Opinion of the Court.

of the loan was, as that amount stood on the first day of May, 1870, because it was upon that amount that interest semi-annually was to be paid, and also one per centum of principal to the sinking fund. The authorities of the State determined what the aggregate amount was as it stood on the first day of May, 1870, and they arrived at that amount by refusing to recognize as valid any payment which the company had made in treasury warrants, and in that way they made the aggregate amount larger by those sums than that made by the company, which claimed to be credited with the amount of its payments in those warrants. Upon the aggregate amount, as determined by the authorities of the State, payment of the interest and for the sinking fund was demanded under the act. This demand was complied with by the company under protest, and accompanied by a claim on its part that the aggregate amount due on the loan was less than that stated by the authorities of the State by just the amount of the payments which the company had made in these treasury warrants. The protest was overruled and the claim denied, and thereafter the same protest and the same claim were made and the same action taken upon the part of the state authorities on each semi-annual occasion when payments were due and made. This lasted until the payments made by the company in cash and in the treasury warrants, upon the basis of the legality of the payments in such warrants, paid the indebtedness due from the company to the State, and from that time it has refused to make further payments. The State did not acknowledge that full payment had been made of that indebtedness, and thereupon commenced the present proceeding to recover the amount it claimed to be due and to foreclose its lien against the company. This it could not do under the statute of 1870 unless the company had defaulted in respect to the payments required under that act.

It is admitted that the company had not so defaulted, provided the payments in treasury warrants were duly credited to it, nor is it denied on the other hand that if those payments were not valid payments and ought not to be credited to the company, then it had defaulted in respect to the payments required by the act before the commencement of these proceed

Opinion of the Court.

ings. When the state court, therefore, decided that these warrants were issued in violation of the constitution of the State, and that payments in them were in fact and in law no payments, and gave judgment accordingly, the effect of that decision was necessarily to hold that the company had defaulted in respect to the payments required under the act, and that the proceedings of the State to collect the sum due were permitted by the act, and effect was thus given to such act, although not one word was spoken in regard to it in the opinion delivered in the

state court.

If the railroad company had not failed to pay any amount required to be paid in section one of the act, then the proceeding herein could not have been taken, by reason of the provision contained in the third section, and it is only after a failure to pay for ten days that the second section permits the proceedings to be taken to collect the amount. In giving judgment for the plaintiff, therefore, the court has in effect determined that the plaintiff was proceeding rightly under the act of 1870, and effect was thus given to its provisions.

The judgment of the Court of Civil Appeals gives an additional effect to the act, because by its judgment there is struck out the provision in the judgment of the trial court in regard to the lien of the State, and it has limited that lien in accordance with the third section of the act, so that it should not attach to any extension of the railroad which had been constructed since its passage. Although that modification may be a favor to the company, it nevertheless gives effect to the act. The company has not accepted that act so that it cannot draw in question its validity as construed by the state court, and hence no reason is shown for the granting of the motion to dismiss on that ground. The only acceptance consists in the payments made by the company to the State after its passage. The very first payment made by the company, under the act, namely, on the first day of November, 1870, was however made while asserting the claim that payments in treasury warrants were valid and should be acknowledged and credited to the company, and upon the refusal of the state authorities to admit those payments the company paid the interest and percentage on the larger sum de

Opinion of the Court.

manded by the State, under protest, that such demand was illegal and improper, and every subsequent payment was made under the same protest by the company. Payments so made show no such acceptance of the act as to prevent the company from thereafter drawing in question its validity as construed by the state authorities.

Thus we see that, although the decision of the state court was based upon the ground that the warrants in which these payments were made had been issued in utter violation of the state constitution, and were hence void, and that no payments made with such warrants had any validity, and although this ground of invalidity was arrived at without any reference made to the act of 1870, yet the necessary consequence of the judgment was that effect was thereby given to that act, and in a manner which the company has always claimed to be illegal and unwarranted by the act when properly construed. The company has never accepted such a construction, but on the contrary has always opposed it, and raises the question in this proceeding at the very outset. Upon these facts this court has jurisdiction, and it is its duty to determine for itself the existence, construction and validity of the alleged contract, and also to determine whether, as construed by this court, it has been impaired by any subsequent state legislation to which effect has been given by the court below. Bridge Proprietors v. Hoboken Company, 1 Wall. 116; University v. People, 99 U. S. 309; Fisk v. Jefferson Police Jury, 116 U. S. 131; New Orleans Water Works Company v. Louisiana Sugar Refining Company, 125 U. S. 18; Central Land Company v. Laidley, 159 U. S. 103, 109; Bacon v. Texas, 163 U. S. 207, 216; McCullough v. Virginia, 172 U. S. 102.

