Olcott v. the Supervisors

• Decision Date: 01 December 1872
• Citation: 83 U.S. 678,16 Wall. 678,21 L.Ed. 382
• Parties: OLCOTT v. THE SUPERVISORS
• Court: U.S. Supreme Court

83 U.S. 678

21 L.Ed. 382

16 Wall. 678

OLCOTT v. THE SUPERVISORS.

December Term, 1872

ERROR to the Circuit Court for the Eastern District of Wisconsin; in which court Olcott sued the supervisors of the county of Fond du Lac, Michigan, upon certain county orders issued by the county February the 15th, 1869, in pursuance of an act of Assembly of the State, approved on the 10th of April, 1867, and entitled 'An act to authorize the county of Fond du Lac to aid the completion of the Sheboygan and Fond du Lac Railroad, and to aid the building of a railroad from the city of Fond du Lac to the city of Ripon.'

This act authorized the people of the county to vote upon the question whether they would aid the building of the railroads named; and provided, in case the vote should be in favor of granting aid, that 'county orders' should be issued as the roads should be completed. The sixth section of the act was thus:

'If, under the provisions of this act, the said county of Fond du Lac shall furnish the aid contemplated in this act, then the railroad companies, or their successors and assigns, shall transport wheat upon the said roads upon the following terms for ten years: Wheat by the car-load from the city of Fond du Lac, and from stations east thereof within the county of Fond du Lac, to the city of Sheboygan, at a price not exceeding five cents per bushel; and from the city of Ripon to the city of Sheboygan, at a price not exceeding seven cents per bushel; and from all stations between the cities of Fond du Lac and Ripon to Sheboygan, at a rate pro rata with the freight from Fond du Lac to Sheboygan; and the companies or corporations owning and building the said roads, their successors and assigns, shall make such arrangements between themselves as shall give full effect to the provisions of this section, and the rates of freight above limited shall also apply to the companies owning or operating the said roads over and upon all other railroads where said companies respectively run their cars for the transportation of freight.'

A vote was taken under the act, and was in favor of granting the aid. The county orders were accordingly issued in conformity with the act. They were all made payable to the Sheboygan and Fond du Lac Railroad Company, or bearer, and those now sued on had passed, bon a fide, into the hands of Olcott.

In 1870, that is to say, subsequent to the issue of these orders, though prior to the trial of this case in the court below, the Supreme Court of the State of Wisconsin, in the case of Whiting v. Fond du Lac County,¹ held this act to be void, upon the ground that the building of a railroad, to be owned and worked by a corporation in the usual way, was not an object in which the public were interested, and therefore that the act in question was void, for the reason that it authorized the levy of a tax for a private and not a public purpose. The court there said:

'The question is as to the power of the legislature to raise money or to authorize it o be raised, by taxation, for the purpose of donating it to a private corporation. We held, in Curtis v. Whipple,² that the legislature possessed no such power, and the conclusion in that case we think follows inevitably in this, from the principles stated in the opinion. The cases are not distinguishable, except in the single circumstance that the corporation here, to which it is proposed to give the money, is a railroad company in behalf of which the power of eminent domain has been exercised by the State for the purpose of enabling it to secure the land over which to build its road. . . . But though a railroad company may be, as to its capacity to assume and exercise in the name of the State the power of eminent domain delegated to it, so far a public or quasi public corporation, yet in all its other powers, functions, and capacities it is essentially a private corporation, not distinguishable from any other of that name or character. . . . The road, with all its rolling stock, buildings, fixtures, and other property pertaining to it, is private property, owned, operated, and used by the company for the exclusive benefit and advantage of the stockholders. This constitutes a private corporation in the fullest sense of the term. . . . And if we examine any book of authority on the subject,³ we shall find that such is and always has been the rule of the law as to the corporate character of such companies, notwithstanding the delegation of power of eminent domain, and their consequent subjection in a certain degree to public use and convenience. They are always classed among private corporations, such as banking, insurance, and manufacturing corporations, and corporations for the building of bridges, turnpikes, canals, &c. . . . Our conclusion, therefore, is that though a railroad company may possess this single exceptional corporate characteristic, it is, nevertheless, essentially a private corporation, coming fully within the operation of the principles laid down in Curtis v. Whipple, and that the taxation complained of cannot be sustained.'

