Mercantile Trust Co. v. Texas & P. Ry. Co.

• Decision Date: 23 August 1892
• Docket Number: 186-190.
• Citation: 51 F. 529
• Court: U.S. District Court — Western District of Texas
• Parties: MERCANTILE TRUST CO. v. TEXAS & P. RY. CO. et al. FARMERS' LOAN & TRUST CO. v. INTERNATIONAL & G.N.R. CO. et al. MERCANTILE TRUST CO. v. ST. LOUIS S.W. RY. CO. OF TEXAS et al. SAME v. TYLER S.E. RY. CO. OF TEXAS et al. FARMERS' LOAN & TRUST CO. v. GULF, C. & S.F. RY. CO. et al.

51 F. 529

MERCANTILE TRUST CO. v. TEXAS & P. RY. CO. et al. FARMERS' LOAN & TRUST CO. v. INTERNATIONAL & G.N.R. CO. et al. MERCANTILE TRUST CO. v. ST. LOUIS S.W. RY. CO. OF TEXAS et al. SAME v. TYLER S.E. RY. CO. OF TEXAS et al. FARMERS' LOAN & TRUST CO. v. GULF, C. & S.F. RY. CO. et al.

Nos. 186-190.

United States Circuit Court, W.D. Texas.

August 23, 1892

John F Dillon, E. B. Kruttschnitt, H. B. Turner, and John J. McCook for complainants.

W. S Pierce, J. W. Terry, Alex. G. Cochran, W. W. Perkins, and R S. Lovett, for defendant railway companies.

C. A. Culberson, Atty. Gen., T. J. Brown, and Hy. C. Coke, for railroad commission of Texas.

McCORMICK Circuit Judge.

A glance at the public history of railroad interests in Texas will help us to see the true state of the issues joined in these suits. With some trifling exceptions near the gulf coast, Texas has no navigable waters. The need of railroads was therefore early felt. When, by the compromise of her claims to the Santa Fe territory, she received a fund which she dedicated to the support of the public free schools, she adopted the policy of loaning this fund to aid in the construction of railroads, taking a first mortgage lien. She also passed a general law extending donations of land to aid and encourage these necessary highways. And February 7, 1854, she passed a general law providing, among other things:

'It shall be lawful for the legislature at any time to prescribe rates to be charged for the transportation of persons and property upon any such road, should they be deemed too high, and may exercise the same power every ten years: provided, that no reduction shall be made unless the net profits of the company for the previous ten years, the expenditures of the company being bona fide, and not with a view to defeat the operation of this section, shall amount to a sum equal to 12 per cent. per annum upon its capital stock, and then so as not to reduce the future probable profit below the said per centum.'

These enterprises were in a measure suspended during the civil war, but immediately on its close the people of Texas in the constitution adopted in 1866 ordained that--

'A well-regulated system of internal improvement is calculated to develop the resources of the state, and promote the happiness and prosperity of her citizens. Therefore the legislature shall have power and it shall be its duty to encourage the same, and the legislature shall have power to guaranty the bonds of railroad companies to any amount, not exceeding in any case the sum of $15,000 per mile.'

Operation under this constitution was suspended by the passage of the reconstruction measures in 1867, and the constitution itself was superseded by the new constitution, which went into full effect March 30, 1870. The provision quoted from the constitution of 1866 was not retained in the new constitution. Touching this subject it provides, in article 10, Sec. 5:

'All public lands heretofore reserved for the benefit of railroads, or railway companies, shall hereafter be subject to location and survey by any genuine land certificates.'

Section 6:

'The legislature shall not hereafter grant lands to any person or persons, nor shall any certificate of land be sold at the land office, except to actual settlers upon the same, and in lots not exceeding 160 acres.' This was speedily amended so as to authorize the legislature to make grants of land for purposes of internal improvements, not to exceed 20 sections of land for each mile of completed work, in aid of the construction of which land may be granted. Until the 15th of August, 1876, there was in Texas no general law providing for the organization of railroad corporations, and up to that time such corporations could only be created by an act of the legislature.

