People ex rel. McCullough v. Pacheco

27 Cal. 175 | Cal. | 1865

Lead Opinion

By the Court, Sawyek, J.

At the last session of the Legislature, an Act was passed, which was approved on the 14th of April, 1864, entitled, “An Act to aid the construction of the Central Pacific Railroad, and to secure the use of the same to this State for military and other purposes, and other matters relating thereto.” (Laws 1864, p. 344.)

The preamble to said Act is as follows, viz:

“ Whereas, War now exists and is in immediate and vigorous prosecution between the Government of the United States and certain States which have revolted against its authority; and, whereas, the Congress of the United States has, for military and other purposes, granted aid for the construction of the Central Pacific Railroad, which aid is insufficient to complete the work as speedily as is necessary: and whereas, it is important, in view of the present state of war and the further (future) danger thereof, that the said railroad be constructed as soon as possible to repel invasion, suppress insurrection, and defend the State against its enemies; therefore,” etc.

Section one authorizes the corporation known as “The Central Pacific Railroad Company of California,” to issue its bonds “ in sums of one thousand dollars each, bearing interest at a rate not exceeding seven per cent per annum, commencing on the first day of July, 1864, and payable on the first day of January, 1865, and on the first days of July and January of each year thereafter; the interest on the first fifteen hundred of said bonds, numbering from one to fifteen hundred, inclusive, to be made payable at the State Treasury; * * * said bonds to be executed and issued to an amount not exceeding twelve millions of dollars, payable not. exceeding twenty years from the first day of January, A. D. 1865, and said bonds to be secured by one or more mortgages on the railroad,” etc.

Section two is as 'follows, viz:

“ Sec. 2. To. expedite the construction of said railroad for the reasons set forth in the preamble to this Act, there shall be levied and collected in the year 1864, and annually thereafter, until the expiration of the time for the payment of said bonds, in the same manner as other State revenue is or may be collected, a tax of eight cents on each one hundred dollars of the taxable property in the State, in addition to other taxes, the same to be paid in the gold and silver coin of the United States, and the moneys to be derived from such tax shall be and is hereby appropriated and set aside to constitute a separate fund, to be known as the 1 Pacific Railroad Fund,’ out of which fund the coupons for interest on said fifteen hundred bonds hereinbefore described shall be paid as they may fall due and be presented for payment from time to time for said period of twenty years, and on payment thereof said coupons shall be taken up and cancelled by the State Treasurer; and if at any time there should not be a sufficient sum of money in said fund to pay said interest when due, then an amount sufficient to make up such deficiency shall be taken from the General Fund for that purpose, or the State Treasurer shall make such other contracts and arrangements as may be necessary to make up such deficiency; and whenever on the first day of July of any year there shall remain a surplus in said fund after the payment of the interest on said bonds as hereinbefore provided, such surplus shall be paid into the General Fund.”

Section four provides, that: “ The said grant to said company is made upon the express condition and consideration that said company shall and do at all times when required from and after the passage of this Act, transport and convey over their said railroad all public messengers, convicts going to the State Prison, lunatics going to the State Insane Asylum, materials for the construction of the State Capitol building, articles intended for public exhibition at the fairs of the State Agricultural Society, and in case of war, invasion, or insurrection, as well as at all other times, also transport and convey over their said railroad all troops and munitions of war belonging to the State of California, free of charge, and without any other compensation than as herein provided, and shall also construct and equip, in running order, at a rate of not less than twenty consecutive miles of their said railroad each year hereafter, including that portion of said railroad now partially completed, until the same is fully completed and equipped.” It also required the corporation to file with the Secretary of State an agreement under the seal of the corporation to perform all the conditions of the Act, and imposed other onerous conditions, among which was its consent to a repeal of a former Act providing for aid to said corporation, and a relinquishment of all rights accrued thereunder. It is further provided, that if the company fails to perform the conditions imposed on its part, “ the said company shall be liable to repay to the State the amount which shall have been paid by the State under this Act.”

Section five is as follows, viz : “ Sec. 5. The several sums of money necessary for the payment required to be made under the provisions of this Act are hereby appropriated from the said funds and from the State Treasury for said several purposes, and the State Treasurer is hereby directed to pay the same as provided by this Act; and this Act, and the appropriations under the same, shall not be subject to the provisions of an Act entitled an Act to create a Board of Examiners, to define their powers and duties, and to impose certain duties upon the Controller and Treasurer, approved April 21, 1858.”

The former Act referred to is repealed. These are the only provisions in any way creating any liability on the part of the State, or bearing upon the questions at issue in this action.

This suit was instituted in the name of the People of the State of California on the relation of the Attorney-General, to restrain the “Central Pacific Railroad Company” from executing, or issuing under said Act, any of the said first fifteen hundred bonds with interest payable at the Treasury of the State not already issued, and, if any have been issued, to procure a cancellation thereof, and to restrain the State Treasurer from paying, and the said company from receiving, any of the interest payable on the first day of January next, upon the first coupons falling due, or any interest that may thereafter accrue, or from in any manner proceeding further under said Act, on the ground that said Act is repugnant to the Constitution of the State, and is, therefore, void. The injunction was denied, and defendants had judgment, from which plaintiffs have taken this appeal.

