State v. Baltimore & O. R. Co.
| Decision Date | 13 January 1916 |
| Docket Number | 43. |
| Citation | 96 A. 636,127 Md. 434 |
| Parties | STATE v. BALTIMORE & O. R. CO. |
| Court | Maryland Court of Appeals |
Appeal from Superior Court of Baltimore City; James M. Ambler Judge.
"To be officially reported."
Action by the State of Maryland against the Baltimore & Ohio Railroad Company. From a judgment for defendant, the State appeals. Affirmed.
Argued before BOYD, C.J., and BRISCOE, THOMAS, PATTISON, URNER, and STOCKBRIDGE, JJ.
Oscar Leser, of Baltimore, and Edgar Allan Poe, Atty. Gen., for the State.
R Marsden Smith and W. Irvine Cross, both of Baltimore (Hugh L Bond, Jr., of Baltimore, on the brief), for appellee.
This is a suit by the state of Maryland to require the Baltimore & Ohio Railroad Company to pay taxes upon its gross receipts in this state for the years from 1896 to 1908, over and above the amounts already paid, or the difference between the amount of such tax as fixed by the act of 1878, and the rates established by the acts of 1890, 1896, and 1906. The suit is sought to be maintained by the state by virtue of the Constitutional Amendment of 1891 (Laws 1890, c. 195), which provided that:
"Any corporation chartered by this state which shall accept, use, enjoy or in anywise avail itself of any rights, privileges, or advantages that may hereafter be granted or conferred by any general or special act shall be conclusively presumed to have thereby surrendered any exemption from taxation to which it may be entitled under its charter, and shall be thereafter subject to taxation as if no such exemption had been granted by its charter."
In defense to the action, the railroad company sets up the provisions of the act of 1878, as constituting a contract between the state and the railroad company, irrepealable in its nature, and under the protection of the federal Constitution, art. 1, § 10.
It has been frequently held by this court that the charter of the Baltimore & Ohio Railroad Company granted in 1826 constituted a contract between the railroad company and the state, and such a contract that the exemption from taxation conferred by section 18 of that act was not one which it was within the power of the Legislature to repeal or modify without the assent of the railroad company.
There are four grounds upon which the present contention is based, three of which are readily disposed of. One of these arises from the insertion in mortgages executed by the railroad company of the covenant that:
The railroad company would pay and discharge all taxes, assessments, and governmental charges lawfully imposed upon the lines of railroads "and other premises or property hereby mortgaged, or upon any part thereof, or upon the income and profits thereof, the lien of which would be prior to the lien thereof, so that the priority of this indenture shall be fully preserved in respect of such properties, and will also pay and discharge all taxes, assessments and governmental charges lawfully imposed upon the interest of the trustee, or of the holder of any bond or bonds secured hereby in the mortgaged premises; provided, however, that nothing contained in this section shall require the railroad company to pay any such tax, assessment or charge, so long as the railroad company in good faith shall contest the validity thereof."
The contention is that by the insertion of this covenant the railroad company accepted, used, or availed itself of certain general or special rights or privileges, and therefore, under the amendment to the Constitution, art. 3,§ 48, previously referred to, the railroad company surrendered its right to exemption from taxation. With regard to this, it is only necessary to say that the point so advanced is conclusively settled by the decision in Musgrove v. B. & O. R. R., 111 Md. 629, 75 A. 245, in which it was held that the acts relating to the taxation of mortgages had no application to mortgages executed by a railroad company to a trustee to secure bonds sold to investors.
