Stearns v. Minnesota, 179 U.S. 223 (1900)

“ That the said lands hereby granted when patented to sai p. 225State, shall be subject to the disposal of said State for the purposes aforesaid, and for no other; and the said railroad shall be and remain a public highway for the use of the Government of the United States, free from all toll or other charge, for the transportation of any property or troops of the United States.”

,uS^e ^rac^s> depots and all buildings and structures w ic are necessarily used in the actual management and opera ion of the railroads of said companies. Provided, that said rai road companies shall continue to pay taxes into the state reasury upon their gross earnings in the same manner and in e same ainount as is now provided by law, and that nothing p. 228in this act contained shall be construed to repeal said laws, except in so far as the same relate to the tax upon said lands.

By section 18 it was required to obtain the consent of t e legislature of any State through which, in the operation of its road, it might pass previous to commencing work. Such con sent was obtained from Minnesota by an act of the legislature of that State, approved March 2, 1865. Laws, 1865, p. 4 ■ On March 4, 1870, the legislature of Minnesota passed an act, p. 229(Special Laws, Minn. 1870, p. 338,) the first and second sections of which are as follows :

ac of 1895, supra, taxes were levied and paid in the manner prescribed. The validity of taxes levied upon the lands of this company since the act of 1895, and under the authority of that p. 230act, is challenged, and becomes in this litigation one of the questions involved.

“ It may be true, as claimed, that a gross earnings tax (if su - ject to amendment) is only another mode of arriving at equa taxation, and that such a system of commuted taxation of the p. 231property of railway companies and similar corporations is of great practical and material advantage to the State; but the fact remains that the taxation of all property upon the basis of its cash value was the sole rule ordained by the constitution to secure equality and uniformity of taxation.

e rai road. The company accepted the proposition and cons rue e the road. Thus, if the parties were competent to enter p. 232can inquire into the manner in which the State executed that trust and disposed of the lands. Emigrant Co. v. County of Adams, 100 U. S. 61, 69.

Of course, withdrawing any portion of the property protected by the three per cent commutation, and subjecting that to ordinary taxation, leaving the three per cent still due from the railroad companies, changes materially the terms of the alleged contract, so that there can be no question that if there were a valid contract created by the earlier legislation, the act of 1895 impairs its obligation. The general rule of this court is to accept the construction of a state constitution placed by the state Supreme Court as conclusive. One exception which has been constantly recognized is when the question of contract is presented. This court has always held that the competency of a State, through its legislation, to make an alleged contract, and the meaning and validity of such contract, were matters which p. 233in discharging its duty under the Federal Constitution it must determine for itself; and while the leaning is towards the interpretation placed by the state court, such leaning cannot relieve us from the duty of an independent judgment upon the question of contract or no contract.

Ot er things, a provision similar to the one in question, commutlng all taxes on the basis of three per cent on the gross p. 234earnings. The company having defaulted in its contract, foreclosure proceedings were had, and its property, franchises, etc., were bought in by the State. All this was done in pursuance of express statutory provisions. Thereafter an act was passed transferring to a new corporation all the property, franchises, etc., acquired by this foreclosure, and the question presented was whether this new company was entitled to the three per cent commutation. And it was held that it was. The opinion of the court was, that “ by the foreclosure proceedings, the State acquired, without any merger, all the franchises and privileges held by the territorial corporation, and that it could transfer them to a new corporation of its own creation. We do not stop to question the argument of the Supreme Court to the effect that there was no merger. All that we deem necessary to notice is that the State by the foreclosure proceedings acquired title to property—railroad property, including lands granted to aid in construction—and, having that property,” “ could dispose of it free from any limitations imposed by the constitutional provisions which are now referred to as invalidating the present alleged contract. In other words, the State could take and dispose of lands upon precisely the same terms” upon which it took and disposed of the lands to the present plaintiffs in error.

“ Upon the renewal of the grant, in 1864, to the present company, it was therefore clearly competent for the legislature to change and modify its terms and conditions, so as to require the annual payment of a different rate per cent of the gross earnings of the road, to commence upon the completion of thirty instead of fifty miles, and, in consideration of such annual payment, to exempt the railroad, its appurtenances, and other property, from all taxation, and from all assessments, both general and local. This modification of the original contract was prohibited by no provision of the constitution; and the enactment of March 4,1864, in this regard, has not only been uniformly recognized and acte upon ever since, as valid, by both the executive and legislative departments of the state government, but, by an express p. 235constitutional amendment, adopted in 1871, it has been placed beyond the reach of any amendment or repeal, except by a law ratified by a vote of the electors of the State.”

