Lake Drummond Canal & Water Co v. Commonwealth

• Decision Date: 12 January 1905
• Citation: 49 S.E. 506,103 Va. 337
• Court: Virginia Supreme Court
• Parties: LAKE DRUMMOND CANAL & WATER CO. v. COMMONWEALTH.

49 S.E. 506

103 Va. 337

LAKE DRUMMOND CANAL & WATER CO.

v.COMMONWEALTH.

Supreme Court of Appeals of Virginia.

Jan. 12, 1905.

foreclosure of corporate mortgage — rights conveyed — immunity from taxation—construction of statutes—constitutional provisions.

1. Code 1887, § 1233 [Ann. Code 1904, p. 623], provides that a sale under a mortgage or trust deed executed by a corporation on all its works and property shall pass to the purchaser all the property of the corporation other than debts due to it, and on such conveyance "the said company shall ipso facto be dissolved, " etc. Section 1234 [page 623] provides that the corporation created by or in consequence of such sale and conveyance shall succeed to "all such franchise rights and privileges and perform all such duties as would have been had or should have been performed by the first company but for such sale and conveyance." Held, that a sale on foreclosure of a deed of trust of all the property and franchise of the corporation did not pass to the purchaser the immunity from taxation granted by the state to the original corporation, its successors and assigns.

2. Under Const. 1851, art. 10, § 1 [Ann. Code 1904, p. cclxii], providing that taxation shall be equal and uniform throughout the commonwealth, and all property shall be taxed in proportion to its value, etc., a corporation created under Code 1887, § 1234 [Ann. Code 3904, p. 623], on the purchase of the property and franchise of another corporation on foreclosure of a deed of trust pursuant to section 1233 [page 623] cannot claim the right to immunity from taxation granted to the original corporation prior to the adoption of such constitutional provision.

Appeal from State Corporation Commission.

Proceedings by the commonwealth against the Lake Drummond Canal & Water Company to recover a fine for failing to make a report of property to the Corporation Commission. From an order imposing a fine, defendant appeals. Affirmed.

W. H. White and T. S. Garnett, for appellant.

The Attorney General, for the Commonwealth.

KEITH, P. On December 1, 1787, the General Assembly of Virginia granted a charter to the Dismal Swamp Canal Company, which, among other things, recites: "That for and in consideration of the expenses the said proprietors will be at, not only in cutting the said canal, erecting locks, making causeways and performing other works necessary for this navigation, but in maintaining and keeping the same in repair, the said canal, locks, causeways, and other works, with all their profits, shall be and the same are hereby vested in the said proprietors, their heirs and assigns forever, as tenants in common in proportion to their respective shares, and the same shall be deemed real estate, and be forever exempt from the payment of any tax imposition of assessment whatever, and It shall and may be lawful for the said president and directors at all times for ever hereafter to demand and receive at some convenient place near one of the extremities of the canal, for all commodities transported through it or over the causeways, tolls, according to the following table and rates which shall be in Spanish milled dollars, to-wit."

In the concluding section of the charter it is provided that the act creating the corporation should be in effect from and after the passage of a like act by the General Assembly of North Carolina, and such an act was passed in the year 1790, and the interna] improvement contemplated in the charter was undertaken, completed, and put into operation.

In the year 1867 a deed of trust was executed upon all the property of the company, which was foreclosed in 1880, and conveyance made to certain purchasers, who assumed the corporate name of the Dismal Swamp Canal Company. This company in turn executed a deed of trust upon all the property of the canal of every character to certain trustees, which was foreclosed and conveyance made in 1889 to certain purchasers, who assumed the corporate name of the Norfolk & North Carolina Canal Company. The corporation thus created also executed a deed of trust, which was foreclosed in the year 1892, and conveyance of the property made to purchasers who assumed the name of the Lake Drummond Canal & Water Company, the style under which the canal is now operated.

