State Ex Rel. Lyon v. State Warehouse Commission ( 1912 )

July 19, 1912. The opinion of the Court was delivered by This is a petition to the Court, in the exercise of its original jurisdiction, in which the petitioner prays, that an act of the legislature, entitled, "An act to create and operate a State warehouse system, for storing cotton and other commodities," be declared unconstitutional, and that the respondents be enjoined, from attempting to enforce its provisions.

The return of the respondents, to the rule to show cause, why the prayer of the petitioner should not be granted, was formal, and merely submitted the questions involved, to the consideration of the Court.

A copy of the act will be set out, in the report of the case.

The circumstances under which the Court, should declare a statute unconstitutional; the police power, and the unlimited power of the legislature, except when controlled by constitutional provisions, are discussed at length, in the case of State v. Aiken, 42 S.C. 222, 20 S.E. 221, 26 L.R.A. 345; and that case renders unnecessary the further discussion, in a general way, of these questions, in this proceeding.

The grounds upon which the petitioner contends that the act is unconstitutional, are designated by the letters, a, b, c, d, e, f, g and h, and will be considered in regular order. a. "It appropriates public revenues to private purposes, and provides that the State, through her public officers, engage in an enterprise, in no way incident or relating to any governmental function or matter, the warehouse system provided for therein, being solely for the benefit of private individuals, and is violative of section 2, article X, of the Constitution."

The ultimate solution of this proposition, depends upon the question, whether the said act can be construed as a police regulation.

The title of the act shows, that its object was to create and operate, a State warehouse system for storing cotton and other commodities.

It will be observed, it was not the intention of the statute that the State should become the owner of the cotton or other commodities, deposited in the warehouse; nor that the State should operate the warehouses, for the purpose of profit.

The object of the act may be stated in few words. The cotton growers in this State, and the merchants, to whom a large portion of the staple is delivered, in payment of indebtedness for supplies consumed in its production, are, as a rule, unable to hold it, but for a short time, after the crop is gathered; and, a forced sale means a sacrifice of profits to them. Knowing this fact certain speculators, by combination of capital and manipulation of the money market, are able, for a short time, by reducing the circulating volume of money, to depress the cotton market, and fix an unreasonably low price, for the cotton crop. They would not, however, be able to control the price, but for a short time, and the object of the statute was to give protection to the public, during this period, from an enforced sale of the cotton crop. We deem it unnecessary to discuss at length, the manner in which this unreasonable depression in price, affects not only the cotton grower, but the people generally, as well as every department of the government, and every governmental agency in the State. In passing this statute the State was clearly within the exercise of its police power, which in its last analysis simply means the State's right of self-defense.

The case of Barfield v. Mercantile Co., 85 S.C. 186, and the cases therein cited, tend to show that the act in question, was for a public and not a private purpose.

b. "It provides that the State shall engage in a private business, not incidental or necessary to the exercise of the police power."

What has just been said disposes of this ground.

c. "It provides for an issue of bonds, and an increase of the public debt, without first submitting the question as to the creation of such new debt, to the qualified electors of this State at a general election, in violation of section 2. article X, of the Constitution."

Section 2, article X, of the Constitution, is as follows:

"To the end that the public debt of South Carolina, may not hereafter be increased, without the due consideration and free consent of the people of the State, the General Assembly is hereby forbidden to create any further debt or obligation, either by the loan of the credit of the State, by guaranty, endorsement or otherwise, except for the ordinary and current business of the State, without first submitting the question, as to the creation of such new debt, guaranty, endorsement or loan of its credit, to the qualified electors of this State, at a general State election; and unless two-thirds of the qualified electors of this State, voting on the question, shall be in favor of increasing the debt, guaranty, endorsement or loan of its credit, none shall be created or made."

There are two reasons why this ground must be sustained:

1. The building of warehouses, is not one of the ordinary functions of government; therefore, the issuing of bonds for such purpose cannot be properly regarded as embraced within the words, "the ordinary and current business of the State."

