delivered a dissenting opinion as follows:
The public debt of the State, amounting approximately to $12,000,000, will become due and payable in July and October, 1913, and the State is without funds to meet this obligation. The legislature at this session has passed an act authorizing the refunding of the public debt, and has provided in terms for the issuance of $12,000,000 bonds bearing, four per cent, 'interest, and due in forty years after date, and has forbidden the State, counties, and municipalities to tax the principal and interest of the new bond issue.
The question for determination in this case is whether the State has the power to provide that the bonds and their interest coupons shall not be taxed.
In the opinion of the majority, prepared by Mr. Justice Williams, the conclusion is reached that the State is without such power. To this result I cannot agree, and, the question being of such transcendent importance, I feel it but right and proper that I should express the grounds of my dissent.
This State is a sovereignty, and not a corporation. A' .fundamental error of the opinion of the majority is the a*sumr>tion throughout that the legislature derives it» *482powers in respect of these matters from the State Constitution. The contrary is stated, but no effect is given it. It is elementary in American constitutional law that the legislatures of the various States represent the absolute and uncontrolled sovereign power of the people, and they are restrained from a course of action in any direction only by the constitution of the State and the United States, either expressly or by necessary implication. This principle is so well settled, and, to my mind, so thoroughly understood, that it needs no argument or elaboration. An examination of the bill of rights and the constitution itself will disclose that the language employed is that of restraint. It has been so adjudged by this court from its earliest history down to the present time. Prescott v. Duncan, 126 Tenn., 106, 148 S. W., 229; Jackson v. Nimmo, 3 Lea, 599; Davis v. State, 3 Lea, 377; Knoxville & Ohio R. R. Co. v. Hicks, 9 Baxt., 446; Lynn v. Polk, 8 Lea, 121; Demoville & Co. v. Davidson County, 87 Tenn., 220 10 S. W., 363; Stratton Claimants v. Morris Claimants, 89 Tenn., 497, 15 S. W., 87, 12 L. R. A., 70.
The act in question in all of its parts is an exercise of sovereignty by the legislature. The supreme court of the United States has held in. numerous adjudged cases that bonds of the United States government cannot be taxed by the States, and bonds of the States cannot be taxed by the United States government, for the reason that such bonds are but instrumentalities of government. The power of the federal government to tax the bonds of the State, as well as the power of the State govern-*483rnent to tax the bonds of the general government, would be a power to embarrass each soverignty in the exercise of its governmental functions, which that court has wisely held does not exist. McCulloch v. Maryland, 4 Wheat., 316, 4 L. Ed., 579; Weston v. Charleston, 2 Pet., 449, 7 L. Ed., 481; Bank of Commerce v. N. Y. City, 2 Black., 620, 17 L. Ed., 451; Collector v. Day, 11 Wall., 13, 20 L. Ed., 22; Ward v. Maryland, 12 Wall., 418, 20 L. Ed., 449.
That the issuance of the bonds in question is an exercise of sovereign power is made more manifest by a consideration of the consequences that would ensue if the State did not provide for a refunding of its debt. As stated the debt is practically now due, and the treasury is without funds to pay it. The State must either refund its debt, default in payment of both principal and interest, or repudiate it. It has the power to do either. The fact that'it can repudiate its solemn obligation demonstrates the nature of the power exercised in the passage of the act under investigation, because the power of repudiation exists only in a sovereign. For the same reason the act of refunding the debt to avoid, repudiation is an act of sovereignty.
The question for our determination is one of power only. The policy of exempting bonds of the State from taxation is one solely for the determination of the sovereign legislative power, and has no place in the consideration of this court. If the power exists, the legislature must determine,for itself whether or not it should be exercised. If it does not exist, it is the highest duty *484of this court to so declare ; and likewise, if it does exist, it is equally the duty , of this court to uphold the legislation under consideration, and allow the legislature free rein in the provisions it may see proper to make for refunding the debt. The action of the legislature in passing this law is conclusive evidence to this court of the sovereign purpose to exempt the bonds from taxation behind v hich no inquiry can be made.
