State of Tennessee v. Whitworth

Decision Date01 March 1886
Citation117 U.S. 129,6 S.Ct. 645,29 L.Ed. 830
PartiesSTATE OF TENNESSEE v. WHITWORTH, Trustee, etc. 1 Filed
CourtU.S. Supreme Court

This is a suit in mandamus, brought by the state of Tennessee, in the circuit court of Davidson county, against George K. Whitworth, the trustee and tax collector of that county, to require him to assess for taxation the shares of stock in the Nashville, Chattanooga & St. Louis Railroad Company. After the suit had been begun in the state court it was removed by Whitworth to the circuit court of the United States for the Middle district of Tennessee, under the act of March 3, 1875, c. 137, (18 St. 470,) on the ground that the suit was one arising under the constitution of the United States.

The case is as follows: The Nashville & Chattanooga Railroad Company, now, by consolidation with the Nashville & Northwestern Railroad Company and a change of name, the Nashville, Chattanooga & St. Louis Railroad Company, was incorporated by the legislature of Tennessee, December 11, 1845, to build and operate a railroad. Section 38 of its charter is in these words:

'Sec. 38. The capital stock of said company shall be forever exempt from taxation, and the road, with all its fixtures and appurtenances, including workshops, warehouses, and vehicles of transportation, shall be exempt from taxation for the period of twenty years from the completion of the road, and no longer.' The act incorporating the Nashville & Northwestern Railroad Company contained a provision identical with this.

The question is whether this provision has the effect of a contract by the state for the exemption from taxation in Tennessee of the shares of the capital stock of the corporation. The capital stock was by the charter divided into shares of $25 each, to be subscribed for on books opened for that purpose. It was also provided that as soon as the requisite number of shares had been subscribed 'the Nashville & Chattanooga Railroad Company shall be regarded as formed,' and 'the said subscribers to the stock shall form a body politic and corporate in deed and in law, by the name and for the purpose' specified. Fifty cents on each share was to be paid in money at the time of subscribing. Sections 9, 12, 15, 16, and 17 are as follows:

'Sec. 9. As soon as the number of forty thousand shares shall have been subscribed, it shall be the duty of the commissioners appointed to declare the same to appoint a time for the stockholders to meet in Nashville, and give notice thereof by publication in some of the newspapers of Nashville, at which time and place the said stockholders, in person or by proxy, shall proceed to elect the directors of the company, and to enact all such regulations, rules, and by-laws as may be necessary for the government of the corporation and the transaction of its business. The persons elected directors at this meeting shall serve for such period, not exceeding one year, as the stockholders may direct; and at this meeting the stockholders shall fix on the day and place or places where the subsequent elections of directors shall be held; and such elections shall thenceforth be annually made. But if the day of annual election should pass without any election of directors, the corporation shall not be thereby dissolved, but it shall be lawful on any other day to hold and make such election in such manner as may be prescribed by a by-law of the corporation.'

'Sec. 12. The board of directors shall not exceed, in their contracts, the amount of the capital of the corporation, and of the funds which the company may have borrowed and placed at the disposal of the board; and in case they should do so, the president and directors who may be present at the meeting at which such contract or contracts so exceeding the amount aforesaid shall be made, shall be jointly and severally liable for the excesses, both to the contractor or contractors and the corporation: provided, that any one may discharge himself from such liability by voting against such contract or contracts, and causing such vote to be recorded on the minutes of the board, and giving notice thereof to the next general meeting of the stockholders.'

'Sec. 15. The board of directors may call for the payment of twenty-four and a half dollars on each share of stock, in sums not exceeding two dollars in every thirty days: provided, that twenty days' notice be given of such call in at least one public newspaper of the state in which any of the stockholders may reside; and a failure to pay, or secure to be paid according to the rules of the company, any of the installments so called, as aforesaid, shall induce a forfeiture of the share or shares on which default shall be so made, and all payments thereon, and the same shall vest in and belong to the company, and may be restored to the owner or owners by the board of directors, if they deem proper, on the payment of all arrears on such shares, and legal interest thereon; or the directors may waive the forfeiture after thirty days' default, and sue the stockholders for the installments due, at their discretion.

'Sec. 16. The stock of said company may be transferred in such manner and form as may be directed by the by-laws of the said corporation.

'Sec. 17. The said company may at any time increase its capital to a sum sufficient to complete the said road, and stock it with everything necessary to give it full operation and effect, either by opening books for new stock, or by selling such new stock, or by borrowing money on the credit of the company, and on the mortgage of its charter and works; and the manner in which the same shall be done in either case shall be prescribed by the stockholders at a general meeting; and any state, or any citizen, corporation, or company of this or any other state or country, may subscribe for and hold stock in said company, with all the rights and subject to all the liabilities of any other stockholder.'

On the twenty-first of January, 1848, but before the corporation was organized by the election of directors, the charter was amended as follows:

'Sec. 3. Be it enacted, that the charter of the company be further so amended that the said company be required to estimate and pay semi-annually to the several holders thereof a sum equal to six per cent. per annum on the capital stock of said company actually paid in, to be charged to the cost of construction: provided, a majority of the stockholders at their first regular meeting agree thereto.'

The circuit court was of opinion that the shares of stock were by the charter exempt from taxation, and gave judgment accordingly. To reverse that judgment this writ of error was brought.

S. Watson, J. B. Heiskell, and Jas. M. Head, for plaintiff in error.

[Argument of Counsel from pages 133-135 intentionally omitted] E. H. East, for defendant in error.


It is apparent from the charter that the subscribers of shares and those claiming under them were to be the holders of the stock of the corporation, and that the money paid into the treasury upon subscriptions was to be used by the corporation in building and equipping its railroad. In this way the capital of the corporation was to be converted into the railroad and its appurtenances. A tax upon the railroad, therefore, after its completion, is necessarily a tax upon the capital, because, practically, the capital and that into which it has been converted are the same. The railroad of the...

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