2. It appears upon the face of the statute, that the bonds were not intended to be a debt or obligation of the State. Bonds can only be issued under section 2, article X, of the Constitution, when a debt or obligation of the State is thereby created.

d. "It is discriminatory and denies the equal protection of the law, in that no provision is made for expert grading, classifying, weighing, or otherwise putting in a marketable condition any commodity other than lint cotton, and does not compel the acceptance for storage of any commodity other than lint cotton."

The petitioner does not state, whether the statute denies the equal protection of the laws, under the State or Federal Constitutions. The rule in such cases, arising under the Federal Constitution, is thus clearly stated by Mr. Justice Van Devanter, in Lindsley v. N.C. Gas Co., 220 U.S. 61:

"1. The equal-protection clause of the fourteenth amendment, does not take from the State the power to classify in the adoption of police laws, but admits of the exercise of a wide scope of discretion in that regard, and avoids what is done only when it is without any reasonable basis, and therefore is purely arbitrary. 2. A classification having some reasonable basis, does not offend against that clause, merely because it is not made with mathematical nicety, or because in practice, it results in some inequality. 3. When the classification in such a law is called in question, if any state of facts reasonably can be conceived that would sustain it, the existence of that state of facts, at the time the law was enacted, must be assumed. 4. One who assails the classification in such a law, must carry the burden of showing that it does not rest upon any reasonable basis, but is essentially arbitrary."

This language also shows, that the classification is not repugnant to section 5, article, I, of the State Constitution, which provides, that no person shall be denied the equal protection of the laws.

The case of State v. Aiken, 42 S.C. 222, 20 S.E. 221, 26 L.R.A. 345, shows that when a statute is declared to be a police regulation, and the State takes charge of the business, the objection that it is a monopoly cannot properly arise.

e. "It provides for issuing receipts for commodities stored in warehouses, transferable by written assignment, which receipts are certificates of indebtedness, issued contrary to section 7, article X, of the Constitution."

Section 7, article X, of the Constitution, is as follows:

"No scrip, certificate, or other evidence of State indebtedness shall be issued, except for the redemption of stock bonds, or other evidence of indebtedness previously issued, or for such debts as are expressly authorized in this Constitution."

Section 7 of the statute under consideration, contains these provisions:

"The person depositing the cotton or other commodities, shall be given a receipt from the State warehouse commission, signed by the manager of the warehouse, in which the cotton or other commodity is stored, which receipt shall give the weight, grade and number of each bale of cotton, or description of other commodity. The said receipts to be transferable only by written assignment, and the cotton or other commodities which it represents, deliverable only upon the production of the original receipt, which is to be marked `cancelled,' when the cotton or other commodity, is taken from the warehouse."

It is only necessary to refer to the foregoing language of said section, to show that the receipt therein mentioned, in no respect whatever, partakes of the characteristics of "scrip, certificate or other evidence of State indebtedness."

f. "It makes appropriations for both the years 1912 and 1913, contrary to the provisions of section 2, article X, of the Constitution."

Section 2, article X, of the Constitution, is as follows:

"The General Assembly shall provide for an annual tax sufficient to defray the estimated expenses of the State for each year, and whenever it shall happen, that the ordinary expenses of the State for any year, shall exceed the income of the State for such year, the General Assembly shall provide, for levying a tax for the ensuing year sufficient, with other sources of income, to pay the deficiency of the preceding year, together with the estimated expenses of the ensuing year."

Section 16 of said act provides, that "the sum of $250,000, divided into two equal annual installments of $125,000 in 1912 and $125,000 in 1913, to carry out the purposes of this act, is hereby appropriated."

If the legislature contemplated the expenditure of the $250,000 during the year 1912, then it was necessary to include the whole amount in the estimated expense of the State for 1912, in providing for the annual tax for that year. If, however, it was not contemplated to expend $125,000 thereof, until 1913, then that sum could only be properly included, in the estimated expenses for the year 1913, in making provision for the annual tax for that year.

