7 N.Y. 9 (1852)
In his work on the history of the New York Court of Appeals, Judge Francis Bergan stated:
In the development of New York as a state, the building of the Erie Canal was the most ambitious project undertaken by state government. It brought large economic and political consequences. Making it possible to move heavy and bulky shipments cheaply from the central plains through the Great Lakes to the Port of New York, it played a significant part in the growth of New York City as a shipping and commercial center of the country.
Initially, the canal was a remarkable financial success, and some in the Legislature viewed this revenue stream as a way to finance State government and lower taxes. Others sought to enlarge the canal system to bring prosperity to other parts of the State. The New York Constitution adopted in 1847 contained a clause that limited State debt, but the Legislature passed a statute in 1851 allowing the State to issue “canal certificates” in the amount of $9 million dollars to support the canal system expansion. The canal certificates were to be repaid through canal revenues within 21 years but, crucially, the statute also provided that the certificates would not constitute a “debt” within the meaning of the New York State Constitution.
Following the passage of the 1851 Act, a contractor, J.C. Shippey, submitted claims for work he had done on the Black River canal. An arbitrator was appointed as required by the 1851 statute, and made an award to Shippey in settlement of his claim. The regional Canal Commissioner signed a draft ordering the Canal Department auditor, George W. Newell, to pay the amount to Shippey. Subsequently, Shippey endorsed the draft to Phelps who, on March 12, 1852, presented the draft and the required documentation to Newell for payment.
When Newell refused to order the Treasurer to make payment, Phelps commenced an action in New York Supreme Court, and the court, holding that it was the clear duty of the auditor to obey the law and pay the draft, issued an order of mandamus directing Newell to comply.
Newell then appealed to the Court of Appeals, and the Legislature passed an act authorizing the Governor to employ counsel to represent the State (Mr. Newell) in the case. The Governor appointed S. A. Foot and J. C. Spencer, and Mr. Phelps was represented by H. G. Wheaton.
The issue before the Court of Appeals was whether the 1851 statute was in violation of the New York State Constitution and thus void.
The Court, in an opinion written by Chief Judge Charles Ruggles, held that the “Act to provide for the completion of the Erie Canal enlargement and the Genesee valley and Black river canals,” passed July 10, 1851, was in violation of the seventh article of the constitution and void, and contracts authorized by the Act were consequently void. Judges Alexander Johnson and John Edmonds wrote concurring opinions. The Court ordered that the judgment of the Supreme Court should be reversed, and the application for a mandamus denied.
In his seminal history of the Court of Appeals, Judge Bergan noted that the historical significance of this case is the clear holding that the State’s credit must not be pledged without the consent of the people of the State.
Francis Bergan. The History of the New York Court of Appeals, 1847-1932 (1985)