The authority conferred by the Act of the Legislature of New
York of May 11, 1874, c. 430, p. 547, as amended by the Act of June
2, 1876, c. 446, p. 480, upon purchasers at a foreclosure sale of a
railroad, to organize a corporation to receive and hold the
purchased property creates no contract with the state.
The imposition, under the provisions of the Act of the
Legislature of New York of April 16, 1886, c. 143, of a tax upon a
corporation so organized after the passage of that act by
purchasers who purchased at a foreclosure sale made before its
passage for the privilege of becoming a corporation violates no
contract of the state, and is no violation of the Constitution of
the United States.
This writ of error was brought to review a judgment of the
Supreme Court of the State of New York adopting and entering a
decision of the Court of Appeals of said State in pursuance of a
remittitur therefrom on the ground that it gave effect to and
enforced a law of the State, which, in violation of the
Constitution of the United States, impairs the obligation of a
contract. Whether there was a contract and whether
Page 148 U. S. 398
its obligation has been impaired, as claimed by plaintiffs in
error, are questions which arise and are to be determined upon the
following state of facts. Several railroad corporations, properly
organized under the laws of New York and Pennsylvania, after duly
executing mortgages upon their respective properties and franchises
to secure the payment of bonds lawfully issued by them, were
consolidated under legislative authority from those states into one
company, which was incorporated February 14, 1883, under the name
of the Buffalo, New York and Philadelphia Railroad Company. This
new company, in pursuance of proper authority, also executed a
mortgage upon its properties and franchises to secure the payment
of bonds issued by it. Default was made in the payment of the bonds
issued under and secured by each of these various mortgages, and
foreclosure proceedings were instituted thereon, and the mortgages
duly foreclosed, and the entire property and franchises of all the
companies, constituent and consolidated, were regularly sold under
such foreclosure proceedings and bid in by the plaintiffs in error
as the representatives of the security holders in pursuance of a
scheme of reorganization previously agreed upon. The properties and
franchises so sold and purchased were duly conveyed to the
purchasers September 28, 1887, who thereupon adopted and executed
articles of association under and in conformity with the provisions
of the reorganization acts of the state, c. 430 of the Laws of
1874, as amended by c. 446 of the Laws 1876, and having prepared a
certificate of incorporation, as provided by said acts, setting
forth, among other things not material to be noticed, that they had
associated themselves together as a corporation to be known as the
Western New York and Pennsylvania Railway Company, with a maximum
capital stock of $15,000,000, divided into 150,000 shares, they
presented said certificate to Frederick Cook, Secretary of State,
with the request to file the same in his office, such filing being
required before the parties forming the organization could become a
body corporate. They tendered the Secretary of State at the time of
applying to have the certificate filed, the sum of $45 as the
proper amount
Page 148 U. S. 399
of fees for recording the same. The secretary refused to permit
it to be filed, basing his refusal upon the provision of an act of
the legislature known as chapter 143 of the Laws of 1886, which
provided that any corporation incorporated under any general or
special law of the state, having capital stock divided into shares,
should pay to the state treasurer, for the use of the state, a tax
of one eighth of one percentum upon the amount of capital stock
which the corporation was authorized to have. The act further
provided that
"the said tax shall be due and payable upon the incorporation of
said corporation, or upon the increase of the capital stock
thereof, and no such corporation shall have or exercise any
corporate power until the said tax shall have been paid, and the
Secretary of State and any county clerk shall not file and
certificate of incorporation or association until he is satisfied
that the said tax has been paid to the state treasurer, and no such
company incorporated by any special act of the legislature shall go
into operation or exercise any corporate powers or privileges until
said tax has been paid as aforesaid."