The provisions of the Constitution supposed to have been violated in the passage of the Act in question, are, Article YIII, which is as follows :

“ The Legislature shall not in any manner create any debt or debts, liability or liabilities, which shall, singly or in the aggregate, with any previous debts or liabilities, exceed the sum of three hundred thousand dollars, except in case of war, to repel invasion, or 'suppress insurrection, unless the same shall be authorized by some law for some single object or work, to be distinctly specified therein, which law shall provide ways and means, exclusive of loans, for the payment of the interest of such debt or liability as it falls due, and also to pay and discharge the principal of such debt or liability within twenty years from the time of the contracting thereof, and shall be irrepealable until the principal and interest thereon shall be paid and discharged; but no such law shall take effect until, at a general election, it shall have been submitted to the people, and have received a majority of all the votes cast for and against it at such election; and all money raised by authority of such law, shall be applied only to the specific object therein stated, or to the payment of the debt thereby created; and such law, shall be published in at least one newspaper in each Judicial District, if one be published therein, throughout the State, for three months next preceding the election at which it is submitted to the people.”

And Article XI, section ten, which is in the following words, viz:

“ The credit of the State shall not, in any manner, be given or loaned to or in aid of any individual, association, or corporation ; nor shall the State, directly or indirectly, become a stockholder in any association or corporation.”

It is conceded in the record, that, at the time of the passage of the Act in question, the amount of indebtedness on the part of the State exceeded the limit of three hundred thousand dollars, and that the Act was not submitted to a vote of the people.

The questions to be determined, are :

Firstly—Does the appropriation made by the Act for the payment by the State semi-annually during the next twenty years of the interest on the first fifteen hundred bonds create a debt, or liability, within the meaning of these terms, as used in Article VIII of the Constitution.

Secondly—If so, does such debt or liability fall within the exception specified in said Article, of a debt created “ in case of war, to repel invasion or suppress insurrection ?”

Thirdly—Does it constitute the giving, or loaning of the credit of the State in aid of an individual, association or corporation, within the meaning of the prohibitory clause of Article XI, section ten ?

The first question appears to us to have been determined in the negative by our predecessors in the cases of The State of California v. McCauley, 15 Cal. 455 ; McCauley v. Brooks, 16 Cal. 24, and Koppikus v. State Capitol Commissioners, 16 Cal. 249. In each of these cases, the construction of Article VIII of the Constitution upon the point now before the Court, was elaborately discussed by counsel, and determined by the Court. In the first case, the question arose upon a contract between the State and McCauley’s assignor, entered into under the Act of March 21, 1856, whereby the State agreed to pay one Estell, lessee of the State Prison, the sum of ten thousand dollars per month during a period of five years, for taking care of the State prisoners, the Controller to draw his warrant monthly for said amount, which warrant was to be paid on the last day of each month, “ out of money in the Treasury not otherwise appropriated.” Mr. Chief Justice Field in delivering the opinion of the Court, said : “ The Eighth Article was intended to prevent the State from running into debt and to keep her expenditures, except in certain cases, witiiin her revenues. These revenues may be appropriated in anticipation of their receipt, a's effectually as when actually in the Treasury. The appropriation of the moneys when received meets the services as they are rendered, thus discharging the liabilities as they arise, or rather anticipating and preventing their existence. This appropriation accompanying the services operates, in fact, in the nature of a cash payment.” (15 Cal. 455.) In McCauley v. Brooks, the question arose upon the same contract, and the Court say: “ It is not essential to its validity (the validity of an appropriation), that funds to meet the same should be at the time in the Treasury. As a matter of fact, there has seldom been in the Treasury the necessary funds to meet the several appropriation Acts of each year. The appropriation is made in anticipation of the receipt of the yearly revenue.” (16 Cal. 28.)

The question in Koppikus v. State Capitol Commissioners arose upon a contract for erecting a State Capitol, made in pursuance of the Act of March 29,1860. The Act authorized the Commissioners to contract to the extent of one hundred thousand dollars. It provides, that, “the sum of one hundred thousand dollars is hereby appropriated out of any money in the Treasury, not otherwise appropriated, to carry this-Act into effect.” (Laws 1860, 131, Sec. 12.) This Act was held not to be repugnant to the Eighth Article of the Constitution, upon the same grounds as stated in The State v. McCauley. The Court citing that case say: “ For the liabilities which maybe thus incurred the Act "makes provision; it appropriates, for that purpose, the requisite sum, thus anticipating their existence, and discharging them as they arise.” (16 Cal. 253.)

The principle of these cases may be further illustrated. The power of taxation is vested in the Legislature, and that power is unlimited. Says Mr. Chief Justice Field, in McCauley v. Brooks: “We admit that the Legislature possesses the entire control and management of the financial affairs of the State; that it may levy such taxes as it may deem expedient, subject only to the constitutional requirements of equality and uniformity, and devote the proceeds of the taxation to such specific objects as it may think proper.” (16 Cal. 34.) And, again (lb. p. 56): “ So it (the Legislature) has the power to impose a tax amounting to the entire value of the property upon which it is levied; but the possession of the power does not justify the supposition that it will be arbitrarily and tyrannically exercised.”