Upon the complete restoration of our federal relations in 1870, many active individual and associated promoters of railroad enterprises pressed their projects on the legislature. The field was new and large, and many grants were obtained, some of which were afterwards deemed improvident. In 1871 a general act was passed to authorize counties, cities, and towns to aid in the construction of railroads and other works of internal improvement, and the same or like active promoters as those who had solicited the legislature secured donations, loans, or subscriptions to stock to their various projects from many counties, cities, and towns, as well as the bonds of the railroads themselves, were negotiable, and came to be held largely by citizens of other states, or by aliens; and, default being made in the payment of interest, much litigation arose thereon, and more was imminent in the circuit courts of the United States. Several of the western states had preceded us in this career of progress, and the bitter controversy, which had ripened into what are popularly called the 'Granger Cases,' was raging, and had not been settled by the supreme court when the Texas constitutional convention-- the third in nine years-- met, in 1875.

The constitution then framed, and which, having been adopted, went into effect April 18, 1876, embraced this provision:

'The legislature shall pass laws to correct abuses and prevent unjust discrimination and extortion in the rates of freight and passenger tariffs on the different railroads in this state, and shall, from time to time, pass laws establishing reasonable maximum rates of charges for the transportation of passengers and freight on said railroads, and enforce all such laws by adequate penalties.'

In obedience to which the legislature did pass laws establishing maximum rates of charge for transportation of passengers and freight on railroads, and providing that any railroad charging or receiving a greater rate shall forfeit and pay to the party injured thereby a penalty of $500, to be recovered before any court having jurisdiction of the amount, in any county through or into which the passenger or freight may have been transported; which laws are still in force. Several parallel and competing lines of railroad were constructed through the state from south to north and from east to west, with many branches and dependent or independent connecting lines. These all encountered the pecuniary embarrassments incident to the construction and operation of new roads across an undeveloped territory, and nearly all of them at one time or another, and some of them more than once, had to submit to a process of reorganization through the courts. From the very nature of the case and the state of the parties, resort was usually had to the United States courts. Receivers were appointed to hold and operate the properties pending the progress of the chancery proceedings; earnings, beyond necessary operating expenses, were concentrated upon much-needed repairs and betterments; and for this purpose, to some extent, earnings were anticipated, and even the corpus of the property charged by the issuance of receiver's certificates. On the leading lines the service was conspicuously improved. The bondholder was getting no interest. He was either an alien or was a citizen of another state. Traffic increased. Some roads completed their reorganization, and began to pay interest on their bonds.

Railroad operations began to affect, more or less directly, every place and every person in the state. Systems of connecting lines were developed. Schedules were observed. The number of officers and employes came to attract attention. Many claims for damages for personal injuries or other causes were made against the roads, which were not allowed, and resort was had to the law courts. There was no law prohibiting champerty in this state, (Bentinck v. Franklin, 38 Tex. 458,) and the rule in suits for damages against railroads was that the attorney for the plaintiff had only a contingent fee, generally a half interest, in the amount he could recover; and in such trials before juries in all the domestic trial courts the argument of counsel assumed that tone of eloquent accusation reasonably to be expected from such conditions. The volume of accusation soon swelled beyond the jury box and the chambers of the courts, and patriotic and ambitious eloquence began to fire the popular heart with its fierce philippics against the greed of associated wealth and of corporate power. The other side was not idle or silent; the contest between the adversary parties waxed warm. The legislature was their Chaeronea, where the fight was furious. The legislature appeared to be unequal to the emergency. Congress had established the interstate commission. A dozen or more states had established state commissions. The call here was for a commission. One most eminent lawyer, who commanded universal respect, who had, at a venerable age, retired to a chair in the law school of the state university, doubted the power of the legislature, under our existing constitution, to establish such a commission. Yielding to this authority, the legislature proposed an amendment to the constitution which was intended to confer that power. Its adoption was at once made a party test by the controlling political party in the state. Candidates for the legislature and for all the state offices were nominated and conducted their canvass with reference to it. Its adoption, and its immediate subsequent enforcement, was the issue which overshadowed all other issues. At the election held the 5th of November, 1890, it was carried, and its friends elected by the usual Texas majority of 100,000 or more.

On the 7th of March, 1887, the supreme court had decided the case of Robbins v. Taxing Dist., 120 U.S. 489, 7 S.Ct. 592 holding what is popularly known as the 'drummer's tax' to be unconstitutional. A similar tax was being enforced...