This act took effect immediately upon its passage. When the
plaintiffs in error presented their certificate of incorporation to
the secretary or state for filing, the tax imposed by this act,
amounting to $18,000, had not been paid or tendered to the state
treasurer, and for this reason the secretary refused to file the
certificate. Thereupon the plaintiffs in error applied to the
supreme court of the State of New York at special term for a
peremptory writ of mandamus to compel the Secretary of State to
file said certificate. The petition set out in detail the foregoing
proceedings. In response to the order to show cause why the writ
should not be granted, the Secretary of State made return, stating,
among other objections not material to this case, that the said
Western New York and Pennsylvania Railway Company of New York,
sought to be incorporated as a corporation, had neglected and
refused to pay the incorporation tax imposed by the law of 1886,
and that he could not be required to file the certificate until
said tax had been paid. The special term denied the motion for a
mandamus. From this order the relators appealed to the general term
of
Page 148 U. S. 400
the supreme court, which affirmed the action of the special
term. 47 Hun. 467. The relators then appealed from the decision of
the general term to the Court of Appeals, which affirmed the order
of the former, 110 N.Y. 443, and remitted the cause to the supreme
court of the state, where judgment was entered in conformity with
the decision of the court of appeals.
Page 148 U. S. 404
MR. JUSTICE JACKSON delivered the opinion of the Court.
The present writ of error is prosecuted to review and reverse
this judgment on the ground that the decision of the Court of
Appeals, in enforcing the provisions of the law of 1886 against the
relators, plaintiffs in error, and requiring of them the payment of
one eighth of one percentum upon the amount of the capital stock of
the company sought to be incorporated as a condition precedent to
the filing of the certificate and becoming a body politic and
corporate under the name of the Western New York and Pennsylvania
Railway Company of New York, impaired the obligation of a contract
made and entered into between the state and the several
corporations and mortgagees thereof, to whose rights, properties,
and franchises the plaintiffs in error, under the foreclosure
proceedings aforesaid, had succeeded. Their claim is that, under
and by virtue of the provisions of the Laws of 1874, as amended in
1876, embodying the alleged contract with the state, they are
entitled to be incorporated, and cannot lawfully be required to pay
any tax to the state before becoming a corporation
Page 148 U. S. 405
and acquiring the right to exercise corporate functions and
franchises. The act of 1874, as amended in 1876, is by its caption
entitled "An act to facilitate the reorganization of railroads sold
under mortgage, and to
provide for the formation of new
companies in such cases." The provisions of the statute, so
far as material to this case, are the following:
"In case the railroad and property connected therewith, and the
rights, privileges, and franchises of any corporation, except a
street railroad company, created under the general railroad law of
this state or existing under any special or general act or acts of
the legislature thereof, shall be sold under or pursuant to the
judgment or decree of any court of competent jurisdiction made or
given to execute the provisions or enforce the lien of any deed or
deeds of trust or mortgage theretofore executed by any such
company, the purchasers of such railroad property and franchises,
and such persons as they may associate with themselves, their
grantees or assignees, or a majority of them, may become a body
politic and corporate, and as such may take, hold, and possess the
title and property included in said sale, and shall have all the
franchises, rights, powers, privileges, and immunities which were
possessed before such sale by the corporation whose property shall
have been sold as aforesaid, by and upon filing in the office of
the Secretary of State a certificate, duly executed under their
hands and seals, and acknowledged before an officer authorized to
take an acknowledgment of deeds, in which certificate the said
persons shall describe, by name and reference to the act or acts of
the legislature of this state under which it was organized, the
corporation whose property and franchises they shall have acquired
as aforesaid, and also the court by authority of which such sale
shall have been made, giving the date of the judgment or decree
thereof authorizing or directing the same, together with a brief
description of the property sold, and shall also set forth the
following particulars:"
"1. The name of the new corporation intended to be formed by the
filing of such certificate."
"2. The maximum amount of its capital stock, and the number of
shares into which the same is to be divided, specifying
Page 148 U. S. 406
how much of the same shall be common, and how much preferred,
stock, and the classes thereof, and the rights pertaining to each
class."
