A railroad company exempted by the legislature of a state from
taxation accepted bonds for large sums of money from the state by
way of loan, the statute which authorized the transaction declaring
that the acceptance by the company of the bonds should operate as
"a mortgage of the
road of the company and every part and
section thereof, and its
appurtenances," and that if the
company did not provide for the payment of the bonds, it should be
lawful for the governor to sell "their road and its
appurtenances" at auction to the highest bidder or to buy
in the same subject to such disposition, in respect to
such
road or its proceeds, as the legislature might thereafter
direct.
Subsequently to this, the state made for itself a new
constitution, provisions of which were in these words
"No property, real or personal, shall be exempt from taxation
except such as may be used exclusively for public schools and such
as may belong to the United States, to this state, to counties, or
to municipal corporations within this state."
"The General Assembly shall not pass special laws . . .
exempting any property of any named person or corporation from
taxation."
At the same time, it adopted in a separate form "An ordinance
for the payment of state and railroad indebtedness," which was to
"have full force and effect as a part of the constitution," which
ordinance, after
Page 85 U. S. 392
referring to the particular railroad company now under
consideration and then in default, and to some other railroad
companies, ordained that
"The General Assembly shall provide by law for the sale of the
railroad and other property, and the
franchises of the
company that shall be in default under the lien reserved to the
state."
And ordained further that
"Whenever the state shall become the purchaser of any railroad
or other property or the
franchises sold as hereinbefore
provided for, the General Assembly
shall provide by law in
what manner the same shall be sold."
It added that no sale should be made "without reserving a lien
upon all the property and franchises thus sold."
Subsequently to this the governor took the opinion of the judges
of the supreme court of his state (as its constitution authorized
him to do) upon the meaning of parts of this ordinance, but not
specially upon the relations of any of them to the provision
already quoted of the constitution, and the judges returned for
answer, among other things, that no sale could be made by the state
without reserving a lien, but that "the legislature was left
unrestricted further as to the time,
terms, and conditions of
sale."
The legislature after this passed a law to foreclose the state
lien, the law enacting that if the state should buy the road in and
afterwards sell it, the persons purchasing should have all the
rights, franchises, privileges, and immunities which were enjoyed
by the companies for whose default the road was sold. The road was
sold, the state purchased it in, and afterwards sold it to certain
persons, the vendees of whom organized themselves, as the laws of
the state allowed them to do, into a new corporation. A collector
of state and county taxes having sought to enforce the payment of
state and county taxes from this new corporation, which preserved
the name of the old one, a stockholder in the new one filed a bill
to enjoin him.
Held:
1st. That when the state became the purchaser of the railroad
and its appurtenances and held them, the immunity from taxation
previously granted ceased of necessity, the property belonging now
to the state.
2d. That the ordinance did not mean to say that the legislature
might provide for the sale in any manner which the new constitution
forbade.
3d. That the new constitution forbade the renewal of an
exemption from taxation as much as it did the creation of one in an
original form.
Appeal from the Circuit Court for the District of Missouri, in
which court Trask filed a bill against Maguire, collector of state
and county taxes at St. Louis, to restrain him from collecting
taxes upon the property of the St. Louis & Iron Mountain
Railroad Company, a corporation organized in the State of Missouri,
July 26, 1867, and to have the property of the said company decreed
exempt from liability to such taxes.
Page 85 U. S. 393
The case was this:
A general corporation law of Missouri, in force in 1845, thus
ordained: [
Footnote 1]
"The charter of every corporation that shall hereafter be
granted by the legislature shall be subject to alteration,
suspension, and repeal at the discretion of the legislature."
This provision of general law being in force, the Legislature of
Missouri, on the 3d of March, 1851, passed "An act to incorporate
the St. Louis & Iron Mountain Railroad Company." The capital
stock of the company was $6,000,000, and it was enacted that:
"The
stock of said company shall be exempt from all
state and county taxes."
On the 17th of February, 1853, it was enacted that the railroad
above mentioned as having been incorporated should be exempted from
the provisions of the general corporation law already quoted. The
statute further enacted:
"All the engines, cars, wagons, machines and other property
belonging to said company shall be deemed a part of the capital
stock of the company and shall be vested in the respective
shareholders of the company forever
according to their
respective shares, and transferable by them in the transfer of
stock, as personal property."