In Me Henry v. Alford, 168 U. S. 651, legislation of the Territory of Dakota, providing for the taxation of the lands of the Northern Pacific Railroad Company on the basis of a percentage of the gross earnings of the railroad company, was held not in conflict with the mandate in the organic act that no law “ shall be passed impairing the rights of private property; nor shall any discrimination be made in taxing different kinds of property; but all property subject to taxation shall be in proportion to the value of the property taxed.” While the language of this organic act is not the same as that of the Minnesota constitution, in that the Minnesota constitution by implication requires the taxation of all property except that by its terms specifically exempted, and this act makes no provision in respect to the matter of exemption; yet in respect to property subject to taxation it, like the Minnesota constitution, requires taxation p. 237in proportion to the value of the property taxed. It is doubtless true that it has been held that forbidding an exemption from taxation and requiring taxation according to the “ true value in money ” forbids taxation otherwise than in accordance with established general rules in respect to valuation and prevents a commutation on a different basis; yet there have been rulings of the Supreme Court of Minnesota to the effect that commutation is not the same as exemption, or forbidden by a constitutional provision which forbids exemption, and that it may sometimes be the surest way of reaching taxation according to the “ true value in money,” and is, therefore, not necessarily an infringement of a constitutional provision requiring such taxation. Thus, in County of Hennepin v. Railway Company, 33 Minnesota, 534, 535, the court said:

The contract made in 1865 with the predecessor of the St. Paul and Duluth Railroad Company, void at that time but made valid by the constitutional amendment of 1871, (as by the Supreme Court of the State now affirmed,) commuted the taxes on all railroad properties, including its lands not used for railroad purposes, by the payment of three per cent on its gross earnings. Confessedly after that amendment there existed a binding contract between the State and the railroad companies, by which the taxes on all their property were to be commuted and discharged on the payment of three per cent of the gross earnings. If nothing had since occurred that contract, under the decision of the Supreme Court, would continue exempting lands not used, as well as lands used for railroad purposes, from any other taxation than that which was expressed by three per cent on the gross earnings of the companies. In other words, so far as the railroad companies are concerned, that constitutional amendment did away with the restrictive features of sections 1 and 3 of Article IX in the state constitution, and permitted and endorsed a peculiar method of taxation of railroad companies. The constitutional amendment of 1871 forbade any change by repeal or amendment of laws respecting the taxation of railroad companies except upon a vote of the people. The converse of that proposition may be accepted, to wit, that by a vote o p. 239the people the tax provision concerning railroads might be repealed or amended. But is there no limitation upon the power of amendment? The law of 1895 adopted by the people does not release railroad companies from the burden of paying three per cent upon their gross earnings into the state treasury, but simply operates to put certain properties belonging to them outside of the protection of that commutation. Was such an amendment within the contemplation of the constitutional provision of 1871 ? It may seem a not unreasonable modification to exempt from the contract such property as is not used for railroad purposes, but would not the legislation assume a different aspect if it had subjected to ordinary taxation all the railroad property, except locomotives, and upon them continued the burden of the payment of three per cent of the gross earnings ? Of course, if there be no limitations in respect to the scope of amendment it would be within the power of the State to subject the bulk of the railroad property, whether used or not used for railroad purposes, to the burden of ordinary state taxation; and taking a single item like locomotives, without which the road could not be operated, continue upon the companies the duty of paying three per cent of the gross earnings. While it may be that no such inconsiderate action is to be expected, the possibility of such action suggests a query whether the power of repeal or amendment, preserved by the constitutional amendment of 1871, has not some limitations.

But there is another matter of significance. The lands in controversy were granted by Congress to the State as trustee. The act of 1865, by which the State offered the lands to the predecessor of the St. Paul and Duluth Company, is entitl * u An act to execute the trust created by the act of Congress. The right of a State to accept such a trust cannot now e doubted. It has become a part of the judicial history of t e country. These lands were not donated by Congress to t e State, to be used by it for its own benefit and in its own way? but were conveyed to the State in trust with the understan ing that, as trustee, it should use them in the best possi e manner for accomplishing the purposes of the trust. Of course, this implied that, except as restrained by its own powers, e p. 241State should make the grant as valuable as possible for the accomplishment of the purpose of the trust. Under those circumstances the peculiar nature of the trust created enabled the State to determine the limits and mode of taxation to which that property thus placed in its hands should be subjected. It might have provided that the title be retained by the State, that no conveyance be made to the railroad company, and that the first and only conveyance should be when the railroad company had made a contract with some individual for its purchase, and that contract had been completed by full payment to the company. Is it to be doubted that the State, retaining the title, although authorizing the railroad company to sell, could, while that title was so retained, hold it free from any kind of taxation? Would it not be a legitimate and appropriate discharge of the trust conferred if the State adjudged that such property should be held in its own name free from all taxation until such time as its full value in cash could be obtained from some individual ? If the State could retain the title free from taxation until such time as its disposition to a private purchaser enabled the railroad company to realize the full value of the land, was it not also within its power to say that a temporary transfer to the corporation charged with the duty of constructing the railroad should also be accompanied by a like exemption from taxation ? And if it could exempt from all taxation, it might with equal propriety say that it should be subjected to taxation in only a limited way.

e would not weaken, even if we had authority so to do, the n scope of this constitutional obligation. Whatever the peoP e, raming their organic act, have declared to be the limits of eois ative power, and the modes in which that power shall be exercised, must always be recognized by the courts, state and a iona , as obligatory. And if the property in controversy was vol . olx xix —16 p. 242that which passed directly into the mass of the general property of the State it might properly be said that the construction placed on constitutional limitations by the Supreme Court of the State determined absolutely for all courts, state and national, the full scope of the legislative power.