The Legislature may not only determine the extent to which it will exercise the taxing power, but also for what objects of public interest it shall be exercised, and it may appropriate the moneys raised to such objects. The Court of Appeals of New York, in the Toion of Guilford v. Supervisors of Chenango County, say: “ The Legislature is not confined in its appropriation of the public moneys, or of the sums to be raised by taxation in favor of individuals, to cases in which a legal demand exists against the State. It can thus recognize claims founded in equity and justice in the largest sense of these terms, or in gratitude, or charity. Independently of express constitutional restrictions, it can make appropriations of money whenever the public well-being requires or will be promoted by it; and it is the judge of what is for the public good.” (13 N. Y. 149 ; see also Contra Costa County v. Board of Supervisors of Alameda County, 26 Cal. 641; and Blanding v. Burr, 13 Cal. 347.)

There is in the Constitution of California no limitation on the power of the Legislature to appropriate moneys, either as to the amounts to be appropriated, or the objects for which they may be made, and only one limitation as to the time over which the appropriations may extend. Section twelve, of Article I, provides, that “ no standing army shall be kept up by this State in time of peace; and in time of war no appropriation for a standing army shall be for a longer time than two years;” This is the only limitation upon appropriations, either as to the object, amount, or time over which it may extend.

The Constitutions of some States—as New York and Ohio— have a provision like the Eighth Article in ours, and a further restrictive provision limiting all prospective appropriations to two years. Under this latter restriction, and the consequent want of power in the Legislature to raise the revenue, and make the necessary appropriations to meet the payments accruing after two years, a contract to repair the canals in Ohio for a period of five years, was held by the Supreme Court of that State to create a debt. And the debt thus created, exceeding the constitutional limit, the law authorizing the contract was declared unconstitutional. (State v. Medbery, 7 Ohio St. R. 526.) The effect of this additional restriction upon the question now under discussion, and the distinction between those contracts which do, and those which do not, create a debt within the meaning of the constitutional restriction, are so clearly and forcibly stated by the Court in discussing the question in The State v. Medbery, that we do not hesitate to quote largely from the very able opinion delivered by Mr. Justice Swan in that case.

The Board of Public Works undertook to bind the State by present obligation upon contracts for repairs of canals, etc., to pay plaintiffs and others, in instalments running through five years, the gross sum of one million three hundred and seventy-five thousand dollars. Article VIII of the Constitution of Ohio is substantially the same as the same Article in ours, except that the amount to which the debt is limited is seven hundred and fifty thousand dollars instead of three hundred thousand dollars. Article II, section twenty-two, of the Constitution of Ohio provides, that “ No money shall be drawn from the Treasury except in pursuance of a specific appropriation made by law, and no appropriation shall be made for a longer period than two years.” The question was whether these contracts created a debt within the meaning of the constitutional prohibition. The Court say (7 Ohio St. E. 528): “ Before proceeding to state the scope and operation of these provisions of the Constitution, it may be proper to allude to the general working of the financial system of the State in respect of the payment of current expenses and the creation of a debt.

“ The sole power 'of making appropriations of the public revenue is vested in the General Assembly. It is the setting apart and appropriating by law a specific amount of the revenue for the payment of liabilities which may accrue or have accrued. No claim against the State can be paid, no matter how just or how long it may have remained over due, unless there has been a specific appropriation made by law to meet it. (Article II, Section 22.)

“By virtue of this power of appropriation, the General Assembly exercise their discretion in determining, not only what claims against or debts o.f the State shall be paid, but the amount of expenses which may be incurred. If they authorize expenses or debts to be incurred, without an appropriation to pay them, and the expenses are incurred, those expenses create a debt against the State, and it must remain such, until payment under an appropriation afterward made.

“ The General Assembly usually, however, provide for the current expenses for a period not exceeding two years, out of the incoming revenues, by making appropriations of a sufficient amount of money to pay the expenses during that period, and provide by law for the raising of revenue sufficient to meet the appropriations.

“ The discretion of each General Assembly for the period of two years in respect to the amount of expenditures, except in some special cases relating to salaries, is without limit, and without'control; but each must provide revenue and set apart a sufficient amount, by law operative within the same two years, to pay all expenses and claims.

“ This is the general system provided by the Constitution; (Article' II, Sec. 22 ; Article NTT, Sec. 4.) Under it, all the claims which are authorized, or which can accrue within each of the two years, and their payment, form one governmental and financial transaction; so that, at the end of each of the two fiscal years, the expenditures authorized and liabilities incurred have been provided for by revenues previously set apart and appropriated are paid.

“ So long as this financial system is carried out in accordance with the requirements of the Constitution, unless there is a failure or deficit of revenue, or the General Assembly have failed from some cause to provide revenue sufficient to meet the claims against the State, they do not and cannot accumulate into a debt. Under this system of prompt payment of expenses and claims as they accrue, there is undoubtedly, after the accruing of the claim, and before its actual presentation and payment, a period of time intervening in which the claim exists unpaid ; but to hold that for this reason a debt is created would be the misapplication of the term debt, and substituting for the fiscal period a point of time between the accruing of a claim and its payment, for the purpose of finding a debt; but appropriations having been previously made and revenue provided for payment as prescribed by the Constitution, such debts, if they may be so called, are, in fact, in respect of the fiscal year, provided for, with a view to immediate adjustment and payment. Such financial transactions are not, therefore, to be deemed debts.

