People v. Detroit, G. H. & M. Ry. Co.

• Decision Date: 30 October 1924
• Docket Number: No. 75.,75.
• Citation: 200 N.W. 536,228 Mich. 596
• Court: Michigan Supreme Court
• Parties: PEOPLE v. DETROIT, G. H. & M. RY. CO.

228 Mich. 596

200 N.W. 536

PEOPLE

v.DETROIT, G. H. & M. RY. CO.

No. 75.

Supreme Court of Michigan.

Oct. 30, 1924.

Appeal from Circuit Court, Kent County, in Chancery; John S. McDonald, Judge.

Proceeding by the People of the State of Michigan against the Detroit, Grand Haven & Milwaukee Railway Company. From a decree dismissing the bill, plaintiff appeals. Affirmed.

Argued before WIEST, C. J., and CLARK, BIRD, SHARPE, MOORE, and STEERE, JJ.

Bird, J., dissenting.Andrew B. Dougherty, Atty. Gen., and Clare Retan, Asst. Atty. Gen., for the People.

Harrison Geer and H. R. Martin, both of Detroit, for appellee.

SHARPE, J.

The Detroit & Pontiac Railroad Company was incorporated by an act of the Territorial Legislature in 1834 (Acts 1834, p. 40), and the Oakland & Ottawa Railroad Company by an act passed in 1848 (Acts 1848, No. 234). A connection between these roads was provided for in Act No. 96 of 1850. By Act No. 140 of 1855 the name of the latter was changed to the Detroit & Milwaukee Railway Company, and it was authorized to purchase the property of the former. Section 9 of this act reads as follows:

‘The said company shall, on or before the 1st day of July, pay the state treasurer an annual tax of one per cent. on the capital stock of said company paid in, which tax shall be in lieu of all other taxes, except for penalties imposed upon said company by its act of incorporation, or any other law of this state. The said tax shall be estimated upon the last annual report of said corporation.’

Act No. 96 of 1859 provided that purchasers on foreclosure sales of railroad property might continue operations under the charter and laws applicable thereto, and might issue new and additional stock to themselves. A foreclosure sale of the property of the Detroit & Milwaukee Railway Company was afterwards had and a reorganization perfected under the present name of the defendant company.

In this proceeding we are called upon to place a construction upon the taxing provision contained in section 9 above quoted. It is the claim of the plaintiff (the state) that the tax should be estimated upon ‘the capital investment’ of the defendant, while the defendant contends that the words ‘capital stock paid in’ have a definite meaning; that they mean ‘the moneys or property paid in by the shareholders on account of their stock.’ It is conceded that the par value of the outstanding stock was $2,517,140, and that the value of defendant's property was upwards of $8,000,000 at the time this suit was tried. The trial court was inclined to agree with the state in its interpretation of the statute, but held that ‘the practical construction given to the provisions of this contract by the state and by the railroad company and so long continued is decisive of the legislative intent in respect to the basis of taxation.’ From the decree entered dismissing the bill plaintiff appeals.

The rights and liabilities of the defendant under Act No. 140 have been the subject of much litigation. In Attorney General v. Joy, 55 Mich. 94, 20 N. W. 806, decided in 1884, the state by quo warranto assailed the defendant's right to exercise and use the franchise under which it assumed to be acting. It was held that the defendant company was possessed of all the rights and privileges granted to the Detroit & Pontiac Railroad Company under said act, and that a binding contract was created thereby. A petition for a rehearing, filed in 1914, was denied. 181 Mich. 266, 148 N. W. 250. In People v. Detroit, etc., R. Co., 157 Mich. 144, 121 N. W. 814, the validity of defendant's special charter was again attacked and sustained, and in the case decided with it, one to collect a tax from defendant in disregard of the statute, the judgment of the lower court in favor of defendant was affirmed. Somewhat similar questions were raised and decided adversely to the state in Powers v. Railway Co., 201 U. S. 543, 26 S. Ct. 556, 50 L. Ed. 860. These cases will hereafter be referred to.

The primary object in the interpretation of statutes is to determine the intent of the Legislature as it may be gathered from reading the entire act. ‘Its manifest intent must prevail over the literal sense of terms.’ Township of Stambaugh v. Iron County Treasurer, 153 Mich. 104, 107, 116 N. W. 569, 571.

