Taylor v. Ypsilanti

delivered the opinion of the court.

This action was brought by Taylor, a citizen of New York, to recover from the city of Ypsilanti, a municipal corpora-, tion of Michigan, the amount' of certain coupons cut from bonds issued by that city in aid of the construction of' the Detroit, Hillsdale, and' Indiana Railroad. At the conclu.sion of the evidence, the jury, being so instructed, returned a verdict in behalf of the city, upon which judgment was entered.

In support of the judgment, it is contended that the city, in giving aid to the construction of a railroad, was restricted to the specific modes — loan o'r donation — designated in the statute ; that this transaction was neither a loan nor a donation; that it is essential to a donation that it should-' not be made for a valuable' consideration, or in execution of a contract embracing reciprocal obligations, since,' in a legal sense, it implies an act by which the owner of a thing voluntarily transfers the title and possession of the same from himself to another person without any consideration; and, consequently, the city was without power to issue bonds upon conditions such as those imposed by the electors. It is argued that' the.conditions are inconsistent with ■ any correct idea of donation, and that, the bonds based thereon are unauthorized - by law,- and therefore -invalid-as obligations, of-the city. -

This brings us to the consideration of the proposition advanced in behalf of the city, that-the act of March 22, 1869, is repugnant to the Constitution of Michigan, as expounded by its highest judicial tribunal, in People v. Salem, 20 Mich. 452 ; Bay City v. State Treasurer, 23 id. 499 , and subsequent cases. These adjudications, it is claimed, constitute the law of this case, and should be followed, as of obligation, without reference to the time when, they were made, or to any opinion we may entertain as to the soundness of the principles announced.

The specific provisions which, it is supposed, establish the

It is not to-be questioned that the Supreme Court of Michigan, in the cases cited, has ruled that it was beyond the constitutional power of the legislature to grant' to a municipal corporation authority, to pledgé its credit, or' issue bonds, in aid of the coristruction of railroads by corporations organized, owned,’and managed by private persons. Before examining the particular grounds upon which those, decisions rest, it is necessary that we should ascertain what was, at the date of the passage of the act of March 22, 1869, the law of Michigan, declared and acted upon by the several departndents of its government, upon the general subject of the relations between railroad corporations and the public. The earliest case, to which our attention has been called, is Swa n v. Williams, 2 Mich. 427 . It was determinéd in 1852. The .constitutional validity of an act incorporating a railroad company, in so far as it authorized the appropriation of private property- for the location, construction, and operation of the road authorized by its charter, was there assailed chiefly upon the ground .that property, so appropriated, is in no sense taken for public, purposes, but for the private profit and advantage of the corporators. .But the court declined to accede to that view. It held that counties;.towns,' cities, and villages aré political or municipal corporations which, from their nature, are subject to the unlimited control of the legislature; that corporations such as banking, insurance, manufacturing, and trading companies were private corporations,'the private advantage of the corporators being the ulti

In 1859 the legislature of Michigan passed an act providing for the payment from the State treasury of .-a certain sum, by way of bounty, for every bushel of salt manufactured by any individual, company, or corporation, from water obtained by boring in Michigan, and exempting from taxation property used for such purposes. Laws Mich., 1859, p. 551. That law was subsequently amended, and in People v. State Auditors ( 9 Mich. 327 ), decided in 1861, it was held that the relators, a manufacturing company,- acquired a vested right" to the amount, offered by the original act, for all salt manufactured prior to the amendatory statute reducing the. bounty. And the doctrines of that case were reaffirmed in East Saginaw Manuf. Co. v. City of East Saginaw, &c. (19 id. 259), decided in 1869, after the passage of the act of March 22, 1869.

The diligence of counsel, aided by our own researches, has not disclosed any adjudication of the Supreme Court of Michigan, prior to May 26, 1870, in which the doctrines of these cases were -recalled or, in any degree, modified, — doctrines constituting, as -will not be denied, the foundation upon which, in the courts of this country,, rests the power of the legislature,' when unrestrained by- constitutional inhibitions, to authorize municipal aid to railroad enterprises.

