State v. Great N. Ry. Co.

• Decision Date: 24 December 1908
• Citation: 106 Minn. 303,119 N.W. 202
• Parties: STATE v. GREAT NORTHERN RY. CO. (two cases).
• Court: Minnesota Supreme Court

106 Minn. 303

119 N.W. 202

STATE

v.GREAT NORTHERN RY. CO. (two cases).

Supreme Court of Minnesota.

Dec. 24, 1908.

Appeal from District Court, Ramsey County; Olin B. Lewis, Judge.

Action by the State of Minnesota against the Great Northern Railway Company to recover the amount of the increased gross earnings tax imposed by Gen. Laws 1903, p. 375, c. 253, approved as provided by Const. art. 4, § 32a. From a judgment holding the increase valid as to a part of the lines and branches of defendant and invalid as to others, both parties appeal. Reversed on the State's appeal, and affirmed on defendant's appeal, and final judgment entered.

Syllabus by the Court

Chapter 253, p. 375, Gen. Laws 1903, approved at the general election of 1904, as provided by section 32a of article 4 of the state Constitution, increasing the rate of the gross earnings tax of railroad companies doing business in this state to 4 per cent., is valid as to defendant and all its lines of road and branches thereof. The statute impairs no contractual or other vested right of defendant, and is not repugnant to either the state or the federal Constitution.

Railway Co. v. Parcher, 14 Minn. 297 (Gil. 224), and other similar cases, distinguished.

Where, in an action to recover of a railroad company certain taxes alleged to be in default, the complaint did not claim the penalty allowed by Rev. Laws 1905, s 1009, for nonpayment of taxes, and the cause has been finally disposed of on appeal, an amendment of the complaint to raise such an issue will not be allowed. E. T. Young and Geo. W. Peterson (O'Brien & Stone, of counsel), for the state.

Wm. R. Begg, for Great Northern Ry. Co.

BROWN, J.

This action involves the validity of chapter 253, p. 375, Gen. Laws 1903, approved by the people at the general election of 1904, as provided for by article 4, § 32a, of the State Constitution, increasing the gross earnings tax upon railroad companies of the state to 4 per cent. Though the facts and various statutes bearing upon the case, and which control its determination, have been stated and referred to in prior opinions, a restatement is necessary to an understanding of the present opinion.

By an act approved March 3, 1857 (11 Stat. 195, c. 99), Congress granted to the territory of Minnesota certain public lands to aid in the construction of railroads therein. Edgerton's R. R. Laws, 82. The act particularly defined the terms of the grant, and expressly provided that the lands thereby granted were subject to the future disposal of the territory or state for the purposes therein expressed, and no other. This, when accepted, created a trust which the territory or future state was bound to carry out in form and spirit as directed by the terms of the grant. For this purpose the Territorial Legislature, by chapter 1, Sp. Laws 1857, in effect accepted the grant and provided for the incorporation of the Minnesota & Pacific Railroad Company, and conferred upon it and its successors authority to construct and operate certain lines of railroad within the territory, including specified branches, and providing for the conveyance to the company of the lands granted by Congress, substantially upon the terms and conditions imposed by the act of Congress. This act constituted the charter of the railroad company. Its organization was completed, and the company, after formally accepting the act, commenced the construction of the railroad therein provided for. Lack of capital to prosecute the work necessitated a loan by the company, and it mortgaged by trust deed its line, all its property and franchise privileges, to Elon Farnsworth, and others, to secure the payment of funds thus obtained. This mortgage was executed on July 31, 1858, and was supplemented by a second mortgage to the same parties in November, 1858, securing the payment of bonds issued by the company, a part of which were delivered to the state in exchange for its bonds issued under the constitutional amendment of April 15, 1858, to aid in the construction of the road. Edgerton's R. R. Laws, 3. The state bonds, to the amount of $5,000,000, though the company utterly failed to construct the road and the state in fact received no consideration therefor, the state, after a prolonged contest, by the decision of this court in State ex rel. v. Young, 29 Minn. 474, 9 N. W. 737, was rightly compelled to pay.