In the outset, I desire to freely concede that in legislative matters the State can only act through her constitutional agent, the legislature; and that an unconstitutional statute cannot form the basis of a lawful contract; and that every part of the constitution must be considered in determining whether the power claimed for the legislature exists; and that limitations upon the power of the legislature may be supported by implication, but with the qualification that the implication employed to curtail sovereign legislative powers must be found to exist in the constitution itself. Prescott v. Duncan, supra.
In my view, the real question for solution is whether section 28 of article 2 of the constitution is án inhibition on the power of the State to issue bonds to refund its public debt. Stated differently, the question is whether the people, in adopting this section of the constitution, intended that it should apply to a sovereign act of the State in providing for its public debt, or whether it was merely intended to provide against exemptions and dis-criminations as between citizens and taxpayers of the (State. And this depends again upon whether the power of taxation and the power to refund the pubile debt are. *485one and the same power, because there is no express constitutional limitation upon the power of the State to issue bonds for this purpose, and if such restriction exists, it must be found to be implied in the prohibition against exemptions from taxation.
“Sovereignty as applied to States,” says Judge Oooley, “imports the supreme, absolute, uncontrollable power by which any State is governed.” A State is a sovereign when the supreme power resides within itself. In American constitutional law, the people are the State and all power resides in them. By our constitution, they have vested the supreme legislative power in the legislature, and this power is limited only by the restrictions of the constitution. The constitution does not mention a public debt, nor does it contemplate any future action upon the part of the legislature in refunding debts existing at the time it was adopted, or borrowing money for future debts or for any other governmental purposes. Therefore the power of the legislature to issue these bonds for public purposes is absolute, unrestrained, and unqualified, unless section 28 of article 2 was intended to impose the limitations therein stated upon the sovereign power of the people to preserve the public honor and the public faith.
The history of this section of the constitution is well known. This court, in construing the constitution of 1834, held in numerous cases that the legislature might exempt any species of property from taxation which it might deem proper. Those cases were in full recognition of the sovereign power of the legislature as here stated, *486because the constitution of 1834 provided: “All prop-' ertj should be taxed according to its value; that value to be ascertained in such manner as the legislature shall direct, so that the same shall be equal and uniform throughout the State. • No one species of property from which a tax may be collected shall be taxed higher than any other speices of property of equal value.”
Under this constitution, as construed by this court, the legislature granted numerous exemptions to corporations organized by it under seétion 7 of article 11, so that when the convention met to prepare a constitution in 1870, it was realized that the discretion of the legislature to exempt property from taxation had been grossly abused. Therefore, it was provided in the latter instrument, in section 28 of article 2, “that all property, real, personal or mixed, shall be taxed, but the legislature may exempt such as may be held by the State, by counties, cities or towns, and used exclusively for public or corporation purposes, and such as may be held and used for purposes purely religious, charitable, scientific, literary or educational, and shall exémpt $1,000 worth: of personal property in the hands of each taxpayer, and the direct product of the soil in the hands of the producer and his immediate vendee.”
The evil intended to be remedied by the foregoing provision of the new constitution was manifestly the arbitrary discrimination between taxpayers, which had amounted to a destruction of the equality of burdens necessary to the enjoyment of free government. This section can refer to nothing more than the practice of *487exemptions which had grown up under the constitution of 1834. It has no reference to the exercise of the sovereign power of the people to preserve the public credit and the public faith. It is true that the constitution contains exceptions to the general words that “all property shall be taxed.” It is equally true that exceptions from the general statement of the limitation of power mark the extent of the limitation, and that the exceptions strongly indicate the intention of the framers of the constitution that no other should be allowed. But it is also true that this exception is only an exception to the limitation upon the power to which the general words have reference. This, as well as the meaning of the general words, is shown by the fact that the exception refers to the State, counties, and municipalities only in their capacity of property owners. The exception allowed is as to property “held . . . and used exclusively for corporation purposes.” Therefore, while the exceptions strengthen the limitation upon the power of exemption from taxation, they cannot add to the scope or meaning of the limitation itself.