The Lake Drummond Company now owns the canal and all its property and appurtenances, and on the 29th of February, 1904, the State Corporation Commission issued a summons requiring it to appear and show cause why a fine should not be imposed upon it for failing to make report to the commission, as provided by section 27 of an act of the General Assembly of Virginia approved April 16, 1903, of all its real and personal property of every description and of its receipts for transportation. In obedience to this summons, the company appeared and answered, claiming that all the franchises, rights, and privileges conferred upon the Dismal Swamp Canal Company by the act of 1787, whereby an irrepealable immunity from taxation was granted by the state, have, by virtue of the foreclosures under the several deeds of trust before mentioned, devolved upon and vested in the present Lake Drummond Canal & Water Company.

The State Corporation Commission was of opinion that the answer was insufficient, and imposed a fine upon the defendant for failure to make report as required by law, and from this order the canal company appealed.

It would be a fruitless task to inquire into the power of a state Legislature to enter intoa contract granting a perpetual immunity from taxation so as to bind succeeding Legislatures. The power is too thoroughly established by authority to be any longer open to question.

In State of New Jersey v. Wilson, 7 Cranch, 165, 3 L. Ed. 303, the Supreme Court held, Judge Marshall delivering the opinion, that a legislative act declaring that certain lands which should be purchased for the Indians should not thereafter be subject to any tax constituted a contract which could not be rescinded by a subsequent legislative act, and the principle thus established has been followed in cases almost without number.

The case under consideration possesses all the elements of a contract. The act of 1787 recites: "That for and in consideration of the expenses the said proprietors will be at, not only in cutting the said canal, erecting locks, making causeways, and performing other works necessary for this navigation, but in maintaining and keeping the same in repair, the said canal, locks, causeways, and other works * * *shall be * * * forever exempt from the payment of any tax, imposition or assessment whatever, " and there can be no doubt that, in the language of the Corporation Commission, there was a contract between the state and the corporation, which could not be violated by the state by any attempt in the future to repeal the immunity from taxation granted to this corporation. It remains, then, to consider whether or not this immunity has passed to the present corporation.

In the petition for appeal it is claimed that the charter of the Dismal Swamp Canal Company contains a perpetual exemption from taxation of "all the property, rights and franchises of the company, its successors and assigns, " and this exemption accrues to the benefit of the petitioner by force of sections 1233 and 1234 of the Code of Virginia of 1887 [Ann. Code 1904, p. 623], by which it became such successor and assignee by the name of the Lake Drummond Canal & Water Company; and, secondly, that the exemption being a contract with the state of Virginia and a compact between the state of Virginia and the state of North Carolina, expressly declared by the concurrent acts of said states, the act of Assembly of April 15, 1903, p. 144, § 27 [Ann. Code 1904, p. 723, § 1313a], under which this proceeding is taken by the State Corporation Commission, if enforced, is a violation of the Constitution of the United States, which prohibits the impairment of the obligations of contracts, and is therefore unconstitutional and void.

Sections 1233 and 1234 of the Code of 1887 [Ann. Code 1904, p. 623] are as follows:

"Sec. 1233. Sale of company's property under deed of trust; what it passes; dissolution of company; purchaser, a corporation.— If a sale be made under a deed of trust or mortgage executed by a company on all its works and property, and there be a conveyance pursuant thereto, such sale and conveyance shall pass to the purchaser at the sale, not only the works and property of the company as they were at the time of making the deed of trust or mortgage, but any works which the company may, after that time and before the sale, have constructed, and all other property of which it may be possessed at the time of the sale, other than debts due to it. Upon such conveyance to the purchaser, the said company shall ipso facto be dissolved. And the said purchaser shall forthwith be a corporation, by any name which may be set forth in the said conveyance, or in any writing signed by him and recorded in the court in which the conveyance shall be recorded.

"Sec. 1234. The corporation created by or in consequence of such sale and conveyance shall succeed to all such franchises, rights, and privileges, and perform all such duties as would have been had, or-should have been performed, by the first company, but for such sale and conveyance, including the duty of maintaining and operating any branch or lateral road which may have been constructed and operated before the sale, and of transporting freight and passengers therein save only that the corporation so created shall not be entitled to the debts due to the first company, and shall not be liable for any debts of, or claims against, the said first company which may not be expressly assumed in the contract of purchase, and the whole profits of the business done by such corporation shall belong to the said purchaser and his assigns. His interest in the corporation shall be personal estate, and he or his...