94 U.S. 164 (1877), Peik v. Chicago & N.W. R. Co.

Citation:94 U.S. 164, 24 L.Ed. 97
Case Date:March 01, 1877
Court:United States Supreme Court

Page 164

94 U.S. 164 (1877)

24 L.Ed. 97







United States Supreme Court.

March 01, 1877


APPEALS from the Circuit Court of the United States for the Western District of Wisconsin.

The appellants in the first case, non-residents of the State of Wisconsin, and owners of first-mortgage bonds of the Chicago and North-western Railway Company, filed their bill to restrain the company from obeying, and Paul, Osborn, and Hoyt, railroad commissioners, and Sloan, Attorney-General of Wisconsin, from enforcing, c. 273, Laws of 1874, of that State, which limits the rate of charges for transporting passengers and freights on all the railroads in the State.

The bill sets out the various acts incorporating the company and the companies with which it is consolidated, and it alleges that the company was authorized to give its bonds and mortgages to secure the payment of borrowed money; that the complainants are owners of bonds issued or guaranteed by the company, and secured by mortgages upon various portions of its railroad, executed pursuant to law; that the tariff of rates charged by the company before the passage of that chapter did not produce sufficient income to pay interest on its debt, the legal rate of interest allowed by the laws of the State to its stockholders, and expenses; that the enforcement of said chapter will cause the destruction of the securities held by the complainants; that the classes of freight established by sect. 3 of said chapter are different from the classes of freight established

Page 166

by the laws of Illinois, Iowa, and Minnesota, for the transportation of freight upon the railroads of the company in those States, and that it is practically impossible to carry on the business of transporting freight from Wisconsin to either of those States; that the enforcement of said chapter will impair the obligation of the contract entered into between the company and the complainants; that said chapter is in violation of the thirteenth article of the bill of rights of the Constitution of Wisconsin, which declares that the property of no person shall be taken for public use without just compensation therefor; that the general assembly of Wisconsin had no constitutional power to pass said chapter; that the eighteenth section is a regulation of inter-state commerce; and that the company has never accepted said chapter, but will be obliged to conform to the reduced rates of fare and freight therein specified, or cease operations in Wisconsin, unless said chapter shall be held to be unconstitutional.

The bill in the second case was filed by stockholders of the company, and is substantially the same as that in the first case.

Chapter 273 classifies railroads in the State, fixes the limit of fare for the transportation of any person, classifies freights and the maximum rates therefor, and prescribes certain penalties and forfeitures for receiving any greater rate or compensation for carrying freight or passengers than the act provides. It appoints railroad commissioners, and prescribes their duties and powers. The eighteenth section is in the following words:----

'Nothing contained in this act shall be taken as in any manner abridging or controlling the rates for freight charged by any railroad company in this State for carrying freight which comes from beyond the boundaries of the State, and to be carried across or through the State; but said railroad companies shall possess the same power and right to charge such rates for carrying such freight as they possessed before the passage of this act.'

The defendants in each case demurred to the bill of complaint therein filed. The demurrers were sustained, and the defendants brought the cases here.

Page 167


Mr. W. M. Evarts, Mr. C. B. Lawrence, Mr. B. C. Cook, Mr. John W. Cary, and Mr. E. W. Stoughton, for the appellants.

The act entitled 'An Act relating to railroads, express and telegraph companies, in the State of Wisconsin,' approved March 11, 1874, regarded independently of the clause of the State Constitution, reserving the right to alter or repeal corporate charters, is a clear violation of that provision of the Federal Constitution which forbids a State to pass any law impairing the obligation of contracts. Wilmington Railroad Co. v. Reid, 13 Wall. 266; Pacific Railroad Co. v. McGuire, 20 id. 42; Humphrey v. Pigues, 16 id. 247; Attorney-General v. The Railroad Companies, 35 Wis. 425.

That clause must be construed in connection with another provision in the same instrument, forbidding the taking of private property for public use, except on due compensation, and in subordination to the Fourteenth Amendment to the Constitution of the United States, which ordains that 'no State shall deprive any person of life, liberty, or property, without due process of law.' No compensation has been tendered, and the act violates that amendment. Wynehamer v. The People, 13 N.Y. 392; Pumpelly v. Green Bay Co., 13 Wall. 466; Green v. Biddle, 8 Wheat. 355.

