Perry Powers v. Detroit, Grand Haven Milwaukee Railway Company

• Decision Date: 16 April 1906
• Docket Number: No. 394,394
• Citation: 50 L.Ed. 860,26 S.Ct. 556,201 U.S. 543
• Parties: PERRY F. POWERS, as Auditor General of the State of Michigan, Appt. , v. DETROIT, GRAND HAVEN, & MILWAUKEE RAILWAY COMPANY
• Court: U.S. Supreme Court

201 U.S. 543

26 S.Ct. 556

50 L.Ed. 860

PERRY F. POWERS, as Auditor General of the State of Michigan, Appt.,

v DETROIT, GRAND HAVEN, & MILWAUKEE RAILWAY COMPANY.

No. 394.

Argued February 26, 1906.

Decided April 16, 1906.

This case, which is a suit brought by the appellee in the circuit court of the United States for the western district of Michigan, while involving the validity of the railroad tax law of the state of Michigan (Acts 1901, chap. 173, p. 236), recently considered by this court (ante, page 459) involves the further question of the existence and scope of an alleged contract in respect to taxation. The Detroit & Pontiac Railroad Company was chartered by the legislature of the territory of Michigan, March 7, 1834, the Oakland & Ottawa Railroad Company by the legislature of the state of Michigan, April 3, 1848 (Laws 1848, p. 351). By an act of February 13, 1855 (Laws of 1855, p. 305), the Detroit & Pontiac Railroad was authorized to change its name to the Detroit & Milwaukee Railway Company, to purchase all the rights, property, and franchises of the Oakland & Ottawa Railroad Company for the building and operating a continuous line of road from Detroit to Lake Michigan, and the purchase and sale thus provided for was duly effected. Section 9 of this act provided that——'the said company shall, on or before the first day of July, pay the state treasurer an annual tax of 1 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.'

Since 1850 the state Constitution has contained these provisions:

'Corporations may be formed under general laws, but shall not be created by special act except for municipal purposes. All laws passed pursuant to this section may be amended, altered, or repealed. But the legislature may, by a vote of two thirds of the members elected to each house, create a single bank with branches.' Art. 15, § 1.

'The legislature shall pass no law altering or amending any act of incorporation heretofore granted, without the assent of two thirds of the members elected to each house; nor shall any such act be renewed or extended. This restriction shall not apply to municipal corporations.' Art. 15, § 8.

In 1860 certain mortgages on the road were foreclosed and the company reorganized, and again in 1878 the road with its appurtenances and franchises was sold upon mortgage foreclosure and again reorganized as the Detroit, Grand Haven, & Milwaukee Railway Company. These foreclosures and reorganization took place under the authority of act No. 96 (Laws of 1859, p. 52).

On the hearing in the circuit court it was held that § 9, above quoted, created a contract between the state and the company which prevented the enforcement against it of the railroad tax law, and a decree was entered accordingly (138 Fed. 264) from which decree the state auditor appealed directly to this court.

Messrs. Timothy E. Tarnsney, John E. Bird, Charles A. Blair, Loyal E. Knappen, and Roger Irving Wykes for appellant.

[Argument of Counsel from pages 545-551 intentionally omitted] Messrs. H. Geer and L. C. Stanley for appellee.

Statement by Mr. Justice Brewer:

[Argument of Counsel from pages 551-555 intentionally omitted] Mr. Justice Brewer delivered the opinion of the ocurt:

Many questions which might otherwise be perplexing are settled by the decision of the supreme court of Michigan in Atty. Gen. v. Joy, 55 Mich. 94, 20 N. W. 806. That was an information brought by the attorney general in the supreme court of the state, charging the defendants with claiming and usurping the corporate rights and franchises of the Detroit, Grand Haven, & Milwaukee Railway Company. The act of 1855 was sustained, notwithstanding some alleged defects in its passage, and it was decided that it did not create a new corporation, but simply authorized the old territorial corporation, the Detroit & Pontiac Railroad Company, to change its name and extend its line of road, and, further, that this act in no respect conflicted with §§ 1 and 8, article 15, of the state Constitution. The court also sustained the act of 1859, under which the foreclosures took place, and held that by them no new company was chartered, that there was simply a reorganization and continuance of the old company.