Therefore, the appropriation of $125,000 of said amount, was in violation of the Constitution.

g. "It attempts to apply a tax to an object not stated in the law, and thereby violates section 3, article X, of the Constitution."

Section 3, article X, of the Constitution, is as follows:

"No tax shall be levied except in pursuance of a law, which shall distinctly state the object of the same; to which object the tax shall be applied."

Section 16 of the act appropriates $250,000 to carry out the purposes thereof. We have already shown, that $125,000 of said amount was not appropriated in the manner provided by law. If it should hereinafter be determined, that the entire act must be declared null and void, then it will present a mere abstract question, whether the remaining $125,000 was properly appropriated.

h. "The said act, together with section 40 of `An act to make appropriation to meet the ordinary expenses of the State government for the fiscal year, commencing January 1, 1912, and to provide for a tax sufficient to defray the same,' provides for pleading the credit of the State, for the benefit of private individuals, owners of lint cotton in bales, in violation of section 6, article X, of the Constitution of South Carolina; that section 40 of said appropriation act is hereto attached and made a part of this petition, and marked Exhibit B."

Section 40 of the act just mentioned is as follows:

"That in anticipation of the taxes hereinbefore levied, the governor and the State treasurer and the comptroller general be, and they are hereby, empowered to borrow, on credit of the State, so much money, from time to time, as may be needed to meet promptly, at maturity, the interest which will mature on the first day of July, and on the first day of January, of each year, on the valid debt of the State, and to pay the current expenses of the State government, for the present fiscal year, and for pensions, and for carrying out the provisions of an act to establish a State warehouse commission, if the same be declared constitutional by the Supreme Court of the State: Provided, That the sum so borrowed, shall not exceed six hundred thousand ($600,000) dollars."

Section 6, article X, of the Constitution, provides, that "the credit of the State shall not be pledged or loaned, for the benefit of any individual, company, association or corporation; and the State shall not become a joint owner of, or stockholder in, any company, association or corporation. * * *"

This ground is disposed of, by the conclusion that the act was intended as a police measure, and, therefore, necessarily related to a subject, that was public in its nature.

The last question to be determined is, whether the portions of the act that have been declared unconstitutional, render it null and void in its entirety.

The rule is thus stated in Cooley's Con. Lim. (6th ed.), pages 211 and 212, and quoted with approval in Utsey v.Hiott, 30 S.C. 360, 9 S.E. 338, and Murphy v. Landrum,76 S.C. 21, 56 S.E. 850:

"If, when the unconstitutional portion is stricken out, that which remains is complete in itself, and capable of being executed in accordance with the apparent legislative intent, wholly independent of that which was rejected, it must be sustained. The difficulty is in determining, whether the good and bad parts of the statute, are capable of being separated within the meaning of the rule. If a statute attempted to accomplish two or more objects, and is void as to one, it may still be, in every respect, complete and valid as to the other. But if its purpose is to accomplish a single object only, and some of its provisions are void, the whole must fall, unless sufficient remains to effect the objects, without the aid of the invalid portion, and if they are so mutually connected with and dependent upon each other, as conditions, considerations or compensations for each other, as to warrant the belief, that the legislature intended them as a whole, and if all could not be carried into effect, the legislature would not pass the residue independently, then, if some parts are unconstitutional, all the provisions, which are thus dependent, conditionally or connected, must fall with them."

Tested by these principles, the entire act must be declared unconstitutional.

Of course, the conclusion that the statute under consideration, is void in its entirety, does not mean that in its general scope, it is not a police regulation, but that it cannot be given effect in its present form, by reason of its failure, in certain respects, to comply with the requirements of the Constitution.

It is the judgment of this Court, that the act herein mentioned is null and void, and that the respondents be enjoined, from attempting to carry its provisions into effect.

MR. JUSTICE HYDRICK concurs in the result.

MR. JUSTICE WOODS did not sit.