The power exercised by the legislature in the passage of the act in question is a far different thing to the power circumscribed by this section of the constitution. One is the power to tax for the purpose of raising revenue to defray the ordinary expenses of government, and the other is the power to preserve the public credit. They Are both attributes of sovereignty, and neither is conferred by the constitution. Section 28 of article 2 is a direct and express limitation upon the former and makes *488no reference to the latter They have existed coequally with the State itself,- and both inhere in all free governments. They are not the same, and one is not controlled hy limitations upon the other.
The power to issue long-term negotiable interest-bearing bonds is the power to make a contract. At the same time it is an extraordinary power, because the bonds are contracts with no particular contractee, and are issued to avoid repudiation of the public debt, or confiscation of the people’s property by the levy of sufficient taxes to raise the principal debt due at one time. The levy, assessment, and collection of public taxes does not rest in contract, but it is a tribute exacted of the citizen by the government, and rests alone upon the inherent power of the State to preserve its own existence. Funds can be realized from the sale of bonds only by the free and voluntary consent of the purchaser, while revenues derived from taxation are always in inritum, and the consent of the taxpayer is never inquired into. It is true that funds to pay the principal and interest of the bonds must be -raised by taxation, but this fact does not prove that the two powers are the same; but instead it demonstrates that the power of taxation is merely an incident of the power of pledging the public credit. The public credit ¡involves not alone the ability of the public to pay, because the State can repudiate. It involves equally, and just as valuable and important an element of value, the good faith to perform, and the moral sense to realize, the public obligation to creditors, coupled with a power to freely contract to this end in such way and upon such *489terms as the people may desire. If the power’ to contract with creditors is restricted, the public credit is impaired in precisely the same degree. What State can call ;itS‘eu sovereign, if it is fettered in the preservation- of■ its credit? The power to create a debt necessarily‘involves the power to pay it. . The power to pay includes 'payment upon such terms and in such way as creditor and debtor may agree. This power is not restricted by the mandate that “all property . . . shall be taxed.”
Flowing from the power to contract with creditors, and as a natural result of it, the interest-bearing evidences of the contract will necessarily be property in the hands of taxpayers. It is only by delivering the bonds to purchasers that funds to meet the ' .State’s necessities can be realized. But when they are delivered to purchasers in payment of existing indébtedness, and as a direct result of the power of the sovereign to contract to that end, they are not taxable. They are instru-mentalities of government, arising out of a free and untrammeled exercise of the sovereign power of the people to provide for their necessities, and flowing from that great and inexhaustible source of natural power, absolute in its quantity and quality, and limited alone by self-imposed restraints. That these bonds in the hands of purchasers, issued and paid for, aré not taxable by the terms of their existence, does not make a case Of exemption from taxation in favor of the holder, seems entirely clear to my mind. That the power which is , to issue them and cast them upon the markets is not'tlie taxing power seems entirely clear. Thai; the "fact"that *490they are not taxable is not an exemption in favor of any particular taxpayer, but merely an incident of their creation arising out of the power of the sovereign to issue them seems equally clear.
The distinction sought to be drawn here is recognized by the most eminent authority. This court has previously done so, and in Lynn v. Polk, 8 Lea, 179, it was said, quoted from Mr. Greenleaf:
“An important distinction should be observed between those powers of government which are essential attributes of sovereignty, indispensable to be always preserved in full vigor, such as the power to create revenues for the public purposes, to provide for the common defense, to provide safe and convenient ways for the public necessity and convenience, and to take private property for public uses, and the like, and those powers not thus essential, such as the power to alienate the lands and other property of the State, and to make contracts of service, and of purchase and sale, or the like. Powers of the former class are essential to the constitution of society, as without them no political community can well exist; and necessity requires that they should continue unimpaired.”