Subsequently to this, and to aid it in making the road, the
State of Missouri lent to the company (in the shape of bonds, the
principal and interest of which the company agreed to pay) a large
sum of money. The act authorizing the transaction enacted that none
of the bonds should be delivered to the company until it filed in
the office of the secretary of state certificates of acceptance of
them, executed under the corporate seal &c. The act then
proceeded:
"SECTION 4. Each certificate of acceptance so executed and filed
as aforesaid, shall be recorded in the said office of the secretary
to state, and shall thereupon become and be, to all intents
Page 85 U. S. 394
and purposes, a
mortgage of the road of the company
executing and filing their acceptance, as aforesaid,
and every
part and section thereof, and its appurtenances, to the people
of this state for securing the payment of the principal and
interest of the sums of money for which such bonds shall from time
to time be issued and accepted."
"SECTION 11. In case the said companies or either of them shall
make default in the payment of either interest or principal of the
said bonds . . . it shall be lawful for the governor to sell their
road and its appurtenances by auction to the highest
bidder or to buy in the same at such sale for the use and benefit
of the state, subject to such disposition in respect to such road
or its proceeds as the legislature may thereafter direct."
On the 4th of July, 1865, the State of Missouri adopted a new
constitution of government. It contained the following
provisions:
"No property, real or personal, shall be exempt from taxation
except such as may be used exclusively for public schools and such
as may belong to the United States, to this state, to counties, or
to municipal corporations within the state."
"The General Assembly shall not pass any special laws . . .
exempting the property of any named person or corporation from
taxation."
At the same time that it adopted this new constitution, it
adopted, in the separate form of AN ORDINANCE, entitled "An
ordinance for the payment of state and railroad indebtedness,"
certain provisions which were to have "full force and effect as a
part of the constitution of the state."
The ordinance was thus:
"SECTION 1. There shall be levied and collected from the Pacific
Railroad, the North Missouri Railroad Company, and the
St.
Louis & Iron Mountain Railroad Company an annual tax of 10
percentum of all their gross receipts for the transportation of
freight and passengers . . . from the 1st of October, 1866, to the
1st October, 1868, and 15 percentum thereafter, which tax shall be
appropriated by the General Assembly to the payment of the
principal and interest now due, or hereafter to become due, upon
the bonds of the state, and the bonds guaranteed by the state,
issued to the aforesaid railroad companies. "
Page 85 U. S. 395
"SECTION 3. The tax in this ordinance specified shall be
collected from each company hereinbefore named only for the payment
of the principal and interest on the bonds, for the payment of
which such company shall be liable, and whenever such bonds and
interest shall have been fully paid, no further tax shall be
collected from such company."
"SECTION 4. Should either of said companies refuse or neglect to
pay said tax as herein required, and the interest or principal of
any of said bonds, or any part thereof, remain due and unpaid,
the General Assembly shall provide by law for the sale of
the railroad and other property,
and the franchises of the
company that shall be thus in default,
under the lien
reserved to the state, and shall appropriate the proceeds of
such sale to the payment of the amount remaining due and unpaid
from said company."
"SECTION 5. Whenever the state shall become the purchaser of any
railroad or other property
or the franchises sold as
hereinbefore provided for,
the General Assembly shall provide
by law in what manner the same shall be sold for the payment
of the indebtedness of the railroad company in default; but no
railroad or other property, or
franchises purchased by the
state shall be restored to any such company until it shall have
first paid . . . all interest due from said company, and no sale or
other disposition of any such railroad or other property
or
their franchises shall be made without reserving a lien upon
all the property and franchises thus sold or disposed of for all
sums remaining unpaid, and all payments therefor shall be made in
money or in bonds or other obligations of this state."
