preme Court itself to construe the act and then to determine whether, as thus construed, it impairs the obligation of a contract; rather, its duty is to take the act as construed and applied by the courts of the State, and, upon that basis, to determine whether or not the obligation of contracts is impaired. The logic of this doctrine is apparent. Whatever may be the literal terms of a State law, if, in fact, it is not so construed by the State authorities as to work an impairment of contracts the inhibition of the obligation clause cannot be said to be violated.20 The rule is, however, well established that the Federal Supreme Court will determine for itself, that is, by its own independent judgment, whether or not that which is alleged to be a contract, is in truth a contract when the claim is set up that it has been impaired by a State law. That is to say, the Federal tribunal does not hold itself bound by the decision of a State court which escapes from the application of the obligation clause by holding that the contract, the impairment of which is alleged, is not, in fact a contract.21 This doctrine is, of course, applicable not only to the construction of instruments which, it is claimed, constitute contracts between individuals, but also to State laws which, it is alleged, amount to contracts on the part of the States. There has been no serious denial of this from the time of the early case of Fletcher v. Peck, in which it was held that the inhibition of the obligation clause applies as well to contracts on the part of the States as to those between private individuals. Furthermore, the Supreme Court will exercise its own independent judgment as to the constitutionality of a State law as tested by the State constitution, when the 20 Lehigh Water Co. v. Easton, 121 U. S. 388; 7 Sup. Ct. Rep. 916; 30 L. ed. 1059. 21 Jefferson Branch Bank v, Skelly, 1 Black. 436; 17 L. ed. 173. law is one which in itself constitutes a contract on the part of the State or supplies the legal basis for the contract which, it is alleged, is impaired by a later law. 22 Force of State decisions In passing upon decisions of State courts overruling their own prior decisions and thereby holding invalid contracts entered into in reliance upon such prior decisions, there is a sharp distinction drawn by the Supreme Court between those cases in which the cause comes before the Federal courts because of the citizenship of the parties thereto, and thence by appeal to the Supreme Court, and those coming to it by writ of error to the highest State courts. In the latter class of cases the only ground of Federal jurisdiction is that the obligation of a contract has been impaired; that, in other words, a right guaranteed by the Federal Constitution has been violated. In McCullough v. Virginia,23 as in an unbroken line of previous cases, the members of the Supreme Court have all agreed that Federal jurisdiction exists only in case the decision of the State court appealed from has given effect to a State legislative act impairing a contract previously entered into.24 In those cases coming to the Federal Supreme Court by way of appeal from a lower Federal court, however, there is no question of Federal jurisdiction, and in them, the Federal courts determine for themselves which, if any, of the decisions of the State courts dealing with the State laws or with principles involved they will follow. 22 State Bank v. Knoop, 16 How. 369; 14 L. ed. 977; Ohio Life Ins. Co. v. Debolt, 16 How. 416; 14 L. ed. 997; McGahey v. Virginia, 135 U. S. 662; 10 Sup. Ct. Rep. 972; 34 L. ed. 304. 23 172 U. S. 102; 19 Sup. Ct. Rep. 134; 43 L. ed. 382. 24 In McCullough v. Virginia there was disagreement as to whether or not the decision of the State court had given effect to a later statute. In this class of cases, the Federal jurisdiction of which is based upon the diversity of citizenship of the parties thereto, the doctrine is well established that where a State court has reversed its ruling as to the State law governing a case, the Federal courts will not follow the later decision, when to do so will make it necessary to hold void or to impair the obligation of contracts previously entered into. In other words, the first construction is treated as though it becomes a part of the law or constitutional provision, and the latter and differing construction as a law in amendment or appeal thereof.25 It may, however, be observed that the courts would have found themselves in fewer logical and constitutional difficulties if they had decided these cases without any reference to the obligation of contracts clause, and solely upon the ground that they had the power, in suits between citizens of different States, to exercise an independent judgment as to when it is proper for them to follow the decisions of the State courts with reference to the construction of State laws. This subject is more fully treated in a later chapter. Originally the Supreme Court went only so far as to protect a contract entered into under a law which had previously been held valid by the State courts, as against a later decision holding the law unconstitutional and void. Of late, however, the court has taken the further step of protecting contracts entered into under a law before its constitutionality has been upheld in the highest courts of the State, the argument being that a State legislative act is, even in advance of judicial affirmation, presumptively valid, and, therefore, a later ruling of the court to the effect that the law is invalid, operates to imir or destroy the obligation of the contracts which the ring in hem 25 Burgess v. Seligman, 107 U. S. 20; 2 359; Gelpcke v. Dubuque, 1 Wall. 175; 17 have a right, at the time, to believe are legally enforceable agreements. In these cases it is to be observed that the doctrine of the Supreme Court is not only to hold that the obligation clause warrants a refusal upon the part of the Federal courts to follow the constructions given by State courts to their own State laws, but also to hold that a judicial decision is a "law" within the meaning of the provision of the Federal Constitution that no State shall "pass any law impairing the obligation of contracts."26 26 See especially Great Southern Fire Proof Hotel Co. v. Jones, 193 U. S. 532; 24 Sup. Ct. Rep. 576; 48 L. ed. 778, in which the authorities are carefully reviewed. CHAPTER XXXIX CONSTITUTIONAL LIMITATIONS UPON THE TAXING POWERS Constitutional provisions The Constitution lays but one important express limitation upon the States with reference to the exercise of their taxing powers. This is that "no State shall, without the consent of Congress, lay any imposts or duties on imports or exports, except what may be absolutely necessary for executing the inspection laws; and the net produce of all duties and imposts, laid by any State on imports or exports, shall be for the use of the treasury of the United States, and all such laws shall be subject to the revision and control of the Congress." But other clauses of the Constitution restricting generally the powers of the States operate to limit their powers of taxation. Thus, for example, influential in this respect are the provisions that no State shall deprive any person of property without due process of law or deny to any person within its jurisdiction the equal protection of the laws; that no State shall pass any law impairing the obligation of contracts; and that "the citizens of each State shall be entitled to all privileges and immunities of citizens in the several States." Also there are the implied limitations that no State shall so use its taxing powers as to interfere with the operation of Federal agencies; and that, being unable to give an extra-territorial effect to its laws, no State may tax property not within its jurisdiction. The limitations imposed upon the taxing powers of the States by the "comity" clause are elsewhere discussed |