“But if the General- Assembly should authorize liabilities to be incurred and make no appropriations to meet them, but let each citizen who performed service or furnished materials to carry on the Government, hold his claim against the State unpaid, debts to the amount of these claims against the State would at once be created, and remain debts at the end of two years and until an appropriation was made to meet them, whatever public revenue might be on hand, inasmuch as every executive officer is forbidden by the Constitution to pay any claim unless there has been a specific appropriation for that purpose made by law.

“ And for the same reason, if, without appropriations or revenue provided, the General Assembly should authorize contracts binding the State to pay specific sums of money to citizens within two years contingent upon their furnishing certain materials or labor, these contracts would at once create a contingent debt, and on performance would become an absolute debt. On the other hand, if appropriations were made, but the claims authorized to be paid could not be and were not paid, on account of there being no funds, such claims would also become debts.

“The general system in its practical workings has been described for the purpose of eliminating two or three propositions, which, however simple and obvious, cannot be lost sight of without rendering unintelligible the discussion of the questions before us. They are these:

“ 1. Providing revenue sufficient to meet either prospective or accruing debts authorized to be incurred, or to meet even debts over due, still leaves them unpaid, and they must remain debts contingent or absolute until a law is passed appropriating the public revenue to meet them and until they are afterward paid.

“ 2. If, however, the constitutional provisions are complied with, and both revenue is provided and appropriations are made to meet expenses or claims, prospective or accruing, for the period of tivo years, such accruing liabilities, contingent or absolute, are not deemed debts, public funds having been provided and set apart by appropriations for their immediate payment.

“ It will be seen at once, when these propositions are applied to the contracts before us, that this financial system and the contracts are wholly inconsistent with each other. While each General Assembly is required to provide revenue and make appropriations for the period of two years, leaving no debt or liability behind, the General Assembly existing when these contracts were made, and who it must be maintained had the constitutional power by law to authorize them, have undertaken by contracts in behalf of the State to bind the State by present obligation to pay specific amounts of money to certain citizens for services and materials, to be furnished as well during the above mentioned two years as also during the period of three years thereafter. It is the three years thereafter—the liability created, against the State the moment these contracts were signed for the specific sums promised for the repairs of those three years—the volunteering on the part of that General Assembly to provide for the repairs of the canals during those three years without the power of mailing appropriations to meet the liability thus authorised and entered into—it is these peculiar characteristics of the contracts which render them inconsistent with the system of finance and expenditure provided by the Constitution. But we shall have occasion to recur to this subject again.

“ The question before us is, whether a contract binding the State to pay specific sums of money at a future period, without revenue provided or appropriations made to meet it, is such a contingent liability as may be entered into under this financial system and the provisions of the Constitution relating to debt.

“ I. And first as to these contracts coming within the inhibitions of the Constitution relating to debts. This question necessarily leads us to inquire as to the scope and operation of the Constitution relating to debts; what debts are inhibited; whether contingent debts are included in the inhibition; and whether these contracts create contingent debts.

“ If the Constitution had contained simply the provision that 1 no debt whatever shall hereafter be created by or on behalf of the State,’ without any exception or reservation upon these sweeping terms, then, as we have already stated, no liability could have been created for money, material or services, no contract entered into, binding the State, without revenue actually raised, and appropriations therefrom made, td meet the liability during the fiscal year. And inasmuch as, by another provision of the Constitution, no appropriations can be made for a period beyond two years (Art. II, Sec. 22); it follows that if no debt whatever could be created, and no appropriation made beyond two years, then a present obligation and liability to pay at a period beyond two years could not be made, because it could not be made on a footing ofliabilities which are provided for by appropriations, and would, therefore, be inhibited.”

Again, in answer to an argument that an absolute constitutional obligation rested upon the General Assembly to provide for the repairs of the' canals, the Court further say, upon this point (page 538): “ This line of argument assumes in the first place, that there is a constitutional obligation resting on the General Assembly to provide for the inherent and ordinary operations of the Government, and among others the repair of the canals; but the argument is silent both as to the period of time and the manner in which the Constitution requires each General Assembly to provide for these operations and pay for them. Instead of this obligation being an indefinite and theoretical duty as stated by counsel, it is practical and specific in manner and time, and is devolved, not on the General Assembly as a perpetual body, but upon each General Assembly, convening biennially and for the period of two years and no longer. They must do it, too, by appropriations made and revenue provided, and conseqtiently without creating any debt lohatever. And here their duty ends. The constitutional obligation passes over to their successors^