On the 1st of November, 1865 -- soon after the adoption of the
new constitution and of this ordinance -- the General Assembly met
and bills were introduced providing for the sale of several
railroads, including the St. Louis & Iron Mountain, then in
default on its obligations. Pending these bills, questions as to
the effect of the ordinance arose in the mind of the governor, and
on the 27th of the same month of November he propounded to the
judges of the supreme court, as it was his right to do under the
Constitution of Missouri, certain interrogatories as to the
operation of the ordinance, and among the rest one as follows:
"If you are of opinion that the sale of the railroads may be
Page 85 U. S. 396
ordered before such refusal or neglect, I request you to say
whether such sale can be made 'without reserving a lien upon all
the property and franchises thus sold for all sums remaining
unpaid,' as provided by section five of the ordinance. In other
words, does this clause in the ordinance constitute a condition of
all sales of railroads ordered by the state, or does it
refer only to sales made under the ordinance for refusal or neglect
to pay the tax? [
Footnote
2]"
To these questions the judges replied. In the course of their
reply, they say that one of the things provided for by the
ordinance is a tax to pay the debts of the railroad companies to
the state, and another thing provided for is, "in what manner
railroads purchased by the state under her lien shall be sold
again;" that "the fifth section relates to all sales of railroads
under liens reserved to the state," whether sold for the nonpayment
of the tax or for the nonpayment of the mortgage debt. "The fifth
section," said the judges,
"provides further that no sale or other disposition of any such
railroad or other property,
or their franchises, shall be
made by the state without reserving a lien upon the property sold
for all sums remaining unpaid -- that is to say by the purchaser --
and the purchaser is required to make all payments therefor in
money or in bonds or other obligations of this state, but the
legislature is left
unrestricted further as to the time,
terms, and conditions of sale."
After this -- that is to say on the 16th of February, 1866 --
the legislature passed an act "to foreclose the state lien and to
secure the early completion of the road."
By the act it was made the duty of the governor to advertise for
sale the different roads in default, "their appurtenances, rolling
stock, and property of every description,
and all rights and
franchises." A board of commissioners was to attend the sale,
and on a contingency named, purchase for the state. The
commissioners, in case the state should purchase, were to give
notice of their authority to sell and to invite proposals to
purchase. The governor, on a sale's
Page 85 U. S. 397
being made by the commissioners, was to make a deed to the
purchaser, which, it was provided, should have
"the effect to convey, transfer, and make over to the purchaser
said road and
all of the franchises, privileges and
rights, title and interests appertaining to the road."
And the act further provided, that the purchaser should acquire
by his purchase "all the rights, franchises, privileges, and
immunities which were had and enjoyed by" the original
corporation "under the charter and the laws amendatory
thereof."
One month after the passage of the act just quoted, and pending
proceedings thereunder for the sale of the road, another act was
passed, approved March 20, 1866, entitled,
"An act authorizing the incorporation of the purchaser or
purchasers of any railroad, or of any part, section, or branch
thereof, which has heretofore or may hereafter become forfeited to
and sold by the state."
That act enacted thus:
"SECTION 4. Each corporation provided under this act shall have
the same power, franchises, right, and privileges, and be subject
to the same liabilities and restrictions as the corporation to
which it shall become the successor may have had by its original
charter, and the amendments thereto, into and over the property and
franchises forfeited and sold aforesaid."
At the sale, which the governor advertised, the state bought the
railroad and its appurtenances in, and the commissioners sold it to
three persons, who afterwards sold it to one Allen. Allen availing
himself of the privileges of the last above-quoted act, organized
himself and certain other persons, including Trask, already named
as the complainant below, into a new corporation having the name of
the old one.
Hereupon the defendant, Maguire, a collector, as already said,
of state and county taxes in Missouri, having sought to levy
certain state and county taxes on this new corporation, Trask filed
a bill in the court below to enjoin him, and that court dismissed
the bill. Trask now appealed from that decree.
Page 85 U. S. 401
MR. JUSTICE FIELD delivered the opinion of the Court.
The question presented for our determination in this case is
whether the property of the present St. Louis & Iron Mountain
Railroad Company, a corporation created under the laws of Missouri,
is, by an irrepealable legislative grant, forever exempted from all
state and county taxes. Two corporations bearing that name have
existed in Missouri, the second succeeding the first in the
possession and ownership of its road and property. The first was
created by an act of the legislature of the state passed in March,
1851; the second was formed in July, 1867, under an act of the
previous year authorizing the incorporation of the purchaser or
purchasers of any railroad, or any part, section, or branch
thereof, which had previously been, or might thereafter be,
forfeited to or sold by the state.