In this case we think we have shown that the judgment did give effect to subsequent legislation which, as construed by the state court, the company claims has impaired the obligation of the contract between itself and the State. The writ of error was therefore well brought.

The motion for the removal of this case to the United States Circuit Court was properly denied. The stateinent of the cause of action as contained in plaintiff's first petition did not show that the suit was one arising under the Constitution, laws or treaties of the United States.

Opinion of the Court.

The suit, as it appears upon the face of the petition of plaintiff, was upon the bonds given by the company for the loan of a portion of the school fund, and to foreclose the lien of the State upon the property of the company, and in the petition reference was made to the act of 1870 for the purpose of stating the amount due on the bonds for principal and interest. Nothing upon the face of this petition showed any fact upon which Federal jurisdiction could be based. The company answered by alleging certain payments in treasury warrants, which, if properly credited, would show that with the other payments that had been made there was nothing due the plaintiff on the bonds. As an answer to this defence the plaintiff set up the invalidity of the laws providing for payments in treasury warrants; that the warrants were issued by the State in violation of both the state and Federal Constitutions, and that the payments were therefore illegal and void. This was no part of the plaintiff's cause of action upon which suit was brought, and that cause of action did not in any way involve a question arising under the Constitution or laws of the United States. The defendant,, therefore, made out no case for a removal to the United States Circuit Court. Oregon &c. Railway Company v. Skottowe, 162 U. S. 490, 494; Tennessee v. Union & Planters' Bank, 152 U. S. 454; Galveston, Harrisburg &c. Railway v. Texas, 170 U. S. 226, 235.

The result of the authorities is that the Federal character of the suit must appear in the plaintiff's own statement of his claim, and that where a defence has been interposed, the reply to which brings out matters of a Federal nature, those matters thus brought out by the plaintiff do not form a part of his cause of action, but are merely a reply to the defence set, up by the defendant. The review of the Federal question by this court is not thereby precluded, for it having been properly raised in the state court and decided against the contention of the party setting it up, this court may review it on error to the highest court of the State.

This brings us to the question what, if any, contract existed between the State and the company consequent upon the payments by the company to the comptroller of the State in the treasury warrants heretofore mentioned.

Opinion of the Court.

The company contends that by the passage of the acts of December 16, 1863, May 28, 1864, and November 16, 1864, and by its compliance with such acts and its payment of treasury warrants to the comptroller and their receipt by him and his cancellation thereof, there was an executed transaction, and an implied contract thereupon arose that such payments should remain and be regarded as valid and effectual, and that this implied contract was entitled to the protection of the Constitution of the United States, and its obligation could not be impaired by any subsequent act of the legislature of the State.

These acts have been already set forth. The company alleges that it fully complied with all of them, and that relying upon the offers thus made it paid to the State the warrants mentioned, which were received by the comptroller and cancelled, and bonds of the State for a like amount, bearing six per cent interest, were issued by him to the school fund.

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The provision in the state constitution, which it is alleged was violated by the issuing of these warrants, is contained in the eighth section of article seven of the constitution of 1845, in which, among other things, it was provided, and in no case shall the legislature have the power to issue treasury warrants, treasury notes or paper of any description intended to circulate as money." The same provision is found in the constitution of Texas adopted in 1861.

It is contended on the part of the State that these warrants were issued in violation of that section of the constitution, inasmuch as they were treasury warrants intended to circulate as money.

It is stated in the opinion, delivered in the Court of Civil Appeals, "that the warrants of the State, issued during the period of the war after January 1, 1862, were intended to be used and circulated as money, and in this connection it is well to say that we are of the opinion, from all that it is shown by the record, together with various acts of the legislatures during that time, that the payments made in warrants by the railway companies upon the obligations sued upon were in warrants issued after the time we have declared they were intended to circulate as money."