and charges by them to be received for transportation," the court declare that this authority is necessarily qualified by the common law obligation that all rates shall be reasonable. "Power is granted to fix reasonable charges, but what shall be deemed reasonable in law is nowhere indicated. There is no rate specified nor any limit set. Nothing whatever is said of the way in which the question of reasonableness is to be settled. All that is left as it was. Consequently, all the power which the State had in the matter before the charter, it retained afterwards. The power to charge being coupled with the condition that the charge shall be reasonable, the State is left free to act on the subject of reasonableness within the limits of its general authority as circumstances may require. The right to fix reasonable charges has been granted, but the power of declaring what shall be deemed reasonable has not been surrendered. If there had been any intention of surrendering this power it would have been easy to say so. Not having said so, the conclusive presumption is there was no such intention." 32

§ 502. The Police Power and the Obligation of Contracts.

The extent of the power of the States in the exercise of their police powers to control the operations of domestic corporations as well as the strictness with which the charter grants are to be construed, is exhibited in the case of the Northwestern Fertilizing Co. v. Hyde Park,33 decided in 1878. Here a charter had been granted giving the corporation the right for fifty years to establish and maintain at a designated place chemical and other works for the purpose of manufacturing and converting dead animals and other animal matter into agricultural fertilizers and other chemical products. Under this charter the company was organized, land purchased, and factories established. After some years, however, the village of Hyde Park grew up around these works, and the continued maintenance of the factory caused great discomfort to the villagers, and an ordinance was passed by the village in the

32 Justices Harlan and Field filed dissenting opinions.

33 97 U. S. 659; 24 L. ed. 1036.

exercise of police power granted it by the State, forbidding the carrying of any offal or otherwise offensive or unwholesome matter through the village. As this was the only means through which the factory could obtain its raw material, the ordinance was disobeyed, and upon arrest and conviction of certain of its employees for so doing, the company filed a bill alleging that the obligation of the charter contract of the State with the company had been impaired, and praying that further prosecutions be enjoined. The Supreme Court of the State, upon appeal, dismissed the bill, whereupon a writ of error was taken to the Supreme Court of the United States. That tribunal upheld the validity of the ordinance in question, saying: "That a nuisance of a flagrant character existed, as found by the court below, is not controverted. We cannot doubt that the police power of the State was applicable and adequate to give an effectual remedy. That power belonged to the States when the federal Constitution was adopted. They did not surrender it, and they all have it now. It extends to the entire property and business within their local jurisdiction. Both are subject to it in all proper cases. It rests upon the fundamental principle that everyone shall so use his own as not to wrong and injure another. To regulate and abate nuisances is one of its ordinary functions. The adjudged cases showing its exercise where corporate franchises were involved are numerous.

The charter was a sufficient license until revoked; but we cannot regard it as a contract guaranteeing it, in the locality originally selected, exemption for fifty years from the exercise of the police power of the State, however serious the nuisance might become in the future, by reason of the growth of population around it. The owners had no such exemption before they were incorporated, and we think the charter did not give it to them." 34

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The efficacy of the police power to alter or destroy charter contract rights was again illustrated in Stone v. Mississippi, decided in 1880. In this case the plaintiff in error had been granted in 1867 the right to issue and vend lottery tickets. By the Constitu

34 A dissenting opinion was filed by Justice Strong.

35 101 U. S. 814; 25 L. ed. 1079.

tion of the State, adopted in 1869, the legislature was forbidden to authorize any lottery, and an information was filed by the Attorney-General of the State against Stone and his associates to show by what warrant or authority they exercised the franchise or privilege of issuing and vending lottery tickets. Upon error to the federal Supreme Court, it was held that the original grant of authority would not prevail against the subsequent exercise of the State's police power, the court saying: "The question is, therefore, directly presented, whether, in view of these facts, the legislature of a State can, by the charter of a lottery company, defeat the will of the people, authoritatively expressed, in relation to the further continuance of such business in their midst. We think it cannot. No legislature can bargain away the public health or the public morals. The people themselves cannot do it, much less their servants. The supervision of both these subjects of governmental power is continuing in its nature, and they are to be dealt with as the special exigencies of the moment may require. Government is organized with a view to their preservation, and cannot divest itself of the power to provide for them. For this purpose, the largest legislative discretion is allowed, and the discretion cannot be parted with any more than the power itself. . . . The contracts which the Constitution protects are those that relate to property rights, not governmental. It is not always easy to tell on which side of the line which separates governmental from property rights a particular case is to be put; but in respect to lotteries there can be no difficulty. They are not, in the legal acceptance of the term, mala in se, but as we have just seen, may properly be made mala prohibita. They are a species of gambling, and wrong in their influences. They disturb the checks and balances of a well ordered community. Society built on such a foundation would almost of necessity bring forth a population of speculators and gamblers, living on the expectation of what, by the casting of lots, or by lot, chance, or otherwise,' might be 'awarded to them from the accumulations of others. Certainly the right to stop them is governmental, to be exercised at all times by those in power at their discretion. Anyone, therefore, who

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.” 37

In Chicago Theological Seminary v. Illinoisas 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. C5.

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