The second contention upon the part of the state was that by the acceptance and user of rights set forth in sundry ordinances of the mayor and city council of Baltimore, there has been such acceptance of rights or privileges as to bring the Baltimore & Ohio Railroad within the operation of the amendment to the Constitution of this state. An examination of the ordinances discloses them to have related for the most part to the laying of switches or spurs which they were expressly authorized to do under the charter of the company, when the power was granted to construct lateral lines. The railroad company, it is true, was required by the terms of its charter in laying its tracks upon the streets or public ways of Baltimore city, and to do which it was given express authority, to obtain the assent of the mayor and city council of Baltimore before the laying of such tracks. This was for the manifest reason that, for a proper exercise of the police power, full power had been granted by the Legislature to the municipal corporation over the streets, ways, and alleys within the corporate limits, and in the grant of the right for the construction of lateral lines, in order not to interfere with the power of the city of Baltimore for the proper regulation of its streets, it was necessary to place that requirement upon the railroad company. This was in the exercise of the police power of the municipal corporation. The same may be said of each and all of the other ordinances referred to; such, for example, as the ordinance granting permission to erect a shed on the lot bounded by Parkin, Pratt, and Poppleton streets, for establishing the height of the Baltimore & Ohio Central Building; for the construction of a single track on South Howard street, between Dover and Camden streets; and a similar one for the construction of a single track on Eutaw street between Barre and Stockholm streets. Each and all of these were only the exercise of the police power of the municipal corporation. They conferred no new privilege or right not already possessed under the original charter of the railroad company, and therefore they cannot be regarded as a grant of privileges as that expression is used in the constitutional amendment of 1891. If it had been proposed to authorize the railroad company to carry on the business of mining coal, to lay an oil pipe line, or to engage for profit in different lines of business from those contemplated by the charter, an entirely different question would have been presented; but, where the sole subject-matter was the exercise by the municipal corporation of the mayor and city council of Baltimore of its police power in regulating the manner of exercise of rights conferred by the original charter of 1826, there can be no question but that the privilege, if indeed if was a privilege, was not such an one as was intended to be embraced, and not within the spirit of the amendment of 1891 to the Constitution.
The third ground upon which the tax exemption privilege contained in the original act of incorporation is claimed to have been set aside and nullified, arises out of the fact that in 1896 the state's holding of 5,500 shares of the capital stock of the Washington Branch of the Baltimore & Ohio Railroad was sold to the Maryland Trust Company, and by it in turn sold and transferred to the Baltimore & Ohio Railroad. The claim is that the acquisition of this stock constituted the acquirement or exercise of a privilege by the railroad company within the terms of the Constitution. The record in the case fails to bear this out. The state was at this time anxious to dispose of its holdings of this stock. The railroad company was desirous of acquiring the same. There was no one to whom the stock had greater value than to the company itself. With the state the question was, how could it realize the largest amount from the interest which it held? and it not unnaturally sought to ascertain the price which the Baltimore & Ohio Railroad Company would be willing to pay for it. Legislative action was requisite to effect any sale at all, and the session of the Legislature of that year was drawing to a close. The railroad company did not make a direct offer to the state, but it did guarantee the state that there should be a bid for the state's holding of the stock, made by a responsible bidder, of at least $2,500,000. If the state had deemed this amount inadequate, or that a higher price could be obtained from others, it had full power to take the legislative action which may have been requisite to enable the board of public works to have disposed of this stock to any outside parties. That it was not so considered by those who were the officials of the state at the time is shown in the action which was taken; but even under the action taken, though the time was short, it was ample for outside parties to have interposed a bid larger than the $2,500,000. What actually did happen was a bid for the stock by the Maryland Trust Company of the sum named for the stock, and it was sold at that figure. It makes no difference, so far as this case is concerned, whether the Maryland Trust Company was purchasing for its own account, or whether it was acting for and on behalf of the railroad company. The real question is: Was it a fair sale, made in a manner sanctioned by law and for an adequate price in the light of all the facts as those facts were then understood? These must be answered in the affirmative, and therefore the sale by the state of its interest in the Washington Branch of the Baltimore & Ohio Railroad Company was not the granting of any privilege or right within the contemplation of the constitutional amendment of 1891.
Suppose for example, instead of the method which was adopted, the state had advertised for bids for the...
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