So long as the company operates the road, it has the right to demand a reasonable compensation for its services. That right is not a special franchise or privilege, but exists by universal law, and cannot be abridged or impaired. Case of the State Freight Tax, 15 Wall. 233; Miller v. State, 15 id. 478; Holyoke Co. v. Lyman, id. 500; Von Hoffman v. Quincy, 4 id. 535; Curran v. State of Arkansas, 15 How. 304; Beardstown v. Louisville Railroad Co., 4 Met. (Ky.) 308; Sage v. Dillard, 15 B. Mon. (Ky.) 353; Commonwealth v. Express Company, 13 Gray, 253.

NOTE.--These cases were elaborately and at great length argued by the respective counsel. It will be impracticable for the reporter to furnish more than a very condensed synopsis of the argument. No attempt will be made to give the particular points which each of the counsel maintained. The argument on each side is given as a whole.

The question of what is a reasonable compensation is for judicial determination, and cannot be decided by the legislature. Commonwealth v. Proprietors of Bridge, 2 Gray, 337; Attorney-General

Page 168

v. The Railroad Companies, supra; P. W. & B. Railroad Co. v. Bower, Law Reg., March, 1874; Chicago & Alton Railroad Co. v. The People, 67 Ill. 11; State v.Noyes, 47 Me. 203; Stamford v. Pawlet, 1 Cromp. & J. 57. The State, being a party to the contract, cannot prescribe the compensation by a subsequent enactment which shall bind the other party. Were it otherwise, the will of each succeeding legislature, and not the charter, would determine the powers and rights of the company.

Conceding that the charter which gave the franchise be subject to repeal, the State cannot take from the company its roadbed and its rolling-stock, or the income derived from their use, without making just compensation. The Supreme Court of Wisconsin, in Attorney-General v. The Railroad Companies, supra, in granting an injunction to restrain the company from operating its road except upon the terms prescribed, declares that 'the material property and rights of corporations should be inviolate.' This act, so far from leaving them inviolate, takes the income, and thus as effectually deprives the company of the beneficial use of its property, and the means of performing its engagements with its creditors, as if the road was confiscated. There is no substantial difference between a law which diminishes the income of a company thirty per cent, by reducing its tariff of rates, and one which requires it to pay that per cent to the treasurer of State, and obliges him to distribute it pro rata among those who paid fares or freight to the company.

In all the adjudged cases on the subject the rulings have been uniform, that there are some necessary limits to the exercise of the power which the State assumes to amend or repeal charters, and among them is, that the character of the companies shall not be changed, nor the purposes of their creation defeated, nor vested rights of property impaired. Sage v. Dillard, 15 B. Mon. (Ky.) 353.

'It seems to us,' says the Supreme Court of Massachusetts, in Commonwealth v. Essex Co., 13 Gray, 253, 'that this power must have some limit, although it is difficult to define it. Perhaps the rule is this, that where, under a power in the charter, rights have been acquired and become vested, no amendment

Page 169

or alteration of the charter can take away the property or rights which have become vested under a legitimate exercise of the powers granted.'

Tried by this principle, thus explicitly announced, and which is substantially sustained by this court in Holyoke Company v. Lyman and Miller v. State, supra, the act cannot be justified. The vital element in the ownership and management of railway property, the right to classify the various kinds of freight, and to determine and receive the proper compensation, is taken from the corporation and vested in the State.

Independently of the foregoing considerations, applicable to all railway companies in the State, the Chicago and Northwestern Railway Company occupies a peculiar position, which for two reasons places it beyond the reach of the act:----

1. The sale in 1859 of the Chicago, St. Paul, and Fond du Lac road, which is a part of the Chicago & North-western road, under a deed of trust, and by authority of the legislature, vested the title to the first road in certain purchasers, with a right to operate it. The subsequent grant of corporate franchises conferred on them no additional right in or to the road, and the alteration or repeal of the charter cannot impair any right which they, by their purchase, acquired and held as natural persons.

2. The legislature of Wisconsin entered into a contract with an Illinois corporation, by which the latter acquired rights in that road which the act impairs, in violation of the tenth section of the...

To continue reading