accepts a lottery charter, does so with the implied understanding that the people, in their sovereign capacity and through their properly constituted agencies, may resume it at any time when the public good shall require, and this whether it be paid for or not. All that one can get by such a charter is a suspension of certain governmental rights in his favor, subject to withdrawal at will. He has, in legal effect, nothing more than a license to continue on the terms named for the specified time, unless sooner abrogated by the sovereign power of the State. It is a permit, good as against existing laws, but subject to future legislative and constitutional control and withdrawal."

§ 503. Tax Exemptions.

Arguing from the fact that all charter contracts are presumed to be entered into with a knowledge and consent that they are, in their performance, subject to a legitimate exercise of the police power, the doctrine was early advanced that they are similarly subject to the State's taxing power; that, in other words, the power to tax is as necessarily and as inherently a sovereign power of the State and may not be bartered away, or its exercise in any way estopped. The courts have, however, held, as has been already intimated, that this is not so.

In many cases, though not without hesitation and against minority protests, exemptions from taxation granted by the State in return for some conceived substantial quid pro quo have been held contracts that might not thereafter be impaired. Such exemptions are, however, construed, it need not be said, with extreme strictness.

In Stone v. Mississippi36 the court say: "We have held, not, however, without strong opposition at times, that this clause protected a corporation in its charter exemptions from taxation. While taxation is in general necessary for the support of government, it is not part of the government itself. Government was not organized for the purposes of taxation, but taxation may be neces36 101 U. S. 814; 25 L. ed. 1079.

sary for the purposes of government. As such, taxation becomes an incident to the exercise of the legitimate functions of government, but nothing more. No government dependent on taxation for support can bargain away its whole power of taxation, for that would be substantial abdication. All that has been determined thus far is that for a consideration it may, in the exercise of a reasonable discretion, and for the public good, surrender a part of its powers in this particular.”

99 37

In Chicago Theological Seminary v. Illinois3 the court say: "The rule is that, in claims of exemption from taxation under legislative authority, the exemption must be plainly and unmistakably granted, it cannot exist by implication only; a doubt is fatal to the claim." In Metropolitan Street R. Co. v. Tax Commissioners it is said, "the rule is akin to, if not part of, the broad proposition, now universally accepted, that in grants from the public nothing passes by implication." 40

39

37 In a dissenting opinion, concurred in by Chief Justice Chase and Justice Field, Justice Miller in Home of the Friendless v. Rouse (8 Wall. 430; 19 L. ed. 495) said: "We do not believe that any legislative body, sitting under a state constitution of the usual character has the right to sell, to give or to bargain away forever the taxing power of the State. This is a power which, in modern political societies, is absolutely necessary to the continued existence of every such society. To hold then that any one of the annual legislatures can, by contract, deprive the State forever of the power of taxation, is to hold that they can destroy the government which they are appointed to serve, and that their action in that regard is strictly lawful.

. We are strengthened in this view of the subject by the fact that a series of dissents from this doctrine, by some of our predecessors, shows that it has never received the full assent of this court, and referring to those dissents for more elaborate defense of our views, we content ourselves with thus renewing the protest against a doctrine which we think must finally be abandoned."

38 188 U. S. 662; 23 Sup. Ct. Rep. 386; 47 L. ed. 641. 39 199 U. S. 1; 25 Sup. Ct. Rep. 705; 50 L. ed. 65.

40 See also Wells v. Mayor of Savannah, 181 U. S. 531; 21 Sup. Ct. Rep. 697; 45 L. ed. 986; Tucker v. Ferguson, 22 Wall. 527; 22 L. ed. 805; Bank of Commerce v. Tennessee, 161 U. S. 134; 16 Sup. Ct. Rep. 456; 40 L. ed. 645; New York ex rel. Met. Street Ry. Co. v. Tax Commissioners, 199 U. S. 1; 25 Sup. Ct. Rep. 705; 50 L. ed. 65.

In this last cited case it was held that the company was not exempted from liability to payment of a special franchise tax by reason of the fact

§ 504. Impairment of Contracts by Taxation.

When, however, the States and their political subdivisions have endeavored to use their taxing power as an indirect means of avoiding explicit contract obligations, the Supreme Court has not hesitated to interpose its veto. Indeed, the court has said that attempted taxation has been the mode most frequently employed for the impairment of contracts.

Thus, in 1871, the city of Charleston by ordinance directed the city treasurer to retain out of the interest due on city stock a tax assessed on all the real and personal property in the city. This ordinance the Supreme Court in Murray v. Charleston" held void

that in consideration of the payment of a gross sum or an annual percentage of its earnings it had been granted the right to construct and operate a street railway in the city of New York, such payments not having been specifically declared to be in lieu of all taxes. In its opinion the following is quoted with approval from the opinion of the court below:

"The franchises are grants which usually contain contracts, executed by the municipality, but executory as to the owner. They contain various conditions and stipulations to be observed by the holders of the privilege, such as payment of a license fee, of a gross sum down, of a specific sum each year, or a certain percentage of receipts, as a consideration, or in full satisfaction for the use of the streets.' There is no provision that the special franchise, or the property created by the grant, shall be exempt from taxation. .