"3. The number of directors by whom the affairs of the said new
corporation are to be managed, and the names and residences of the
persons selected to act as directors for the first year after its
organization."
"4. Any plan or agreement which may have been entered into
pursuant to the second section thereof."
"And upon the due execution of such certificate and the filing
of the same in the office of the Secretary of State, the persons
executing such certificate, and who shall have acquired the title
to the property and franchises sold as aforesaid, their associates,
successors, and assigns, shall become and be a body politic and
corporate, by the name specified in such certificate, and shall
become and be vested with and entitled to exercise and enjoy all
the rights, privileges, and franchises which at the time of said
sale belonged to or were vested in the corporation which last owned
the property so sold, or its receiver."
Now it is contended by plaintiffs in error that the state
having, by and under these provisions of law, agreed to give to the
purchasers of railroad properties and franchises acquired under
foreclosure proceedings not merely the right to hold, use, and
operate the same, but also to confer on them the corporate capacity
necessary for that purpose, this latter branch of the contract is
violated when the state thereafter either refuses to confer such
corporate capacity or imposes any condition upon the purchasers'
right to be and to become a body politic and coporate. Upon this
theory, the claim is made that the tax imposed by the law of 1886,
which was held by the state courts to apply to their case and to
the corporation they proposed to form, impaired the obligation of
the contract and was therefore unconstitutional. This claim was
disposed of by the New York Court of Appeals, speaking by Peckham,
J., as follows:
"We think it also plain that under the reorganization acts above
mentioned, when the purchasers at the foreclosure sale
Page 148 U. S. 407
undertake to reorganize under those acts, and for that purpose
to file in the Secretary's office a certificate, upon the filing of
which they become a body politic and corporate, the corporation
thus formed is a new and entirely different one from that whose
property and franchises the purchasers may have bought under the
foreclosure proceedings. It is true that the corporation about to
be formed by the filing of the certificate has, by force of the
statute, when formed, all the rights, franchises, powers,
privileges, and immunities which were possessed before such sale by
the corporation whose property was sold; but that does not make the
corporation the same by any means. The right to be a corporation,
which the old corporation had, was not mortgaged, and was not sold,
and did not pass to the purchasers, and they only obtain such a
right upon filing the certificate mentioned, and they then obtain
it by direct grant from the state, and not in any degree by the
sale and purchase of the franchises, etc., of the old
corporation."
"The last ground argued by counsel is, we think, equally
untenable. There has been no violation of any contract. These
mortgages, it is true, were all executed, and the bonds issued,
long prior to the passage of the tax act of 1886, already
mentioned. The franchises of the corporations were duly mortgaged
under the provisions of state laws by which it was provided that
purchasers at foreclosure sales under such mortgages could, upon
compliance with the law, file certificates and become incorporated
bodies. But such acts were in no sense contracts on the part of the
state with persons purchasing bonds secured by such mortgages or
with future possible purchasers at foreclosure sales that the
provisions existing at the time of the mortgaging of the franchise
for the incorporation of such purchasers should remain the same. I
think this question has been decided in this way by the Supreme
Court of the United States, and further discussion of it is
unnecessary.
Memphis and L.R. Co. v. Commissioners,
112 U. S.
609."
The principles and reasoning in the decision of this Court in
Memphis &c. Railroad v. Commissioners, 112 U.
S. 609,
Page 148 U. S. 408
are directly applicable to the present case. The attempt to
distinguish the two cases necessitates the drawing of distinctions
too refined and theoretical to form the basis of sound judicial
determination. It was said by this Court in that case, (p.