We think the apprehension of the Supreme Court is one more of imagination than of fact. It is true that Congress might act so as in effect to keep withdrawn a large area of the State from taxation. Under the reservation in the act of admission and the acceptance thereof by the State of Minnesota the right of Congress to determine the disposition of public lands within that State was reserved, and, according to the decision in V<^ p. 243Brocldin v. State of Tennessee, infra, lands belonging to the United States are exempt from taxation by the State. So that if Congress should determine that the great body of public lands within the State of Minnesota should be reserved from sale for an indefinite period it might do so, and thus the lands be exempted from taxation; and yet it cannot be imputed to Congress that it would discriminate against the State of Minnesota or pass any legislation detrimental to its interests. It had the power to withdraw all the public lands in Minnesota from private entry or public grant, and, exercising that power, it might prevent the State of Minnesota from taxing a large area of its lands, but no such possibility of wrong conduct on the part of Congress can enter into the consideration of this question. It is to be expected that it will deal with Minnesota as with other States, and in such a way as to subserve the best interests of the people of that State. That a power may be injuriously exercised is no reason for a misconstruction of the scope and extent of that power. So the fact that Congress might, if it saw fit, withdraw the public lands in Minnesota from sale, and thus prevent their taxation, furnishes no reason for denying the efficacy of the power to grant such lands, subject to conditions binding upon the State, or the right of the State, as its trustee, to prescribe limitations upon taxation. And this must be said bearing in mind that to the full extent there is no question of the duty of the legislature of Minnesota to subject any but trust property to the absolute scope of its constitutional provisions in respect to the matter of taxation. And in respect to the lands in controversy it must be remembered that they were granted to and accepted by the State in trust, and it cannot be doubted t at the State has the power to compel its grantee to use the ands in furtherance of the trust and prevent it from creating a arge and permanent ownership of lands.

When Minnesota was admitted into the Union, and admitted on the basis of full equality with all other States, there was wit in its limits a large amount of lands belonging to the nalonal government. The enabling act, February 26, 1857, 11 at. 166, authorizing the inhabitants of Minnesota to form a constitution and a state government, tendered certain p. 244propositions to the people of the Territory, coupled in section 5 with this proviso (11 Stat. 167):

That these provisions of the enabling act and the constitution, in form at least, made a compact between the United States and the State, is evident. In an inquiry as to the validity of such a compact this distinction must at the outset be noticed. There maybe agreements or compacts attempted to be entere into between two States, or between a State and the nation, in reference to political rights and obligations, and there may e those solely in reference to property belonging to one or t e other. That different considerations may underlie the question p. 245as to the validity of these two kinds of compacts or agreements is obvious. It has often been said that a State admitted into the Union enters therein in full equality with all the others, and such equality may forbid any agreement or compact limiting or qualifying political rights and obligations ; whereas, on the other hand, a mere agreement in reference to property involves no question of equality of status, but only of the power of a State to deal with the nation or with any other State in reference to such property; The case before us is one involving simply an agreement as to property between a State and the nation.

It cannot be doubted that it is a part of the general right o sovereignty, belonging to independent nations, to establish an fix the disputed boundaries between their respective territories ; and the boundaries so established and fixed by compact etween nations become conclusive upon all the subjects and citizens thereof, and bind their rights; and are to be treated, to a intents and purposes, as the true and real boundaries. This 18 a octrine universally recognized in the law and practice of na ions. It is a right equally belonging to the States of this p. 246Union, unless it has been surrendered under the Constitution of the United States. So far from there being any pretense of such a general surrender of the right, that it is expressly recognized by the Constitution, and guarded in its exercise by a single limitation or restriction, requiring the consent of Congress. The Constitution declares that ‘ no State shall, without the consent of Congress, enter into any agreement or compact with another State,’ thus plainly admitting that, with such consent, it might be done, and in the present instance that consent has been expressly given. The compact, then, has full validity, and all the terms and conditions of it must be equally obligatory upon the citizens of both States.”