“If the General Assembly, existing when these contracts were made, and who are supposed to have authorized them, had undertaken by appropriations beyond two years (and that is the only mode in which they could authorize expenditures without creating debt, absolute or contingent), to provide for the repair of the canals, their law would have been unconstitutional and void. If this be not deemed an answer to the foundation of this whole line of argument, then we say further, that as to the fact that repairs beyond two years would probably be needed, and expenditure therefore required, and for an amount probably equal to that designated in these contracts, and then paid, we answer, that, whether the repairs would or would not be needed, and the amount of the expenditure and their payment were questions to be determined by the successors of the General Assembly who are supposed to have authorized these contracts to be made; and that General Assembly have, by their contracts, not only determined that the expenditure should be made, and fixed the amount beyond the control of their successors, but have also, in so doing, created a present liability against the State to pay specific sums of money, at stick a period that they could not, by appropriations, provide for payment. Their authority to provide, without the revenue or appropriations, for the repair of the canals beyond two years, by contracts creating a present obligation,-clearly cannot be justified or constructively authorized from their duty to provide revenue and make appropriations for repairs for the period of two years only. The first creates a contingent debt upon a subject matter beydnd their sphere of duty, and relating to expenditures required by the Constitution to be provided for by their successors; the last creates no debt of any hind.

“ These contracts, then, so far as the inhibition of the Constitution relating to debts is involved, stand precisely upon the same ground as any other contracts for expenditure which the General Assembly have authorized, but provided no revenue and made no appropriations to meet the amount specified to be paid by the State when it becomes due. It is a contingent debt ripening into an absolute one, without money being set ajsart to meet and pay it. The contracts, indeed, can stand nowhere else than among inhibited debts, inasmuch as they are, in our opinion, and for the reasons which we shall now state, in addition to those already given, inconsistent with the ■provisions of the Constitution relating to expenditures and appropriations.”

And again, page five hundred and forty: “ Each General Assembly determines the amount of revenue to be raised by taxation, and are required by the Constitution to provide for ■ raising sufficient to meet the expenditures which they authorize, and thus - become officially responsible for the amount of the appropriations. And in order to make this responsibility direct and practical, and to rest upon each General Assembly during its term, the Constitution prohibits any appropriation to be made for a period beyond two years.

“This last provision is the hey stone of the ivhole system; for, as the amount of taxes depends entirely upon the amount of the appropriations, if the General Assembly had no power or discretion to determine the amount of appropriations, or if the amount were fixed by a law of their predecessors, so that they could not disturb it, they would evade all responsibility for the amount of the taxes, however oppressive and grievous they might be.

“ It results from these constitutional provisions:

“ First—The General Assembly at each biennial session determine the amount of the expenditure for the two years of their official term, in all cases not otherwise predetermined by the provisions of the Constitution. Second—They must take the responsibility of making the necessary appropriations for this purpose, otherwise no money can be paid. Third—They must assess a tax upon their constituency sufficient in amount to meet the appropriations. * * # But all these restraints upon the members of the General Assembly and their official responsibility for the amount of appropriations and taxes to be assessed, so wisely provided by the Constitution, are set aside and annulled by the contracts under consideration. Instead of being entered into for two years, and appropriations made and revenue provided therefor, the contracts are made for five years; and, after the expiration of two of the five years, the contracts determine, and not the succeeding General Assembly, what amount of appropriations shall be made, and consequently what amount of revenue shall be provided for the repair of the canals. (Ib. 541.) * * * We are of the opinion that the discretion, power and responsibility of the General Assembly conferred by the Constitution were not intended to be, and therefore cannot be thus superseded; that no law could be passed under which an agreement between the Board of Public Works and two or more citizens could for any period beyond two years divest the General Assembly of its discretion and control over the appropriations, or the amount of the appropriations to be made for repairs to the public works of the State.” (Ib. 542.)

The principles thus stated and illustrated are these: That the legislative department of the Government is vested with the power of taxation, and the authority to determine the objects for which the taxing power shall be exercised, and to appropriate the moneys thus raised to such objects; but that the power of appropriation under the Constitution of Ohio is limited to two years—that, when an appropriation is made for an object to be accomplished, and paid for within the .two years, and at the same time, revenue is provided to meet the appropriation, a contract made in pursuance of the appropriation, and payable out of it, does not create a debt within the meaning of the prohibitory clause of the Constitution. The whole is regarded as a single financial transaction. The revenue is provided and set apart for the specific object, and is in contemplation of law in the Treasury. In fact, only the ministerial duty remains of collecting the revenue, and paying it over in pursuance of the appropriation, and the acts done are regarded as cash transactions. But a contract to be performed beyond the two years, or without raising and appropriating the revenue to meet it, necessarily creates a debt, as the services cannot be paid for when rendered in the first case, because the legislative power has no authority to make the appropriation, and in the second, because it has failed to do it. The theory is, that if the Legislature provides a million of dollars revenue, by taxation or otherwise, for any given year, or other period of time within the constitutional limit, and .appropriates a million of dollars to be paid out of it, the one .balances the other, and the debt or liability of the State is not increased thereby. True, a portion of the money provided may be stolen, or destroyed, or by reason of some unlocked for accident may not be collected or on hand when needed, and in such case a debt or liability might ultimately accrue from this cause to the extent of the deficit thus accidentally arising. But no debt can result till the contingency arises, and the validity of the debt can only be affected to the extent of such accidental deficit.