The court below, in this case, held that decision to be binding upon the Federal courts, and charged that the act under which the orders were issued was void. Judgment having gone accordingly it was now here for review.

It may here be mentioned that by the constitution of Wisconsin, the legislature of the State has power to alter or repeal charters granted by it.

Mr. M. H. Carpenter, for the plaintiff in error:

This case presents two questions:

First. Was the decision of the State court binding upon the court below? and,

Second. If not binding, was it correct in principle?

I. As to the first point.

1. A leading motive to the adoption of the Constitution was to make the people of all the States one people, for commercial purposes. This object was secured by two provisions of the Constitution; one providing that no State should make any law impairing the obligation of a contract; the other, that a citizen of one State might sue a citizen of another State in the courts of the Union. The Constitution was designed to secure results, and whatever defeats the design of the Constitution is unconstitutional. When the citizen of one State contracts with a citizen of another State, he acquires a constitutional right to have his contract construed and enforced by the Federal courts. Judicial power is the power to determine what are the rights and duties, respectively, of the parties to a particular litigation growing out of such of their transactions as the case involves; and this power the Constitution confers upon the court and denies to Congress. The decision must be the result of the opinions and judgment of the judges who pronounce it; and Congress cannot constitutionally say that the courts shall decide otherwise, nor can the courts decide otherwise without violating their constitutional duty.

The Jud ciary Act provides that the laws of the several States shall be regarded as rules of decision in trials at the common law, in the courts of the United States, 'in cases where they apply.' The question is where do they apply? In cases of contract, the law of the State in force when the contract was made forms part of the contract, and must be applied in the Federal courts in construing and enforcing the contract. A decision of the State court, made before the contract, settling the law of the State, is authority in the Federal court, without regard to whether it be sound or unsound in principle, because the parties must be presumed to have contracted with reference to it. But a decision made after the contract was entered into, forms no part of the contract; the parties did not contract with reference to such decision; and to hold it binding upon the Federal courts, is to deny to a foreign creditor his constitutional right to have the conscientious opinion and judgment of Federal judges upon his contract. It would be offensive for the Federal courts to say to the creditor: 'You may sue in our courts, if you fear the State courts are prejudiced against your claim; but we must decide as the State courts would, because we are bound by all the decisions they have made since you entered into the contract.'

The broad principle ought to be declared by this court, that no State court decision affecting the validity of a contract, made after the contract was entered into, is conclusive upon the Federal courts. All the decisions in this court are consistent with this principle, but the principle itself has not been expressly declared. Yet in no way can injustice to a foreign creditor be prevented but by planting the doctrine upon its proper foundation, and saying that decisions of the State courts pronounced subsequent to the contract are not conclusive upon the Federal courts. If they are, the machinery of a double judiciary, State and Federal, is a mockery and a snare.

2. The decision of the State court is not binding upon the Federal courts, because it was not declaratory of local law. It was based upon general reasoning, and upon the theory that aiding the construction of a railroad was not an exercise of the power of taxation, but taking the property of A. and giving it to B.

No particular provision of the State constitution or principle of local law was relied upon. The decision, if it be sound, invalidates the similar enactments of every State, and the acts of Congress granting aid to the Pacific Railroads. It is only where some principle of local law is declared by a State court that its decisions are binding upon the Federal courts.⁴

The constitutions of Wisconsin and Illinois are precisely alike in this respect. The Supreme Court of the latter State, since the decision of Whiting v. Fond du Lac County, has decided a similar case exactly the other way, fully considering the question and rejecting the entire reasoning of the court in Whiting's Case, and holding just such a statute valid under just such a...