112 U. S.
621):
"In many, if not in most, acts of incorporation, however special
in their nature, there are various provisions which are matters of
general law, and not of contract, and are therefore subject to
modification or repeal. Such, in our opinion, would be the
character of the right in the mortgage bondholders, or the
purchasers at the sale under the mortgage, to organize as a
corporation after acquiring title to the mortgaged property by sale
under the mortgage if, in the charter under consideration, it had
been conferred in express terms and particular provision had been
made as to the mode of procedure to effect the purpose. It would be
matter of law, and not of contract. At least it would be construed
as conferring only a right to organize as a corporation according
to such laws as might be in force at the time when the actual
organization should take place, and subject to such limitations as
they might impose. It cannot, we think, be admitted that a
statutory provision for becoming a corporation in future can become
a contract, in that sense of the clause of the Constitution of the
United States which prohibits state legislation impairing its
obligation, until it has become vested as a right by an actual
organization under it, and then it takes effect as of that date,
and subject to such laws as may then be in force. . . . The state
does not part with the franchise until it passes to the organized
corporation, and when it is thus imparted, it must be what the
government is then authorized to grant and does actually
confer."
It is further said therein that
"the franchise of being a corporation need not be implied as
necessary to secure to the mortgage bondholders, or the purchasers
at a foreclosure sale, the substantial rights intended to be
secured. They acquire the ownership of the railroad, and the
property incident to it, and the franchise of maintaining and
operating it as such, and the corporate existence is not essential
to its use and enjoyment. All the franchises necessary or
important
Page 148 U. S. 409
to the beneficial use of the railroad could as well be exercised
by natural persons."
Page
112 U. S.
619.
But it is urged by plaintiffs in error that, under the decisions
of the highest court of New York, they cannot, as private persons
or as an association, so use, maintain, and operate the railroad
which they have purchased. Without reviewing the New York cases
cited in support of this position, we doubt whether they go to that
extent. But if they so held under any law of the state passed since
the execution of the mortgages under which plaintiffs in error have
succeeded to the properties and franchises of the railroad sold
under foreclosure, as already mentioned,
then the question
would be whether the impairment of the obligation of the contract
would not consist in
denying the purchasers the right to
use the property and franchises so acquired. The fact, if it
exists, that plaintiffs in error are not allowed to operate the
railroad and exercise the franchises purchased without first
obtaining corporate existence in no way shows or tends to establish
their contention that said act of 1874, as amended in 1876,
constituted a contract on the part of the state to confer corporate
capacity upon them without imposing any tax as a prerequisite to
the grant of corporate existence. Again, there is nothing in the
acts of 1874 and 1876 which would or could have exempted the
railroad corporation to whose rights, privileges, and franchises
the plaintiffs in error have succeeded from the payment of taxes
such as the state by its legislation might thereafter impose. If
they were not in fact, they could constitutionally have been made,
subject to the provisions of said act of 1886, and been required to
pay the tax of one-eighth of one percentum upon the amount of their
capital stock. The settled rule of this Court and of the courts of
New York requires that exemption from taxation, so essential to the
existence of government, must be expressed in the clearest and most
unambiguous language, and not be left to implication or inference.
Vicksburg, Shreveport &c. Railroad v. Dennis,
116 U. S. 665;
Chicago, Burlington &c. Railroad v. Guffey,
120 U. S. 569;
Wilmington & Weldon Railroad v. Alsbrook, 146 U.
S. 279,
146 U. S. 294,
and
People v. Davenport, 91 N.Y. 574, 586.
Page 148 U. S. 410
The plaintiffs in error acquired the properties and franchises
of these corporations, which were subject to the taxing power of
the state, after the act of 1886 was passed and went into effect.
There is no provision of the law under which they made their
purchase requiring them to become incorporated, but, desiring
corporate capacity, they demanded the grant of a new charter under
which to exercise the franchises so acquired without compliance
with the law of the state existing at the time their application
for incorporation was made. We are clearly of the opinion that the
act of 1874, as amended in 1876, set up and relied upon by them,
does not sustain such a claim. The provisions of that act do not
constitute a contract on the part of the state with either the
corporations or the mortgagees, bondholders, or purchasers at
foreclosure sale. They are merely matters of law, instead of
contract, and the right therein conferred upon purchasers of the
corporate properties and franchises sold under foreclosure of
mortgages thereon to reorganize and become a
new
corporation is subject to the laws of the state existing or in
force at the time of such reorganization and the grant of a new
charter of incorporation.
