to prevent the collection of these taxes. The state court sustained the assessment, holding that the uninterrupted payment of these taxes for more than sixty years raised a conclusive presumption that the exemption had been surrendered. To review this judgment a writ of error was prosecuted in this court.

The plaintiffs insisted that the state statute impaired the obligation of the contract. The state court said this was true, but that nevertheless the plaintiffs were not entitled to the benefit of the exemption clause by reason of the application of certain general principles of law. This court held that a Federal question was involved and that the Federal court should consider whether the state court had correctly applied those principles which deprived the plaintiffs of the exemption which they claimed.

The case at bar should be carefully distinguished from those in which the state court puts its decision upon an independent ground. By independent ground is meant some ground apart from the statute, upon which the case may have been decided without any reference to the statute. If the judgment of the state court necessarily gives effect to the statute, a Federal question is presented. Lehigh Water Co. v. Easton, 121 IT. S. 388; Chicago Life Ins. Co. v. Needles, 113 IT. S. 574, 579; Dale Tile Mfg. Co. v. Hyatt, 125 U. S. 46, 51.

Mr. Edward J. Phelps for defendant in error. Mr. B. F. Fifield was with him on the brief.

Mr . Just ice Gray , after stating the case, delivered the opinion of the court.

It was hardly denied at the bar, that the first writ of error was prematurely sued out, before a final decree had been entered. But it is unnecessary to dwell upon that, because in other respects the questions arising upon the two writs of error are identical.

The decree below, as appears by the mandate of the Supreme Court of Vermont, and still more clearly by its opinion, made part of the record, and reported in 63 Vermont, 1, did not proceed exclusively on the decision of a Federal question, but also upon grounds of general law.

The conclusion of that court, following the decision of this court in Philadelphia Steamship Co. n . Pennsylvania, 122 U. S. 326, that the statute of Vermont of 1882, so far as it sought to tax the earnings derived from interstate commerce, was unconstitutional, was in favor of the Rutland Railroad

Company, and therefore cannot be questioned on a writ of error sued out by that company.

The court did declare that the provision of the statute, which requires the lessee to pay the tax and deduct the amount from the rent, does not impair the obligation of a contract, because both railroad companies, as well as the rent due from the one to the other, were proper subjects for taxation under the laws of Vermont, and the method to be adopted for the collection of the tax was purely a question of legislative discretion.

But the decision of this part of the case (the only part decided against the plaintiff in error) was not put upon that consideration alone. On the contrary, the court went on to say: “ But it by no means follows, because the defendant has paid to the State taxes, under a law afterwards held to be void, by withholding the amount thereof from the rent, that the Rutland Company can now claim the balance of the rent for this reason.” And this proposition was rested on several distinct grounds.

The first of these grounds, as summed up by the state court, was as follows: “Down to May 27, 1887, the date on which the decision in Philadelphia Steamship Co. v. Pennsylvania, 122 U. S. 326, was promulgated, the doctrine of the cases decided by the Supreme Court upheld the constitutionality of the taxation in question. The State Tax on Railway Gross Receipts, 15 Wall. 284; The Delaware Railroad Tax, 18 Wall. 206.” “ The Supreme Court of the United States is the supreme arbiter when a Federal question is involved. Down to 1887 that court had ruled the Federal question now under consideration in a way that upheld the legislation in question. Its decisions then promulgated were the supreme law of the land, absolutely binding upon both parties to this cause. Hence all payments of taxes, made under our law, which down to that time must be treated as valid for present purposes, were made m strict conformity to law. The subsequent change in the decisions of the United States Supreme Court is only operative prospectively, and all acts done in obedience to the former decisions are valid and cannot be disturbed.”

But the conclusion that “the defendants are not liable to pay as rent the amount paid by them as taxes upon the earnings of the Rutland Road,” was also put upon other grounds, namely, that the taxes upon the earnings of the Rutland Railroad were taxes, which, as between the Rutland Company and the Central Vermont Company, it was the duty of the Rutland Company to pay ; that, the lease being silent, the duty to pay, under the common law, rested upon the lessor; that this question had been decided in the former suit between the parties; that by the statute of 1882 the thing taxed was the property of the Rutland Company, and the Central Vermont Company was but the collector of the tax; that the Central Vermont Company having been compelled by law to make the payments to discharge an obligation of another, the law implied a promise to repay, and the Central Vermont Company would have an action to recover the amount from the Rutland Company, and a court of equity would avoid circuity of action ; that the Rutland Company, in its treasurer’s letter of September 19, 1883, had simply objected that the tax was invalid, and had made no suggestion that the statute was unconstitutional, and no offer to indemnify the Central Vermont Company, and the latter could not, in prudence, do otherwise than pay the taxes, and was under no duty to incur the expense and assume the perils of delay and of litigation, to test the constitutionality of the statute; and that the Rutland Company, in a court of equity, could not have relief for what, as between the parties, itself should have done, and what, by its own laches, it had suffered to be done, professedly in its behalf, by the Central Vermont Company.

These grounds involved no Federal question, and were broad enough to support the judgment, without regard to the question whether the provision of the statute, under which the Central Vermont Company paid the taxes and deducted them from the rent, was or was not constitutional.

Such being the case, the conclusion is inevitable, that this court has no jurisdiction to review the decision of the state court.

In Williams v. Weaver, the Court of Appeals of New York held that assessors of taxes were not personally liable in damages to the owner of national bank shares alleged to have been taxed in violation of a statute of the United States. 75 N. Y. 30. A writ of error to review the judgment yvas dismissed by this court, because, as was said by Mr. Justice Miller in delivering the opinion, “ If the defendants, in assessing property for taxation, incur no personal liability for any error they may commit, the fact that the error committed is a misconstruction of an act of Congress can make no difference.” 100 U. S. 547.

In Young v. Steamship Co., 105 U. S. 41, it was held, in an opinion delivered by Mr. Justice Field, that the question whether fees exacted in violation of a statute of the United States, and paid without objection, could be recovered back, was not a Federal question, the decision of which by the highest court of a State could be reviewed by this court on writ of error.

In Tyler v. Cass County, above cited, an action was brought against a county to recover back money paid at a sale for taxes of lands alleged to be subject to a lien of the United States, and therefore exempt from taxation. The Supreme Court of North Dakota — while holding that, in view of the decision of this court in Northern Pacific Railroad v. Traill County, 115 U. S. 600, the lands were not taxable, and nothing passed by the sale — gave judgment for the defendant.

1 No. Dak. 369. In support of a writ of error sued out by the plaintiff from this court, it was argued that the assessor had no jurisdiction to decide whether the lands in question were or were not taxable; and that the state court, in holding that the act of the assessor, in assessing the lands against private parties in possession, though they in fact belonged to the United States, would not be without jurisdiction, decided against the immunity from the jurisdiction of the assessor. But this court dismissed the writ of error, and, speaking by the Chief Justice, said : “The question arising for determination in the state court was whether the money which had been paid by the purchaser of the lands at the tax sale could be recovered back, either at common law, or under the Dakota statute in that behalf. The ground upon which the tax title was held to have failed was that the United States had a lien upon the lands, and that, therefore, they could not, under the laws of the United States, be sold for taxes; but that fact did not impress with a Federal character the inquiry as to the right of recovery.” 142 U. S. 290.

That case cannot be distinguished in principle from the case at bar. In this case, as in that, it was argued that the state court, while it declared the statute to be*unconstitutional, yet by its decision gave effect to the unconstitutional statute. But in each case the decision of the Federal question was not an essential element in determining whether the plaintiff was entitled to recover against the defendant.