"The condition upon which a franchise is granted is the purchase price of the grant, the payment of which in money, or by agreement to bear some burden, brought the property into existence, which thereupon became taxable at the will of the legislature, the same as land granted or leased by the state. There is no implied covenant that property sold by the State cannot be taxed by the State, which can even tax its own bonds, given to borrow money for its own use, unless they contain an express stipulation of exemption. The rule of strict construction applies to state grants, and unless there is an express stipulation not to tax, the right is reserved as an attribute of sovereignty. Special franchises were not taxed until, by the act of 1899, amending the tax law, they were added to the other taxable property of the State. This is all that the statute does, so far as the question now under consideration is concerned. No part of the grant is changed, no stipulation altered, no payment increased, and nothing exacted from the owner of the franchise that is not exacted from the owners of property generally. No blow is struck at the franchise, as such, for it remains with every right conferred in full force; but, as it is property, it is required to contribute its ratable share, dependent only upon value, toward the support of government."

41 96 U. S. 432; 24 L. ed. 760.

as an impairment of the obligation of the contract of the city with its creditors.42

§ 505. Instances of Incapacity of the States to Contract.

With reference, also, to various matters which, properly speaking, cannot be said to fall within the domain of the police power, the state legislatures have been held to be incompetent to contract.

42 The court say: "We do not question the existence of a state power to levy taxes as claimed, nor the subordination of contracts to it, so far as it is unrestrained by constitutional limitation. But the power is not without limits, and one of its limitations is found in the clause of the federal Constitution, that no State shall pass a law impairing the obligation of contracts. A change of the expressed stipulations of a contract, or a relief of a debtor from strict and literal compliance with its requirements, can no more be affected by an exertion of the taxing power than it can be by the exertion of any power of a state legislature. The constitutional provision against impairing contract obligations is a limit upon the taxing power, as well as upon all legislation, whatever form it may assume. Indeed, attempted state taxation is the mode most frequently adopted to affect contracts contrary to the constitutional inhibition. It most frequently calls for the exercise of our supervisory power. It may, then, safely be aflirmed that no State, by virtue of its taxing power, can say to a debtor, 'You need not pay to your creditor all of what you have promised to him. You may satisfy your duty by retaining a part for yourself, or for some municipality, or for the state treasury.' Much less can a city say, 'We will tax our debt to you, and in virtue of the tax withhold a part for our use.' . . . Is, then, property which consists in the promise of a State, or of a municipality of a State, beyond the reach of taxation? We do not affirm that it is. A State may undoubtedly tax any of its creditors within its jurisdiction for the debt due to him, and regulate the amount of the tax by the rate of interest the debt bears, if its promise be left unchanged. A tax thus laid impairs no obligation assumed. It leaves the contract untouched. But until payment of the debt or interest has been made, as stipulated, we think no act of state sovereignty can work an exoneration from what has been promised to the creditor, namely: payment to him without a violation of the Constitution. The true rule of every case of property founded on contract with the government is this: it must first be reduced into possession, and then it will become subject, in common with other similar property, to the right of the government to raise contributions upon it. It may be said that the government may fulfill this principle by paying the interest with one hand, and taking back the amount of the tax with the other. But to this the answer is, that, to comply truly with the rule, the tax must be upon all the money of the community, not upon the particular portion of it which is paid to the public creditors, and it ought besides to be so regulated as not to include a lien of the tax upon the fund.

Thus in Newton v. Commissioner13 it was declared, with reference to the location of a county seat, that one legislature could not bind its successors. So, also, in Illinois Central R. R. Co. v. Illinois14 the Supreme Court held that the people of the State were, as a continuing whole, interested in the navigable waters of the State and in the lands under them, and that, therefore, the title to them was held in trust by the State and could not be ceded away.

45

In Munn v. Illinois and in the Granger Cases,46 the doctrine of the regulative power of the States over public service corporations, and those whose business is affected with a public interest, was established, and that this is a power the exercise of which is not to be construed as restrained by charter provisions except when it plainly appears that this has been intended. And, even when the grant is in unequivocal language, it will not be held valid against subsequent legislation as to matters which vitally or even seriously affect the public welfare, that is, relate to subjects within the field of legitimate police control. In this respect the protection of private rights under the due process clause and under the obligation clause is the same.

§ 506. Regulation of Rates.

With reference to the foregoing it is perhaps worthy of special mention that the right of public service corporations to fix their own charges or tolls is one which the legislature may grant, and, when granted, constitute a contract which the legislature may not The creditor should be no otherwise acted upon than as every other possessor of moneys, and, consequently, the money he receives from the public can then only be a fit subject of taxation when it is entirely separated' (from the contract), and thrown undistinguished into the common mass.' 3 Hamilton, Works, 514 et seq. Thus only can contracts with the State be allowed to have the same meaning as all other similar contracts have."

43 100 U. S. 548; 25 L. ed. 710.

44 146 U. S. 387; 13 Sup. Ct. Rep. 110; 36 L. ed. 1018.

45 94 U. S. 113; 24 L. ed. 77.

46 C. B. & Q. R. Co. v. Iowa, 94 U. S. 155; 24 L. ed. 94; Peik v. C. & N. Ry. Co., 94 U. S. 164; 24 L. ed. 97; C. M. & St. P. R. R. Co. v. Ackley, 94 U. S. 174; 24 L. ed. 99.