Memphis &c, Railroad Co. v.
Commissioners, supra.
There is another difficulty in the way of sustaining the claim
of the plaintiffs in error in this case. The Constitution of New
York, providing for the formation of corporations under general
laws, reserves to the state the power to alter, change, or repeal
all such general laws. The Revised Statutes of the state, c. 18,
title 3, sec. 8, vol. 3, 8th ed., p. 1724 provides that "the
charter of every corporation that shall be granted by the
legislature shall be subject to alteration, suspension, or repeal
in the discretion of the legislature," and by the General Railroad
Law of New York, c. 140, § 48, Laws of 1850, it is provided
that
"the legislature may at any time annul or dissolve any
corporation formed under this act, but such dissolution shall not
take away or impair any remedy given against such corporation, its
stockholders or officers, for any liability which shall have been
previously incurred."
In the case of
People v. O'Brien, 111 N.Y. 1, cited by
counsel for the plaintiffs in error, while the court held that
it
Page 148 U. S. 411
was not within the power of the legislature to destroy the
property rights of a corporation, it was not questioned that the
legislature could destroy the existence of the corporation.
In the still later case of
Mayor, etc. of the City of New
York v. Twenty-Third Street R. Co., 113 N.Y. 311, it was
directly held that the right reserved to the legislature to alter
or repeal the charter of a corporation included the right to tax a
corporation upon its franchises as such, instead of exacting
license fees, as before prescribed. Earl, J., speaking for the
court there, said:
"As it [the legislature] has the power utterly to deprive the
corporation of its franchise to be a corporation, it may prescribe
the conditions and terms upon which it may live and exercise such
franchises. It may enlarge or limit its powers, and it may increase
or limit its burdens."
This construction of the statutes of the state by its highest
court is of controlling authority.
Bucher v. Cheshire
Railroad, 125 U. S. 555;
Gormley v. Clark, 134 U. S. 338, and
Stutsman County v. Wallace, 142 U.
S. 293. The right being thus reserved to the
legislature, under the power to alter or repeal the charter of
corporation, not only to terminate their existence but to impose
upon them increased burdens, it cannot be properly asserted that
the act of 1886, imposing the tax complained of, was
unconstitutional, even though the act of 1874 created a contract
with corporations and their mortgagees, to whose right, properties,
and franchises plaintiffs in error have succeeded. The
corporations, mortgagees, and bondholders under such circumstances
acquire their rights subject to the reserved power of the
legislature to enlarge or diminish the franchises conferred and to
increase or reduce the burdens thereon. Purchasers succeeding to
properties and franchises of corporations thus situated cannot
occupy any better position in respect to their application for a
new charter of incorporation.
In
Hamilton Gas Light Co. v. Hamilton City,
146 U. S. 258,
146 U. S. 270,
it was said by this Court that
"a legislative grant to a corporation of special privileges, if
not forbidden by the Constitution, may be a contract; but where one
of the conditions of the grant is that the legislature may, alter
or revoke it, a
Page 148 U. S. 412
law altering or revoking, or which has the effect to alter or
revoke, the exclusive character of such privileges cannot be
regarded as one impairing the obligation of the contract. . . . The
corporation, by accepting the grant subject to the legislative
power so reserved by the Constitution, must be held to have
assented to such reservation,"
citing in support of those views
Greenwood v. Freight
Co., 105 U. S. 13,
105 U. S. 17.
This principle should be especially maintained and applied in cases
like the present, where the taxing power of the state is
involved.
We do not deem it necessary to consider other points made in the
briefs of counsel. They are of minor importance, and do not affect
or control the principal question presented. Our conclusion is that
there is no error in the judgment complained of, and that the same
should be
Affirmed.