It is most significant that the convention should have failed to express any limtations upon the power of the State to issue its bonds, while carefully restraining its power to exempt from taxes. There was a State debt at the time the constitution was adopted, provision for which the convention must have realized would have to be made. The financial condition of the State forbade *491its payment in cash. The convention put definite restrictions upon the taxing power, but made no mention of the power of the State to issue bonds for the funding of its debt. This strengthens the view heretofore stated that the object and purpose which the convention had in mind in adopting section 28 of article 2 were to prevent a continuance of exemptions from taxation as between citizens and taxpayers.
No reason existed then, and none has been suggested now, why this section of the constitution should be considered as referring to the credit and good faith of the State. Nothing in the experience of the people under the previous constitution had occurred to suggest such a limitation upon the exercise of this sovereign power to promote the public welfare.
It can be stated with great emphasis and perfect confidence that no case is cited in the opinion of the majority, and none has been found by counsel, from any jurisdic-i ion of the English-speaking people contrary to the views herein expressed. Berryman v. Trustees, 222 U. S., 334, 32 Sup. Ct., 147, 56 L. Ed., 225, does not support the opinion of the majority, because that involves the power of a territory, which has no sovereignty, and has only such powers as the congress gave. All the cases cited by the majority, except Lynn v. Polk, are cases dealing with attempted exemptions by the legislature in levying assessments and collections of taxes as between citizens. In every one of those cases there was no contention that the validity of the legislative enactment was not controlled by section 28 of article 2 of the constitution. *492General expressions in a number of them, if deemed to be applicable to this case, are' authority against the power of the legislature to forbid the taxation of the proposed bonds. But it is not claimed, as I understand, that any case in which those expressions are used involved the question to be decided here. The* power of a State to so exempt an issue of its bonds has been recog-' nized in every jurisdiction to which my attention has been called, in every case involving this and similar questions. It was expressly recognized in Pullen v. Corporation Commissioners, 152 N. C., 548, 68 S. E., 155; Lumberton Improvement Co. v. Robson Co., 146 N. C., 353, 59 S. E., 1014, and also Newark City Bank v. Assessor, 30 N. J. Law, 13, and numerous other cases.
While it is true that the particular point under consideration in this case was not decided or discussed by the courts in the eases last above cited, it is also true ■that the power of the State to exempt its bonds from taxation was conceded-by the court, and apparently not denied by counsel. Instead of weakening the case, in my view this strengthens it, because it evidences a general consensus of opinion in those jurisdictions that the power exists beyond dispute. The power denied to the State by the opiuion of the májority may some day involve its very power to exist. It denies it the power to go upon the open money markets of the world and compete for money upon equal terms with other sovereign 'States who are not so hampered. It denies to it the pm\r’..ii i h- :i security of equal attractiveness to its own amcjjü mui that of other governments of no better *493credit. It places the State in the ungenerous attitude of asking the public to advance money upon its securities which the State is bound to render unprofitable by enforced taxation. The power to tax is the power to destroy, and to levy a tax upon the face value and interest of the State’s bonds is to that extent a depreciation of their value, and consequently of the State’s credit. I state this, not to indicate a choice of policy, but to show that under the holding of the majority this great State is not a free, sovereign State, but that it has bound its hands, unwittingly as I believe, so that it cannot exercise the power common to all other free governments of preserving its credit.
The time may come when a great financial stress will involve the entire country, during which the necessity of the State to raise more funds in large sums will suddenly arise, and the need of its credit, unimpaired by the limitation here imposed, would be the most pressing. I cannot believe that the framers of the constitution intended, by denying to the legislature the power to discriminate between taxpayers, by granting arbitrary exemptions to some and denying it to others, to thereby curtail its power'to provide in the most effi cient way possible, and in such way as its patriotism and judgment. might suggest, for the preservation of the credit andi good faith of the people of the State.