In our Constitution, as we have seen, there is no restriction upon the power of taxation, or upon the objects, or the time for which appropriations may be made, except, that “no appropriation for a standing army shall be for a longer time than two years.” As to all other objects, so far as any constitutional restriction is concerned, it may as well be for twenty as for two years. This may have been an unwise omission, and yet it does not seem to have been an oversight, for the attention of the framers of that instrument was directed to the subject, when the two years limitation was imposed upon “ appropriations for a standing army.”

The Act under consideration provides, that “there shall be levied and collected in the year 1864, and annually thereafter until the expiration of the time for the payment of said bonds, in the same manner as other State revenue is or may be collected, a tax of eight cents on each one hundred dollars of the taxable property in the State, in addition to other taxes, the same to be collected in the gold and silver coin of the United States, and the moneys to be derived from such tax shall be and is hereby appropriated and set aside to constitute a separate fund, to be known as the ‘ Pacific Railroad Fund,’ out of which the coupons of interest on said fifteen hundred bonds hereinafter described shall be paid as they may fall due and be presented from time to time for said period of twenty years.” (Section 2.) And in section five: “ The several sums of money necessary for the payment required to be made under the provisions of this Act are hereby appropriated from the said funds and from the State Treasury for said several purposes, and the State Treasurer is hereby directed to pay the same as provided by this Act.” Here is a provision for raising a fund, and setting apart and appropriating it to the payment of the interest on the bonds in question, more specific than those in the cases of The State v. McCauley, McCauley v. Brooks, and Koppilcus v. State Capitol Commissioners, because in those cases the payment was to be made, generally, out of “moneys in the Treasury not otherwise appropriated,” without providing any specific fund and devoting it to that use alone, or knowing whether or not there would in fact be any unappropriated moneys in the Treasury at the time payments would fall due. In this case a specific fund is provided and set apart, to be devoted to the payment of the interest in question alone; and it would seem to be more than ample for the purpose, as the tax provided for on a sum much less than the present assessed valuation of the taxable property in the State, would produce the required amount, and the appropriation from the General Fund will not be required till the specific fund is exhausted, which may, and in all probability, never will occur. For these reasons there would be even less propriety in holding this appropriation to be a debt or liability, within the meaning of the constitutional restriction, than those which were the subjects of discussion in the cases cited. The Legislature has provided a fund, and made the appropriation for the entire amount. No further legislation is required upon the subject. Nothing further remains to be done on the part of the State, but the ministerial duty of collecting the taxes and paying the interest out of the proceeds, as it from year to year accrues. Of course the State cannot, without a breach of good faith, refuse through its officers to perform this ministerial duty.

The same reasons that are urged to show that the Act under consideration creates a debt or liability within the meaning of these terms as used in the Constitution, apply with equal force to all of the appropriations made in this State for defraying the general expenses of the State Government; and upon the construction contended for, it would be impossible to carry on the Government without violating the Constitution, or levying and collecting the revenues of the State,, under the present Constitution, two years in advance of the time when they would be required for actual disbursement. It is utterly improbable that such should have been the intent of the men who framed, or the people who adopted the Constitution.

But if the reasons for maintaining the decisions already cited upon this question were less cogent than they are, we should now hesitate long before overruling them. The last of them was rendered in 1860. The construction put upon the clause under consideration thenceforth became a judicially recognized part of the Constitution. Since that time two Legislatures have proposed, and the people have adopted, numerous amendments to other sections of the" Constitution, but this provision was left unchanged. It must be presumed, therefore, that they were satisfied to have the provision under consideration stand with the interpretation thus put upon it by the Courts.

It follows, from these views, that the Act under consideration does not create, or authorize to be created, a debt, or liability, within the meaning of the limiting clause of the Eighth Article of the Constitution.

Secondly—Conceding a debt or liability to have resulted from the action of the Legislature, is it a debt created “ in case of war, to repel invasion, or suppress insurrection?”

Whether or not the contingency has arisen, which authorizes the Legislature to exercise the power vested in it, within the meaning of this exception, and whether it will exercise the power, are questions for that body to determine. The duty and responsibility of providing ways and means to carry on a war in which the State may be engaged, or for repelling, or aiding to repel invasion, or suppressing or aiding to suppress insurrection, rest upon the political departments of the Government, and not upon this Court; and the correlative right to determine when the emergency has arisen requiring their action, must, necessarily, to be effective, reside in those bodies upon which this great public duty, and weighty responsibility are imposed. If this power is exercised improvidently or unwisely, the individual members of those departments are responsible therefor to their constituents. But when the political departments of the Government have determined that the emergency has arisen, and acted upon that determination, that action is conclusive, and not subject to be reviewed by this Court.

That the State of California, as an integral part of the United States, is actually engaged in war, and in suppressing a vast and powerful insurrection, the general history of the country, and the legislation, both of the State and National Governments, as well as their judicial records, furnish ample evidence. Nor can it be assumed, that, in the war actually existing, there is no active element of insurrection, and no immediate danger of conflict within our own borders and upon our own soil. The National Government has, at least, thought it necessary to make extraordinary preparations for our defense. It has during the last four years expended and is now expending, large sums of money in the erection of fortifications for the protection of our harbors, and in building an iron-clad vessel for our immediate use. Our principal city also, lest the completion of the ironclad Monitor furnished by the General Government should be too tardy, has assumed large responsibilities in order to hasten the work. So also successive Legislatures have, in various ways, appropriated and expended hundreds of thousands of dollars for organizing and drilling our militia, and holding camps of instruction to prepare our citizens for prompt and effective service, should the insurrection more decidedly manifest itself within our own borders.