“ There are many matters upon which different States may agree that can in no respect concern the United States. If, for instance, Virginia should come into possession and ownership of a small parcel of land in New York which the latter State might desire to acquire as a site for a public building, it would hardly be deemed essential for the latter State to obtain the consent of Congress before it could make a valid agreement with Virginia for the purchase of the land. If Massachusetts, in forwarding its exhibits to the World’s Fair at Chicago, should desire to transport them a part of the distance over the Erie Canal, it would hardly be deemed essential for that State to obtain the consent of Congress before it could contract with New York for the transportation of the exhibits through that State in that way. If the bordering line of two States should cross some malarious and disease-producing district, there cou be no possible reason, on any conceivable public grounds, obtain the consent of Congress for the bordering States to agree to unite in draining the district and thus removing the cause o p. 247disease. So in case of threatened invasion of cholera, plague, or other causes of sickness and death, it would be the height of absurdity to hold that the threatened States could not unite in providing means to prevent and repel the invasion of the pestilence without obtaining the consent of Congress, which might not be at the time in session. If, then, the terms ‘ compact ’ or ‘agreement’ in the Constitution do not apply to every possible compact or agreement between one State and another, for the validity of which the consent of Congress must be obtained, to what compacts or agreements does the Constitution apply? . . .

’ ^terests in land situate in the territory of each other, and ot er internal regulations for the mutual comfort and convenience of States bordering on each other.’ And he adds: ‘ In sue cases the consent of Congress may be properly required, in order to check any infringement of the rights of the national government; and, at the same time, a total prohibition to enter p. 248into any compact or agreement might be attended with permanent inconvenience or public mischief.’ ”

The presumption is in favor of the law of the place of contract. He who asserts the contrary has the burden of proof. The New York statute does not purport to change any insurance company charter. On the contrary, its obvious purpose is only to reach business transacted within the State. Proceeding on the accepted principle that a State may determine the conditions, the meaning and limitations of contracts executed within its borders the language of the statute reaches contracts made within the State. Undoubtedly a foreign insurance company making a contract within the State of New York would find that contract burdened by its provisions, and equally clear is it that such company making a contract in another State would be free from its limitations. There is no indication of an intent on the part of the legislature of New York to affect, even if it were possible, the general powers of a foreign company coming within the State and transacting business. But on the face of the statute there is no express demarcation between foreign and local companies. There is no attempt to say that a foreign company doing business within the State shall, as to such business, be subject to the prescribed limitations, and that a ome company doing business within the State and elsewhere s all as to all its business be so limited. If we cannot from the anguage impute to the legislature an intent to regulate the usiness of a foreign company outside of the State, how can we p. 266find in such language an intent to prescribe limitations upon the contracts of a home company outside the State ? In the absence of an expressed intent it ought not to be presumed that New York intended by this legislation to affect the right of other States to control insurance contracts made within their limits. Can it be that the State of New York, aware of the fact that other States and other countries might by their legislation properly prescribe terms and conditions of insurance contracts, meant by this legislation to restrict its local companies from going into those States and countries and transacting business in compliance with their statutes if in any respect they were found to conflict with the regulations prescribed for business transacted at home ?

These considerations lead to the conclusion that the statute o p. 267New York, directed as it is to companies doing business within the State, was intended to be, and is, in fact, applicable only to business transacted within that State.

Further, it may be noticed that even if the language justifies \ cons^ruc^on? may well mean that only such laws ot the State of New York as are intended to and do change the ar ers of the companies or are intended to have extraterritorial aPJni cation should be considered a part of the policy. t stipulati011 m this policy is different from that presented e our^ Appeals of New York in Baxter n . Brooklyn p. 268Life Ins. Company, 119 N. Y. 450, 454, which was that it was “ a contract made and to be executed in the State of New York, and construed only according to the laws of that Stat^” There was a direct provision in respect to the contract itself, and thus incorporated those laws into its terms.

“We are unable to construe the law in accordance with the contention of either party. The construction contended for by the defendant is too narrow. The language used is, that ‘ No life insurance company doing business in the State of New York shall have power to declare forfeited or lapsed any policy. . . . ’ This language, construed in its ordinary sense, seems to preclude such a narrow construction. Beside, if it were warranted by the language, it would not be reasonable to suppose that the legislature intended to so limit the effect of the statute. If it had so intended, it would have made use of language which in some manner confined the rights to be affected by the statute to residents of the State, instead of to companies doing business therein. While the construction, contended for by the p. 269plaintiff, seems to be equally untenable, for the reason that it would convict the legislature of having sought to accomplish something not in its power. So construed the act would apply to all policies of any company which should do business in the State of New York, wherever issued, regardless of the question as to whether or not it was organized under its laws. That the legislature of New York could not control companies not organized under its laws as to their business transacted in other States is too clear for argument. Hence the construction contended for by respondent would convict the legislature of having attempted that which it could not do, or of having deliberately discriminated against its own companies.