The latter act provides that upon certain conditions new stock shall be issued in lieu of the old stock, the old officers of the company superseded, ' and the new stockholders and officers shall, in the law, be deemed and taken to be the stockholders and offers of said corporation, the charter and all laws appertaining thereto continuing to be the charter and laws regulating and governing said corporation, except that it may be known and called, and sue and be sued, and may contract and do all acts which in the law it could have done in its old name, in and by the name set forth in the declaration aforesaid.' (P. 253.)

The testimony in this case shows compliance with these conditions. Compliance was also shown in Cook v. Detroit, G. H. & M. R. Co. 43 Mich. 349, 5 N. W. 390, and in that case the validity of the new organization as a continuance of the old corporation was recognized.

We thus come to the question of the effect of § 9 of the act of 1855. It has been often decided by this court, so often that a citation of authorities is unnecessary, that the legislature of a state may, in the absence of special restrictions in its Constitution, make a valid contract with a corporation in respect to taxation, and that such contract can be enforced against the state at the instance of the corporation. It is said that we are not concluded by a decision of the supreme court of a state in reference to the matter of contract; that while the rule is to accept the construction placed by that court upon its statutes, an exception is made in case of contracts, and that we exercise an independant judgment upon the question whether a contract was made, what its scope and terms are, and also whether there has been any law passed impairing its obligation. Douglas v. Kentucky, 168 U. S. 488, 42 L. ed. 553, 18 Sup. Ct. Rep. 199. It is in order to uphold the provision of the Federal Constitution that no state shall pass a law impairing the obligation of a contract that this duty of independant judgment is cast upon this court. But here the supreme court of the state has ruled in favor of the continued existence of a corporation and the applicability of certain statutes, and when, upon the face of such statutes, a valid contract appears, we accept the ruling that the statutes are valied and applicable enactments. In other words, the supreme court of the state having sustained the validity of a statute from which a contract is claimed, this court follows that decision, and starts with the question, What contract is shown by statute?

The particular section which it is claimed creates the contract (§9 of the act of 1855) provides that the company shall pay an 'annual tax of 1 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.' It is contended in the first place that this is a mere gratuity, which can be withdrawn at any time,—a statute in respect to taxation subject to change like other revenue statutes; and Wisconsin & M. R. Co. Rep. 107, is cited as authority. But the difference between that case and this is obvious. That arose on a general law in respect to taxation; this, on a provision in a special act having reference to a particular corporation,—an act which called for and received acceptance by the corporation. It was in the opinion in that case (p. 385, L. ed. p. 230, Sup.Ct.Rep. p. 108):

'A distinction between an exemption from taxation contained in a special charter and general encouragement to all persons to engage in a certain class of enterprise is pointed out in East Saginaw Salt Mfg. Co. v. East Saginaw, 13 Wall. 373, 20 L. ed. 611, 19 Mich. 259, 2 Am. Rep. 82. In earlier and later cases it was mentioned that there was no counter-obligation, service, or detriment incurred, that properly could be regarded as a consideration for the supposed contract. Christ Church v. Philadelphia County, 24 How. 300, 16 L. ed. 602; Tucker v. Ferguson, 22 Wall. 527, 12 L. ed. 805; Grand Lodge, F. & A. M. v. New Orleans, 166 U. S. 143, 41 L. ed. 951, 17 Sup. Ct. Rep. 523. . . . The presence or absence of consideration is an aid to construction in doubtful cases,—a circumstance to take into account in determining whether the state has purported to bind itself irrevocably or merely has used words of prophecy, encouragement, or bounty, holding out a hope, but not amounting to a covenant.'

That there was ample consideration for a contract in this case, if consideration be necessary is shown by the opinion of the supreme court in Atty. Gen. v. Joy, supra, when it says (p. 101. N. W. p. 809):

'The act of 1855 was not promoted exclusively in the interest of the railroad companies named in it, but the state itself was largely concerned, and expected to accomplish important public purposes by means of it. Twenty years before that time the state had planned for the construction of several parallel lines of railroad across the state from east to west, one of which was to be north of the line of the Michigan Central Railroad, and was expected to be of very high value, not only to all that part of the state through which it would run, but to the whole state. Much disappointment had come from the road not being constructed; and when the Detroit & Pontiac Railroad Company, which already had near 30 miles of road in successful operation, and could command means for the construction of more, proposed,...