The property of the first corporation was undoubtedly exempt
from state and county taxes. The act of incorporation adopted as
part of it a provision of another act which declared in terms that
the stock of the company should be thus
Page 85 U. S. 402
exempt. [
Footnote 3] It is
true that at this time a statute was in existence, passed in 1845,
which declared that the charter of every corporation subsequently
granted should be subject to alteration, suspension, and repeal at
the discretion of the legislature. But from the operation of this
provision the company was expressly exempted by an act amendatory
of its charter, passed in 1853. [
Footnote 4] From that time at least, the exemption of its
stock from state and county taxation was placed beyond legislative
interference. The amendatory act also declared that all the
engines, cars, wagons, machines, and other property belonging to
the company should be deemed a part of its capital stock and be
vested in its respective shareholders according to their respective
shares. All the property of the company was thus placed within the
exemption which attached to the original stock; that designated was
to be deemed a part of such stock, as well as that originally
embraced by this term.
On the argument some attempt was made, from the use of the term
stock in the original act and the language of the
amendatory act, that the property should be vested in the
respective shareholders according to their respective shares, to
establish the position that the exemption extended only to the
separate shares of the individual stockholders. But the argument
does not strike us as possessing much force. The terms "stock of
the company" imported the capital stock of such company, the
subscribed fund which the company held, as distinguished from the
separate interests of the individual stockholders. The language of
the amendatory act did not qualify this meaning; that only declared
that other property of the company should also be deemed capital
stock, and the additional provision that it should be vested in the
respective shareholders according to their respective shares only
meant that they should have the interest of shareholders in the
property, according to their respective shares.
The corporation in question was created to construct a
Page 85 U. S. 403
railroad from a point in the City of St. Louis to the Iron
Mountain and Pilot Knob, in Missouri, with liberty to extend the
road to the Mississippi River or to the southern part of the state.
This road was constructed from St. Louis to Pilot Knob, a distance
of about eighty-seven miles, with a branch to Potosi. During the
progress of the work and in order to aid in its construction, the
legislature of the state, previous to 1860, passed various acts
providing for the loan of the bonds of the state to the company.
All the acts referred for the terms of the loans to an act passed
in 1851 to expedite the construction of the Pacific Railroad and of
the Hannibal & St. Joseph Railroad. [
Footnote 5] That act provided that no part of the bonds
should be delivered to the company until it signified its
acceptance of them to the secretary of state by filing in his
office a certificate of such acceptance under the corporate seal of
the company and the signature of its president; that such
acceptance should be recorded, and upon its record should become to
all intents and purposes a mortgage of the road of the company, and
every part and section thereof and its appurtenances to the people
of the state to secure the payment of the principal and interest of
the bonds. That act authorized the governor, in case default was
made in the payment of either the interest or principal of the
bonds, to sell the road and its appurtenances at auction to the
highest bidder or to buy in the same at such sale for the use and
benefit of the state, subject to such disposition in respect to the
road or its proceeds as the legislature might thereafter
direct.
Under the different acts, bonds of the state to a large amount
were issued to the company; its acceptance of them in proper form
was given to the secretary of state, and the acceptance was duly
recorded, and from the date of such record, the state acquired, for
the payment of the principal and interest of the bonds, a lien upon
the road and every part and section thereof and its
appurtenances.
The company failed to pay the interest on these bonds.
Page 85 U. S. 404
It does not appear for how long a period the company was thus in
default, nor is this material. It is sufficient to say that in
1865, the right of the state, under the provisions of the acts
cited, to interfere and sell the property had become complete.