The claim of the state that the words ‘capital’ and ‘capital stock’ are frequently used synonymously, particularly in tax statutes, is supported by abundant authority. In 1 Desty on Taxation, § 74, it is said:

‘Capital and capital stock are in legal intendment synonymous, and are used in legislative acts as equivalent terms, though strictly not of the same meaning. Capital stock means not shares of stock, either separately or in the aggregate, but is intended to designate the property of the corporation subject to taxation, not in separate parcels, but as a homogeneous unit, partaking of the nature of personalty, and subject to the burdens imposed on it, at the domicile of the owner where it exercises its corporate functions, and where its business is done.’

See, also, Burroughs on Taxation, p. 142; 1 Elliott on Railroads (3d Ed.) § 90; 1 Cook on Corporations, § 8; 2 Clark and Marshall on Corporations, § 375.

A tax upon the capital of a corporation has almost uniformly been held to be a tax upon the property in which the capital has been invested (Bank Tax Case, 2 Wall. 200, 17 L. Ed. 793), and the same construction has been placed upon a provision for taxing the capital stock (Delaware, L., etc., R. R. Co. v. Pennsylvania, 198 U. S. 341, 25 S. Ct. 669, 49 L. Ed. 1077;Wright v. Georgia R. R. & Banking Co., 216 U. S. 420, 30 S. Ct. 242, 54 L. Ed. 544). Many state courts have so held. See exhaustive note in 58 L. R. A., beginning on page 514.

The language here employed is not ‘capital’ or ‘capital stock,’ but ‘capital stock paid in.’ Counsel for the state urge that the words ‘paid in’ were used simply to distinguish between the stock issued and that remaining in the treasury. They rely on the rule that exemptions from taxation are not favored; that words creating them must be given the narrowest meaning which will fairly carry out the intent of the Legislature. East Saginaw Mfg. Co. v. City of East Saginaw, 19 Mich. 259, 278,2 Am. Rep. 82. Were this a recent act, and had not a construction been placed upon the language here used, not only by the administrative but also by the legislative and judicial departments of the state government, we would be much impressed by this claim and the many authorities cited in its support.

An examination of the several acts of the early Legislatures providing for the taxation of railroads is instructive. Sections 5 and 6, chapter 21, title 5, Revised Statutes 1846, read as follows:

‘Sec. 5. Every company heretofore incorporated or hereafter to be incorporated within this state, for the purpose of constructing and using any railroad, canal or turnpike therein, shall pay a yearly tax to the state of three-fourths of one per cent. on the amount of the capital stock of such company paid in or secured to be paid, which tax shall be paid into the state treasury by said corporations respectively, on or before the first Monday of October in the year one thousand eight hundred and forty-seven, and in each year thereafter.

‘Sec. 6. Such tax shall be in lieu of all state, county, township or other taxes in this state, on the capital stock of said corporations, and on the railroad, canal or turnpike constructed or used by any such corporation, and on all the real and personal property in which said capital stock shall be invested, and which shall be used and occupied by any such company, in accordance with the provisions of its charter, and the laws of this state, in the construction or use of such railroad, canal or turnpike.’

Section 45 of Act No. 82, Laws 1855, a general statute providing for the incorporation of railroads, reads:

‘Every corporation formed under the provisions of this act, shall, on or before the first day of July, pay the state treasurer an annual tax of one per cent. on the capital stock of said company paid in, which tax shall be in lieu of all other taxes upon the property of said company, whether real, personal, or mixed, except penalties by this act imposed; the said tax shall be estimated upon the last annual report of said corporation, but nothing contained in this section shall apply to any existing corporations.’

The similarity of the language in this provision and that contained in the special act under consideration, enacted at the same session, will be observed.

This section was amended in 1869 (Laws 1869, p. 262) to read as follows:

‘Sec. 45. Every corporation formed under the provisions of this act shall, on or before the first day of July, in the year one thousand eight hundred and sixty-nine, and annually thereafter on or before the first day of October of each year, pay to the state treasurer, on the statement of the auditor general, an annual tax of one per cent. on the capital stock of said company paid in, and also upon all sums of money, whether arising from the net proceeds of said road, from municipal aid, from the sale of lands, or from other sources, as shall from time to time be invested in the original construction and stocking, or in any new construction or stocking of said road, which tax shall be in lieu of all other taxes upon the property of said company, whether real, personal, or mixed, except penalties by law imposed; and such tax shall be estimated upon the last annual report of said corporation filed in the office of the auditor general, as required by section thirty-two of this act; but nothing contained in this section shall apply to any corporation existing at the time of the approval of the act of which this is amendatory, nor to alter, reduce, or in any way affect the tax of any corporation not formed under the provisions of said act: Provided, That no corporation formed under the provisions of the...