Section 18 of the charter of the Minnesota & Pacific Company contained two distinct provisions upon the subject of taxation, in the language following: (1) ‘In consideration of the grants, privileges and franchises herein conferred on the said Minnesota and Pacific Railroad Company, the said company shall and will, on or before the 1st day of March in each year, pay into the territory or future state, three per centum of the gross earnings of the said railroad * * * and in consideration of such annual payments, the said company shall be forever exempt from all assessments and taxes whatever by the territory, or state which shall succeed the territory, or by any county, city, town, village, or other municipal authority, upon all stock in said Minnesota and Pacific Railroad Company, whether belonging to said company or to individuals, and upon all its franchises or estate, real, personal or mixed, held by said company,’ and (2) ‘that said land granted by said act of Congress hereby authorized to be conveyed to the said Minnesota and Pacific Railroad Company, shall be exempt from all taxation till sold and conveyed by said company.’

The company did not complete the construction of the lines of road provided for by its charter, and made default in the payment of the Farnsworth mortgage. Whereupon, on June 3, 1860, the mortgage was duly foreclosed by advertisement in the manner and in accordance with its terms and the statutes of the state in such case made and provided, and the railway, properties, franchises, rights, and privileges of the company were purchased by the state for the sum of $1,000, it being the highest and best bidder at the sale. By this purchase the state became vested with all the railroad properties, and, no redemption being made, the company became wholly divested of its rights. In March, 1861, for the purpose of giving the company another opportunity to complete the roads contemplated, the State Legislature by an act approved March 8, 1861, restored to the company all rights lost under the foreclosure upon the terms and conditions specified in the act, one of which was that if the company failed to construct a line of road between St. Paul and St. Anthony before January 1, 1862, all rights under the act should be forfeited to the state without any further act or ceremony on its part. The company failed to comply with the conditions, and in consequence the land grant and all property, rights, privileges, and immunities of the company reverted to and became finally, fully, and absolutely vested in the state. Thereafter the State Legislature by chapter 20, p. 247, Sp. Laws 1862, being an act to facilitate the construction of the Minnesota & Pacific Railroad, and to amend and continue the act incorporation that company, provided for the organization of the St. Paul & Pacific Railroad Company, and thereby granted to that company, and its successors, all rights, privileges, franchises, lands, and property therefore granted to the Minnesota & Pacific Company and restored to the state by the foreclosure just referred to, and authorized it to construct the lines of road undertaken by the old company. The terms and conditions relating to the construction of the road and the conveyance of lands as the work progressed were in all respects in conformity with the act of Congress. That company accepted the act, and proceeded to the performance of the obligations thereby assumed. By chapter 3, p. 174, Sp. Laws 1864, the St. Paul & Pacific Company was authorized to issue one or more classes of preferred stock, and to enter into agreements or contracts with the holders thereof for the administration of the portion of the road to which the stock might pertain, and for the independent organization by such holders to enable them, separately or in conjunction with the general directors of the road, to exercise supervision and control of their separate portion of the road. Under this act preferred stock was duly issued, and the holders thereof, acting under the statute just referred to, organized and incorporated the First Division of the St. Paul & Pacific Railroad Company, which company, through its officers, thereafter co-operated with the St. Paul & Pacific Company in the construction of the road. The act incorporating the latter-named company contained no express reference to the rate or system of taxation to be imposed upon the company, but it is claimed that all the provisions on this subject contained in the old Minnesota & Pacific Company's charter passed by the terms of the act incorporating it and were included within the designation of ‘rights, privileges, and immunities.’ However, by chapter 6, p. 40, Sp. Laws 1865, an act to facilitate the completion of the St. Paul & Pacific Railroad and branches, the Legislature imposed a different rate of taxation than that contained in the Minnesota & Pacific Company's charter, in this: that by this act the company was required to pay during the first three years, after 30 miles of its road had been completed, 1 per cent. of its gross earnings, 2 per cent. during the succeeding seven years, and thereafter 3 per cent. The act also contained a provision that the lands of the company should be subject to taxation as soon as sold, leased, or contracted to be sold or leased. The St. Paul & Pacific Company formally accepted this act, and the First Division Company thereafter complied with its terms and provisions by paying the rate of taxation thereby imposed. The organization of the First Division Company was legalized and confirmed by chapter 1, p. 11,...