It cannot be disguised, that, in spite of a determination on the part of the General Government to deal justly with all nations, and of the exercise of the most consummate skill of diplomacy to avert such a result, the existing rebellion is liable at any moment to draw after it a foreign war, and an invasion of our State from abroad. War has, in fact, been actually levied within our borders, as in the case of the Chapman, and active hostility may at any moment manifest itself anew.

. These facts constitute a portion of the general domestic history of the country, as well as of its legislative and judicial history, and as such may be noticed. (Prize cases, 2 Black, U. S. Sup. Court B. 667.) They furnish, at least, a basis for the political departments of the Government to consider, whether or not the contingency contemplated by the exception in the Constitution has arisen; and if those departments have considered and determined the question, that determination is conclusive. This point was also so decided by our predecessors— all the Justices concurring—in the case of Franklin v. The Board of Examiners, 23 Cal. 175, in which the same question arose under the Act of April 27,1863, (Laws of 1863, p. 662,) appropriating six hundred thousand dollars “ for the relief of the enlisted men of the California Volunteers in the service of the United States.” The Court say: “ The evident intention was to impose limitations upon the general power of the Legislature to create debts, leaving them free, however, from such restrictions -in great emergencies caused by a war, an invasion or an insurrection. In such cases the Legislature should be left free to exercise their judgment and discretion upon the subject, answerable alone to the people for any abuse of the power. The existence of the emergency calling for the exercise of the power is purely a political question, and the Legislature, as the body in whom the political power of the State is vested, are the sole judges as to the existence of such emergency. It is the exercise of a purely political power, upon a political subject, in no manner of a judicial character, and it is not, therefore, subject to review or liable to be controlled by the judicial department of the State Government.” To the same effect are the cases of Martin v. Mott, 12 Wheat. 29; Luther v. Borden, 7 How. U. S. S. C. 44; Vanderheyden v. Young, 11 John. 157.

Railroads are, undoubtedly, among the most effective agencies employed in modern warfare. In the existing war hundreds of miles of railroads have been destroyed, at a great expenditure of life and treasure, expressly to deprive the adversary of the destroying army of their use; and many other miles have been constructed, at Government expense, expressly to facilitate the operations of its armies. A railroad from the navigable waters of the State to the granite quarries and forests of the Sierra Nevada mountains, might be of great importance to furnish timber and granite for fortifications, and timber for vessels of war, in case our only port of San Francisco should be blockaded, and cut off from all attainable external sources of supply ; and it might be of great service for other uses to which such works are applied in military operations. Such a road the “ Central Pacific Railroad” is designed to be. The National Government thought its construction a matter of sufficient importance in a military point of view to justify large grants of land, and grants of the use of the national credit to a large amount to aid in its construction. Whether or not, in view of such facts, this railroad is of sufficient importance to the military operations" of the State of California in the emergency present and prospective, and as such a proper subject for legislative appropriations with a view to hastening its completion, and rendering it available to the State at an early day, are also questions committed to the sound discretion of the political departments of the State Government. These departments being charged with the duty of providing for the safety of the State, are authorized to select such means »of defense and protection as they may deem most appropriate. Mr. Chief Justice Marshall, in McCullough v. State of Maryland, 4 Wheat. 421, says: “We think the sound construction of the Constitution must allow the National Legislature that discretion with respect to the means by which the powers^ it confers are carried into execution, which will enable that body to perform the high duties assigned to it in the manner most beneficial to the people. Let the end be legitimate, let it be within the scope of the Constitution, and all means which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the Constitution are constitutional.” (See also Lick v. Faulkner, 25 Cal. 405.) Such being.the case, the determination of these questions by the political departments of the Government must, also, necessarily be conclusive.

The only remaining inquiry under this head, is, whether those departments have determined that the exigency has arisen requiring their action, and, that the work is of sufficient importance to the State for military purposes to justify an appropriation of the public moneys to aid and hasten its early completion ? And to this inquiry, the Act itself under consideration furnishes a conclusive answer in the affirmative.

The preamble recites the existence and vigorous prosecution of the war between the Government of the United States, and certain States which have revolted against its authority; the grant by Congress of aid for the construction of the Central Pacific Railroad for military and other purposes; the insufficiéncy of such aid to complete the work as speedily as necessary ; and the importance “ in view of the present state of war and the further [future] danger thereof, that the said railroad be constructed as soon as possible to repel invasion, suppress insurrection and defend the State against its enemies,” and then enacts in section two, that “ to expedite the construction of said railroad, for the reasons set forth in the preamble to this Act, there shall be levied and collected,” etc. Thus the contingency contemplated in the Constitution is recited in the preamble, which is referred to in the body of the Act for the reasons that operated upon the Legislature to induce that body to pass the law and make the appropriation.