Before a sale, however, was made, the legislature passed another
act for the sale of this and other railroads by the governor and
the foreclosure of the state lien thereon. This act, which was
approved in February, 1866, among other things required the
governor to advertise for sale the different railroads, with their
appurtenances, rolling stock, and property of every description,
and all rights and franchises thereto belonging, and to sell the
same at auction to the highest bidder in pursuance of the several
acts creating a lien thereon. It also provided for the appointment
of three commissioners to attend the sale of the different roads as
advertised, and to bid in the same for the use and benefit of the
state for an amount not exceeding the respective liens thereon; and
in case the roads were struck off and sold to them, to take
possession of and hold the same, with their appurtenances and
property, and again, after due advertisement, inviting proposals
for the purchase of the different roads, their lands,
appurtenances, and franchises, to resell the same. Under this act,
the St. Louis & Iron Mountain Railroad was advertised for sale,
with its rights and privileges, and at the sale was bid in by the
commissioners for the state. However broad the terms of the
advertisement, the interest sold could not extend beyond the
property upon which the state at the time held a lien, and this was
the entire road of the company and its appurtenances. But as the
property was sold to the state, it is unnecessary to determine
whether, if the sale had been made to a third party, the immunity
from taxation possessed by the company would have passed to the
purchaser. When the state became the purchaser, the immunity
ceased; the property stood in its hands precisely the same as any
other unencumbered property of the state, exempt from taxation not
by virtue of any previous stipulation with the company, but as all
property of the state is thus exempt. Subsequently the road and
its
Page 85 U. S. 405
appurtenances, and all the franchises, which, under the new
Constitution of Missouri, adopted in 1865, were transferable by the
state were sold by the commissioners to McKay, Vogel, and Simmons,
who conveyed the same to Thomas Allen, who with others, in July,
1867, became incorporated under the name of the St. Louis &
Iron Mountain Railroad Company. That company is still in existence
and is one of the defendants herein. To it Allen transferred all
the rights and privileges acquired by him from his vendors, and all
which they acquired from the state. The act under which the sale
was made provided that the purchasers of the road should have all
the rights, franchises, privileges, and immunities which were
enjoyed by the defaulting company under its charter and laws
amendatory thereof, subject to the limitations and conditions
therein contained, and not inconsistent with the act authorizing
the sale. The new company thus acquired all the immunity from
taxation which the original company had possessed, if it were
competent for the legislature at the time, under the new
constitution, to confer this privilege. The question therefore is
whether the legislature was competent to grant the immunity
claimed, under that constitution, which went into operation on the
4th of July, 1865, previous to the passage of any of the acts
authorizing the proceedings under which the new company acquired
its rights.
The sixteenth section of the eleventh article of that instrument
provides that
"No property, real or personal, shall be exempt from taxation
except such as may be used exclusively for public schools and such
as may belong to the United States, to this state, to counties, or
to municipal corporations within this state,"
and the twenty-seventh section of the fourth article declares
that
"The General Assembly shall not pass special laws . . .
exempting any property of any named person or corporation from
taxation."
These provisions require no explanation; they are absolute
prohibitions against the grant of any new immunity from taxation,
unless railroad companies of the state existing at the time are
excepted from their operation. Such
Page 85 U. S. 406
exception is claimed under the "ordinance for the payment of
state and railroad indebtedness," which accompanied the
constitution and was adopted with it. That ordinance first provides
for the levy and collection from different railroads, and among
others from the St. Louis & Iron Mountain Railroad Company, an
annual tax of ten percent on all their gross receipts for the
transportation of freight or passengers (not including amounts
received from and taxes paid to the United States) from the 1st of
October, 1866, to the 1st of October, 1868, and fifteen percent
thereafter, and then enacts that the tax shall be collected from
the companies only for the payment of the principal and interest on
the bonds of the state issued for their benefit, or on bonds
guaranteed by the state; that if any of the companies refuse or
neglect to pay the tax thus required, and the principal or interest
of any of the bonds, or any part thereof, remain due and unpaid,
the General Assembly shall provide by law for the sale of the
railroad and other property and the franchises of such company
under the lien reserved to the state; and that whenever the state
becomes the purchaser of any railroad or other property or the
franchises thus sold, the General Assembly shall provide by law in
what manner the same shall be sold for the payment of the
indebtedness of the company; that no railroad or other property or
franchises purchased by the state shall be restored to the
defaulting company until it shall have first paid the interest due
from it, and that no sale or other disposition of any such railroad
or other property, or its franchises, shall be made without
reserving a lien upon the property and franchises thus sold or
disposed of for all sums remaining unpaid.
Now the argument of the appellants is that as the ordinance
authorizes the legislature to provide for the sale of the
franchises of a defaulting corporation, it can transfer under that
designation immunity from taxation, if the company ever possessed
such immunity, and that this was the effect of the sale of the St.
Louis & Iron Mountain railroad and its franchises to McKay,
Vogel, and Simmons.