So far as the action of the legislative and executive departments of Michigan is concerned, we find that from the adoption of the Constitution of 1850 down to the passage of the act in question, authority was given, in many instances, to municipal corporations to aid in the construction of railroads and plank-roads by corporations organized and managed by private persons. And by a general statute passed in 1855, providing for the -incorporation of railroad companies, authority was given

• The act of March 22,1869, contains no clause of an unusual character. It is general in its application to all the townships, villages, and cities of the State. It requires all bonds executed under its provisions to .be- delivered to- the State treasurer, to be by him held, as trustee for the municipality and the railroad company, until all the conditions prescribed by popular vote or by the statute, were performed. It declares that the railroad company for which the bonds were voted shall be entitled to receive them whenever the governor certified that all conditions have been performed.: The bonds having been deposited with the State treasurer, the company entered upon the work of construction in the winter of 1869-70. The road was completed prior to Jan. 1, 1871, and has 'been in operation ever since. Bht prior to May 26, 1870, it had been so far constructed that the railroad company became entitled under its contract tb the' •bonds voted by the city of Ypsilanti. And on the 10th of June, 1870, the governor gave his certificate under the State seal, stating that the company , had performed all conditions prescribed by the statute, and by the vote of the people, and was entitled to receive the bonds' voted by the city. On the 21st of June, 1870, the treasurer delivered them to the company, indorsing upon each that it was- delivered by him, on that day, under the provisions of the act of March 22, 1869.

• Thus the city and the railroad company received all for which ■they respectively bargained.-

On the twenty-sixth day of May, 1870, — after, let it be observed, the railroad company had earned the bonds under its contract with the city, and. was entitled to the required certificate from the governor, — the case of People v. Salem was determined in the Supreme Court of the State. It involved the constitutional validity of an act passed .in 1864, authorizing certain townships to pledge their credit, and the county of Livingston to raise by tax a'loan of money, in aid of the construction of a railroad. The court, Graves, J., dissenting, held the act to „be unconstitutional. The point was distinctly made in argument that municipal aid to railroads was prohibited by sects. 6, 8, and. 9 of art. 14 of the State Constitution. It was

We remark in passing that the doctrines of People v. Salem were, when announced, in direct conflict with those previously

Subsequently, in Bay City v. State Treasurer, the Supreme Court of Michigan reaffirmed the doctrines of People v. Salem. In that case, however, the invalidity of municipal aid and taxation for the construction of railroads by railroad corporations was apparently placed upon these additional grounds: 1. That such taxation, being inadmissible under the fundamental principles announced in People v. Salem, was to. be deemed unlawful confiscation, and, therefore, inhibited by sect. 32 of art. 6 of the State' Constitution, protecting all persons against deprivation of property, without due process of law; 2. That taxation for such purposes was also in violation of sects. 6, 8, and 9 of art. 14 pf the State Constitution. It is unnecessary to notice the declarations of the State court in subsequent cases, since they are in line with those made in the two to which we have referred.

In January, 1872, Talcott v. Township of Pine Grove was determined in favor of the plaintiff in the Circuit Court of the United States for the Western District of Michigan. The question there was as to the constitutional validity of the identical act of March 22, 1869, under the authority of which the bonds in suit were issued. That court, the circuit and district judges concurring, declined' to follow the case of People v. Salem, upon the ground, among others, that the act was valid as well under the laws of Michigan, declared and acted upon by all the departments of the State government at the time of its passage, as under the principles announced in this court