Thirdly—Does the Act in question give or loan the credit of the State to an individual, association or corporation, within the meaning »f the prohibition contained in Sec. 10, Art. XI, of the Constitution ?

“In case of war, to repel invasion or suppress insurrection,” as we have seen, the Legislature may appropriate the funds, or employ the credit of the State without limit. The two provisions must be so construed, if possible, that they may stand together, and so that there shall be no restriction upon the general power of the political departments of the Government to render all the resources of the State available in time of war. If the Legislature may authorize the building of a railroad for military purposes, it may certainly appropriate funds to aid a corporation in the construction of a similar work in consideration of its use for such purposes. The principal end being the advantage to be derived from the use of the road, it matters not that the appropriation incidentally aids an individual, association or corporation. And as before shown, the question, as to whether the emergency requiring an appropriation for such purposes has arisen, is one for the political departments of the Government to determine.

But in our view there is no loan or gift of the credit of the State in any just sense of these terms. A railroad extending from the navigable waters of the State to its eastern boundary on the summit of the Sierra Nevada, and designed ultimately to unite with another road connecting it with the Atlantic seaboard, was, at the time of the passage of the Act-in question, in process of construction, and actually completed and in operation for a very considerable portion of the distance. In the judgment of the Legislature, the State had, or was liable to have, immediate use for this railroad for military purposes, and upon certain onerous considerations, among which, were, that the company constructing said railroad should proceed and complete it at a certain rate per annum, and should, at “all times when required from and after the passage of this Act, transport and convey over the said railroad, all public messengers, convicts going to the State Prison, lunatics going to the Insane Asylum, material for the construction of the State Capitol, articles intended for public exhibition at the fairs of the State Agricultural Society, and in t;ase of war, invasion or insurrection, as well as at all other times, also transport over their said railroad all troops and munitions of war belonging to the State of California free 'of charge, and without any other compensation,” than as in said Act provided, made the appropriation under consideration. It is, then, simply a case of the State paying a corporation for valuable services to be rendered, commencing at the present moment and extending through all future time. It is not a matter of the slightest consequence to the State whether the payment is made directly to the company or to the creditors of the company, except by securing it to the creditors of the company, who furnish in part, the funds to carry on the work, the money for that purpose is more likely to be readily obtained; and in this respect, an advantage accrues to the State in obtaining a greater security for the performance of the contract on the part of the company. The State purchases certain advantages of the company, and pays the price to certain designated creditors of the company in satisfaction of interest accruing from time to time on its bonds, instead of paying it directly to the company.

Besides, as we held in the discussion of the first point, no debt on the part of the State is created, and consequently no credit in any proper sense of the term arises. The act of the State in assuming to make these payments, consists in a single provision made in advance, raising a fund, setting it aside and specifically appropriating it to the payment of the interest semi-annually, from year to year, upon the presentation of the coupons at the State Treasury—these coupons serving as warrants upon which the money is to be drawn from the Treasury. As no debt or liability in the constitutional sense is created, so no credit in the constitutional sense arises, or is loaned or given. A fund is provided in advance for the purpose, and out of it the services to be rendered by the company to the State are to be paid, but the payments are to be made on behalf of the company, in satisfaction of interest due from it to certain designated creditors. The money being provided in the first instance, and being in contemplation of law, always on hand in the Treasury, before the instalments of interest accrue, the transaction on the part of the State upon the principles before stated, is regarded as a cash transaction. From these views, it follows, that, the Act in question is not repugnant to section ten of Article XI of the Constitution.

Our conclusion is that the Act in question is constitutional.

The judgment, so far as it denies'the relief asked for in the complaint, must, therefore, be affirmed.

But the judgment goes beyond this and affords affirmative relief in favor of the “ Central Pacific Railroad Company,” one of the defendants, against Pacheco, another defendant, and his successors in office. There is nothing in the record to sustain this part of the judgment, and to this extent it is erroneous and ought to be corrected. True, Pacheco has not appealed, but the People, and not Pacheco, are the real parties in interest. That part of the judgment may be of no practical consequence, but it is, nevertheless, not sustained by the record, and for this reason ought not to stand.

It is ordered that the District Court modify its judgment by striking out all that portion of the said j udgment subsequent to the denial of the injunction, and of the relief sought in the complaint, and that the judgment as thus modified stand as the judgment of the Court.

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Concurrence Opinion

Mr. Justice Rhodes, concurring specially.

I concur in the judgment on the sole ground that, by virtue of the Act of the Legislature mentioned in the opinion of Mr. Justice Sawyer, and the issuing of the first fifteen hundred bonds with coupons attached, by the railroad company, payable by the State, a debt against the State was created, which was none the less a debt, and did not cease to be a debt, because provision was made in the Act for its payment—that is, because a tax was levied and an appropriation was made for that purpose; and that the existence of war removed the constitutional restriction against the creation of a debt exceeding three hundred thousand dollars.

Case Details

Case Name: People ex rel. McCullough v. Pacheco

Court Name: California Supreme Court

Date Published: Jul 1, 1865

Citation: 27 Cal. 175

Court Abbreviation: Cal.