Page 85 U. S. 407
And authority for this position is supposed to be found in the
answers given by the judges of the Supreme Court of Missouri in
November, 1865, to certain questions propounded by the governor
under a provision of the constitution authorizing him to take their
opinion on important questions of constitutional law. The questions
propounded were substantially these:
1st. Whether the provisions of the ordinance operated to suspend
the right of the state to sell the roads named, or either of them,
until there was a refusal or neglect to pay the tax imposed by the
ordinance, or whether the state might order the sale of the
railroads or either of them prior to such refusal or neglect;
2d. If the judges were of opinion that a sale of the railroads
might be ordered before such refusal or neglect, whether such sale
could be made "without reserving a lien upon all the property and
franchises thus sold for all sums remaining unpaid," or, in other
words, whether this clause constituted a condition of all sales of
railroads ordered by the state, or referred only to sales made
under the ordinance for refusal and neglect to pay the tax.
3d. If the judges should be of opinion that all sales of
railroads by authority of the state were subject to the restriction
mentioned, whether the words "all sums remaining unpaid" referred
to the sums for which the railroad sold was in default, or to that
portion of the purchase money not paid in cash at the time of sale,
and,
4th. Whether upon a sale of a railroad under a lien of the state
the constitution authorized the state to receive, in payment of the
purchase money, preferred or other shares of stock issued by a
corporation purchasing the road.
None of these questions, as will be perceived, calls for any
opinion as to the effect of the sale of the franchises of a road or
the meaning of that term. They call only for an opinion upon the
power of the legislature to order a sale of the roads, the liens to
be reserved, the payments to be made, and the right to receive
shares of stock of a purchasing corporation. The answer of the
judges stated that the fifth
Page 85 U. S. 408
section of the ordinance related to all sales of railroads,
whether in default for not paying the interest on the bonds of the
state or not paying the tax levied; that when the state had become
the purchaser of any railroad sold under the lien of the state, the
General Assembly could provide in what manner such railroad could
again be sold for the payment of the indebtedness which the state
had incurred on account of bonds loaned to it or guaranteed for its
benefit; that it would have had this power without the aid of the
ordinance, but that no sale or other disposition of any such
railroad or other property could be made by the state without
reserving a lien upon the property sold for all sums remaining
unpaid, and that the purchaser was required to make all payments
therefor in money or in bonds or other obligations of the state,
and then adds that the "legislature is left unrestricted further as
to the time, terms, and conditions of the sale." This language is
supposed to determine that in the sale of such property the
legislature is not bound by the provisions of the constitution we
have cited.
But we do not think the language used justifies any such
conclusion, but was rather intended to indicate that the ordinance
imposes no other restrictions than those designated, and has no
reference whatever to the clauses of the constitution in respect to
which no opinion was asked.
It seems to us that the plain meaning of the ordinance, when it
says that the General Assembly shall provide by law in what manner
the railroad and its franchises shall be sold, is that they shall
be sold in conformity with such law as the legislature may
constitutionally pass, not in conformity with any law which the
legislature could devise if it had unlimited discretion in the
matter. It would conflict with well settled rules of construction
to hold that the language used authorizes any legislation,
regardless of the provisions of the constitution. And there is
nothing in the authority conferred to provide for the sale of its
franchises with the road of the defaulting company, which requires
immunity from taxation to be embraced within them. The language
Page 85 U. S. 409
evidently refers to such franchises as are essential to the
operation of the road sold, without which the ownership of the road
would be comparatively valueless, such as the franchise to run
cars, to take tolls, and the like.
But if we are mistaken in this particular, we are clear that it
never was intended by the ordinance to sanction, by the sale of the
franchises of a defaulting corporation, the renewal of an exemption
which had once ceased to exist and which the constitution had
declared should never thereafter be created. The inhibition of the
constitution applies in all its force against the renewal of an
exemption equally as against its original creation, and this
inhibition the legislature could not disregard in providing for the
sale of the property which it had purchased.
Judgment affirmed.
[
Footnote 1]
Revised Statutes of Missouri, 1845, p. 232.
[
Footnote 2]
Advisory Constitutional Opinions, 37 Mo. 129.
[
Footnote 3]
Laws of Missouri of 1851, p. 479.
[
Footnote 4]
Ib., 1853, p. 296.
[
Footnote 5]
Laws of Missouri of 1851, p. 267.