Of the bonds here'-in suit, Taylor became-the purchaser, for a valuable consideration, in the year 1877. He was aware, at the time of -his purchase, of the before-mentioned .decisions of the. Supreme Court of. Michigan, adjudging municipal" aid to railroad corporations to be forbidden by law, and' bonds issued therefor to be invalid. But "it is to be presumed lie Was also aware that this court, affirming the judgment, of the Circuit Court' of the United States, sitting in that State, had, at a subsequent period, and long before his purchase, distinctly refused to follow the later decisions of the State court, and had adjudged the act of March 22, 1869, to be in conformity with the fundamental law of Michigan. The present case then appears to be. this: Testing the rights and obligations of the parties by the- law .of the State as declared by this court,' and as declared and acted upon by.all the departments of the Stafe government, • at - and before the . time when the railroad company entered upon the execution- of -its contract with the city, we should be obliged to reverse the judgment of the court below ;

The position taken by counsel for the city is that the established settled construction, given by the' highe’st court of a State, of the laws and Constitution of that' State, must be deemed, in all cases, binding upon the courts of the Uni on this, because the- statute defining and regulatingihe jurisdiction of the Federal courts declares that the laws of the several States, when they apply, shall constitute rüles of decision in cases, at common law tried in those courts. This proposition, in the general, terms in which it is announced, is undoubtedly supported by the language of some of the opinions which have emanated from this court. But all along through the reports of our decisions, are to be found adjudications in which, upon the fullest consideration, it has been held to be the duty of the Federal courts, in all cases within their jurisdiction, depending upon local law, to administer that law, so far'as it affects contract obligations and rights, as it was judicially declared to be by the highest court of the State at the t.ime such obligations were incurred or such rights accrued. • And this doctrine is no longer open to question in this court. It has been recognizéd for more than a quarter of a century as an established exception to the general rule that the Federal courts will accept or adopt the construction which the State courts give to their own Constitution and laws. “The sound and true rule,” said Mr. Chief Justice Taney, in Ohio Life Ins. Co. v. Debolt ( 16 How. 416 , 432), “is that if the contract.when made is valid by the laws of the' State, as then expounded by all the departments of its govern-. ment, and administered in its courts of justice, its validity and obligation cannot be impaired by any subsequent act of the legislature of the State, or decision of its courts, altering the' construction of the law.” So in The City v. Lamson ( 9 Wall. 477 , 485), Mr. Justice Nelson,' speaking for the court, said: “ It is urged, also, that the Supreme Court of- Wisconsin has held that the act of the legislature conferring authority upon the city to lend its credit, and issue the bonds in question, was

Again, in Olcott v. The Supervisors (supra), the court, speaking, through Mr.. Justice Strong, said-:' “This court has always ruled that if a contract when made was valid under the constitution and laws of a State,, as they had been previously expounded by its judicial tribunals, and as they'were understood at the time, no subsequent. action by the legislature, or the judiciary, will be regarded by this court as establishing its invalidity.” To the like effect are some very recent decisions of this court. In Douglass v. County of Pike ( 101 U. S. 677 ), upon a review of some of the previous cases, the court, speaking by the present .Chief Justice,,said that “ the true rule is to give á change of judicial construction in respect to a statute the same operation on contracts and existing contract rights, that would Be given- to a legislative amendment; that is to say, make it prospective, but not retroactive. After a statute hv, been settled by judicial construction, the construction becomes, so far as contract rights acquired under it are concerned, as much á part of the statute as the. text itself; and a change of decision .is to all intents -and- purposes, the same- in its effect on . contracts as an amendment of the law by means of a legislative. enactment., So far as this casé' is concerned, we have no hesitation in saying that the rights of the parties are to be determined according to the law as it was judicially construed to be when the bonds in question 'were puf, on. the market as commercial paper.”

. For these reasons, and without reference to any other questions discussed, we are-of opinion that the Tights of the plaintiff, as the-owner of bonds-issued under a statute which, when passed, was valid by the • laws of Michigan, as declared and acted upon by the-several-departments of . its government, are not affected by decisions of the Supreme Court of the' State rendered after the railroad company, to whose,rights the plaintiff succeeded, had earned the bonds under contract with the. city made in conformity with the statute. • Upon' the case as

. Judgment reversed with directions to set aside tne verdict, and for such further proceedings as may .'be consistent with this . opinion.

Mr. Justice Gray did not sit in this case, nor take any part' in deciding it.