As the court decides for itself whether a legislative act or charter constitutes a contract and will not be concluded by the decision of the State court, a fortiori it will not follow the State court when the latter reverses its previous judgment that the act constituted a contract.1 § 62. When concluded by decision of State court. The Supreme Court, however, adopts the ruling of the State court on points relating to the construction of the State constitution and statutes, other than as to the existence of a contract and the impairment of its obligation. Thus on the question whether a company was doing business in the State within the meaning of its statute, the court is concluded by the judgment of the State court. Thus in Erie Railroad Co. v. Pennsylvania,' it is said: 6 "The Supreme Court of that State has held that this company was doing business in the State in the sense of that act.' This construction of a State statute by the Supreme Court of the State, involving no question under the laws or Constitution of the United States, is conclusive upon us. We accept the construction of State statutes by the State courts, although we may doubt the correctness of such construction. We accept and adopt it, although we may have already accepted and adopted a different construction of a similar statute of another State, in deference to the Supreme Court of that State." Thus on the question whether the act done by or under the authority of the State impairs the obligation of a contract, the effect of the act must be determined in the light of the construction given by the State court. If that act as construed and enforced in the State court impairs contract rights, then the Federal court has jurisdiction, to 1 Jefferson Branch Bank v. Skelly, supra. 2 21 Wallace, 492, 497. determine, not the correctness of the construction, but whether the effect of the act as construed is to impair the contract right. § 63. When and to what extent State court is followed. 1 In a late case the court said that although it is its duty to exercise an independent judgment as to the nature and extent of a contract when its jurisdiction is invoked because of the asserted impairment of contract rights from the effect given to subsequent legislation, nevertheless, when the contract alleged to have been impaired arises from a State statute, the Federal court, for the sake of harmony and to avoid confusion, will lean towards an agreement with the State court, if the question seems balanced with doubt. The constitutional question was held to be sufficiently raised by a public board, which the State court had held to have enough fiduciary capacity for that purpose, since this power of the State board was a matter of local law, on which the decision of the State court would be accepted. § 64. Limitation of independent judgment. " The independent judgment" of the Supreme Court was materially limited under the decision in a recent case." 2 The charter of a Mississippi railroad granted in 1882 contained an exemption from taxation for twenty years. The State constitution then in force not later construed by the State Supreme Court as authorizing exemptions from taxation, but also making them repealable. It was held that this ruling of the Mississippi court that the constitution only authorized repealable exemptions involved a local and not a Federal question, and the Supreme Court therefore could not review the action of the State court in holding 1 Board of Liquidation v. Louisiana, 179 U. S. 622. the exemption to have been repealed by a subsequent statute; and, further, that this ruling applied both to privilege taxes and property taxes, since both were repealable exemptions. § 65. Contract only impaired by law. Limits are also set to the independent judgment of the Supreme Court in deciding a case of alleged impairment of contract, by the jurisdiction of the State court to determine the construction of the subsequent act by which the contract is claimed to have been impaired. A contract can only be impaired under this provision of the Constitution by a law; that is, a law subsequently enacted. In the language of the Supreme Court: "The State court may erroneously determine questions arising under a contract which constitutes the basis of the suit before it; it may hold a contract void which in our opinion is valid; it may adjudge a contract to be valid which in our opinion is void; or its interpretation of the contract may, in our opinion, be radically wrong; but in neither of these cases would the judgment be reviewable by this court under the clause of the Constitution protecting the obligation of contracts against impairment by State legislation, and under the existing statutes defining and regulating its jurisdiction, unless that judgment in terms or by its necessary operation gives effect to some provision of the State constitution, or some legislative enactment of the State, which is claimed by the unsuccessful party to impair the obligation of the particular contract in question."1 § 66. Impaired by municipal ordinance having force of law. But the term "law" includes not only a provision of the State constitution or State statute, but also a municipal ordi 1 Lehigh Water Co. v. Easton, 121 U. S. 388, 392. nance having the force of law. Thus a tax levied by a municipality under its chartered power, is a law in this sense.1 But whether the ordinance of a municipality has the force of law so as to constitute an impairment of the contract, is a question involving the construction of local law, whereon the Supreme Court will follow the ruling of the State court.2 § 67. What constitutes a contract of exemption. A legislative grant may constitute a contract, if the contract is clearly expressed in it, and the right of contract may be based, not only upon what is actually contained in the act itself, but also upon what by reference is made part of it. The exemption, however, must be clearly stated, and cannot be established by implication.* The grant of all the powers, rights and privileges granted by the charter of another corporation carries with it an exemption from taxation included in such charter. The court said, 1. c. page 247: "A more important or more comprehensive privilege than a perpetual immunity from taxation can scarcely be imagined. It contains the essential idea of a peculiar benefit or advantage, of a special exemption from a burden falling upon others." 5 § 68. Railroad franchise is property. The exemption of the property of a railroad company and the shares thereof "from any public charge or tax whatsoever," has been held to include the exemption of the 1 Murray v. Charleston, 96 U. S. 432, 440. 2 New Orleans Water Works Co. v. Louisiana Sugar Refining Co., 125 U. S. 18. 3 Humphrey v. Pegues, 16 Wallace, 244. 4 Memphis Gas Co. v. Shelby Co., 109 U. S. 398, and cases cited. 5 But see later case of Phoenix Ins. Co. v. Tennessee, 161 U. S. 174, to effect that there must be other language than the word "privilege," or other provisions in the statute removing all doubt as to the intention of the legislature before the exemption will be admitted. Infra, p. 87. franchise from taxation, the court saying, 1. c. page 267:1 "Property is a word of large import, and in its application to this company included all the real and personal estate required by it for the successful prosecution of its business. Nothing is better settled than that the franchise of a private corporation which in its application to a railroad is the privilege of running it and taking fare and freight-is property, and of the most valuable. kind, as it cannot be taken for public use even without compensation. It is true it is not the same sort of property as the rolling stock, roadbed and depot grounds, but it is equally with them covered by the general term the property of the company,' and therefore equally within the protection of the charter." § 69. Conditional exemptions from taxation. The power to make exemption from taxation includes the power to make it subject to conditions, or to limit to some specific form of taxation. Thus a railroad company may by grant of the legislature be entitled to the taxation of its property, land included, upon the basis of a per cent upon the gross earnings, and this right will be impaired by an act withdrawing the lands from this arrangement and subjecting them to taxation according to their cash value.2 The exception may be limited to a term of years, or conditioned upon the completion of a railroad wholly or in part. 1 Wilmington R. R. Co. v. Reid, 13 Wallace, 264. This case was distinguished in Wilmington Railroad Co. v. Alsbrook, 146 U. S. 301, holding that this exemption did not cover a branch line constructed by another company under a different charter. 2 Stearns v. Minnesota, 179 U. S. 223, reversing 72 Minn. 200; Duluth and Iron Range R. R. Co. v. Minnesota, 179 U. S. 302, reversing 77 Minn. 433. |