Loan Association v. Topeka, 87 U.S. 655 (1875)

In 1872, the Kansas legislature passed acts authorizing cities to fund private enterprise to improve and develop the cities of Kansas. Topeka issued $100,000 in bonds to encourage an iron bridge manufacturer to build a factory within the city. The bonds were to be funded through public taxation. Topeka stopped repaying the bonds after the first payment, and the Citizens’ Savings and Loan Association of Cleveland, who had bought the bonds, sought redress through the federal courts under diversity of citizenship jurisdiction.

The district court judge held that legislatures had no power to compel citizens, through taxation, to subsidize a purely private enterprise and that doing so also violated a provision of the Kansas state constitution prohibiting abuses of power.

The Loan Association appealed the decision to the U.S. Supreme Court and Justice Samuel F. Miller wrote the decision for the majority affirming the decision of the district court. The Court found that general principles of natural law denied legislatures the power to tax to fund purely private enterprise.

The Court held that its cases upholding the use of taxation to fund private industry such as railways, canals, and roads did not support an unlimited power to tax. In each case the question before the Court was whether the tax-funded private individuals and corporations to engage in acts which had a public character accepted by ‘‘time and the acquiescence of the people’’ or purely to aid private interests.

The Court found that unlike transportation where the community can gain a public benefit from infrastructural improvements ‘‘[n]o line can be drawn in favor of the manufacturer which would not open the coffers of the public treasury to the importunities of two-thirds of the business men of the city or town.’’ The use of the taxation power to fund them was a violation of the citizen’s private right and ‘‘none the less a robbery because it is done under the forms of law and is called taxation.’’

He found this private right, not in the specific textual guarantees of the constitution or the potentially elastic clauses of the Ninth or the Fourteenth Amendments but in the manner of John Locke, Miller asserted that ‘‘there are such rights in every free government beyond the control of the State . . . which grow out of the essential nature of all free governments. Implied reservations of individual rights, without which the social compact could not exist, and which are respected by all governments entitled to the name.’’

Justice Nathan Clifford wrote a dissent attacking the Court for nullifying ‘‘an act of the State legislature on the vague ground that they think it opposed to a general latent spirit supposed to pervade or underlie the constitution, where neither the terms nor the implications of the instrument disclose any such restriction.’’

The arguments presented in the majority and dissent can be seen as foreshadowing the controversy over the use of substantive due process, based on an underlying spirit of the constitution, to strike down statutes in violation of unenumerated economic or privacy rights without a specific textual basis.

GAVIN J. REDDICK

References and Further Reading

  • Collins, Michael G., Before Lochne—Diversity Jurisdiction and the Development of General Constitutional Law, Tulane Law Review 74 (200) 1263–1324.
  • Fairman, Charles. Reconstruction and Reunion, 1864–88 (The Oliver Wendell Holmes Devise History of the Supreme Court of the United States, Vols. 6–7). MacMillan Library Reference; 2nd Ed., 1987.

See also Due Process of Law (V and XIV); Griswold v. Connecticut, 381 U.S. 479 (1965); Lochner v. New York, 198 U.S. 45 (1905); Privacy; Privacy, Theories of; Retained Rights (Ninth Amendment); Right of Privacy

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