Memphis & Little Rock Railroad Co. v. Railroad Commissioners

A statute exempting a corporation from taxation confers the privilege only on the corporation specially referred to, and the right will not pass to its successor unless the intent of the statute to that effect is clear and express. [p610] Morgan v. Louisiana, 93 U.S. 217; Wilson v. Gaines, 103 U.S. 417; and Louisville & Nashville Railroad Company v. Palmes, 109 U.S. 244, affirmed.

The franchise to be a corporation is not a subject of sale and transfer, unless made so by a statute, which provides a mode for exercising it.

A franchise to be a corporation is distinct from a franchise, as a corporation, to maintain and operate a railway: the latter may be mortgaged, without the former, and may pass to a purchaser at a foreclosure sale.

A mortgage of the charter of a corporation, made in the exercise of a power given by statute, confers no right upon purchasers at a foreclosure sale to exist as the same corporation: if it confers any right of corporate existence upon them, it is only a right to reorganize as a corporation, subject to laws, constitutional and otherwise, existing at the time of the reorganization.

This is a bill in equity filed in the chancery court of Pulaski county, Arkansas, seeking to enjoin the board of railroad commissioners of the state from appraising, for the purposes of taxation, any part of the property of the plaintiff in error, on the ground that it is exempted from taxation by a contract with the state contained in its charter of incorporation. The supreme court of the state, on appeal, affirmed the decree of the chancery court dismissing the bill. That decree of the supreme court is brought here by writ of error, for review, on the allegation that it enforced a law of the state impairing the obligation of a contract, in violation of the rights of the plaintiff in error under the constitution of the United States.

The question arises, and is to be determined, upon the following case: The Memphis & Little Rock Railroad Company was chartered by an act of the general assembly of the state of Arkansas, approved January 11, 1853. This act authorized the formation of a company to be a body corporate for the purpose of establishing communication by railroad between the city of Memphis, in Tennessee, and Little Rock, in Arkansas, and commissioners were named therein to open books for subscriptions to its capital stock. This was fixed for the purpose of organization at $400,000, to be increased to $2,000,000, at the pleasure of the company. When the necessary amount of capital stock had been subscribed, the subscribers were authorized [p611] to organize by the election of a board of directors. The ninth section of the act is as follows:

"Sec. 9. The said company may at any time increase its capital to a sum sufficient to complete the said road, and stock it with anything sufficient 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 shall be prescribed by the stockholders at a general meeting," &c. Laws of Arkansas, 1852–3, 132–3.

It also contains the following:

"Sec. 28. The capital stock of said company shall be exempt from taxation until the road pays a dividend of six per cent., 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 and after the completion of said road." Ib. 136.

The company was organized under this act, and afterwards, in order to borrow money for the prosecution of the enterprise, issued its bonds to the amount of $1,300,000, dated May 1, 1860, having 30 years to run, with interest at 8 per cent. per annum, and, to secure the payment of the same, executed and delivered a mortgage to Tate, Brinkley, and Watkins, as trustees for the bondholders, whereby it conveyed to them, in trust, the Memphis & Little Rock Railroad, its road-bed, right of way, and all works and rolling-stock of or belonging to the company, "together with the charter by which said company was incorporated and under which it is organized, and all the rights and privileges and franchises thereof," and also all the lands, etc., belonging to said company.

Subject thereto a second mortgage was made by the company on March 1, 1871, conveying all its property and franchises to Henry F. Vail, in trust for the holders of bonds secured thereby, amounting to $1,000,000. Default having been made by the company in the payment of interest on this loan, Vail, the trustee, in execution of the power conferred in the mortgage, sold and conveyed the mortgaged property, the [p612] title to which became vested in Stillman Witt and his associate bondholders, who organized the Memphis & Little Rock Railway Company, to which, on November 17, 1873, the said property was conveyed. This railway company, on December 1, 1873, issued its bonds to the amount of $2,600,000, and, to secure the same, by a deed of that date, conveyed all the franchises, privileges, and property so acquired by it to trustees, of whom Pierson, Matthews, and Dow became successors, in trust for the bondholders. The Memphis & Little Rock Railroad Company, the original corporation, made default in the payment of interest accruing upon the bonds secured by the mortgage of May 1, 1860, and its successor, the Memphis & Little Rock Railway Company, also made default in the payment of interest maturing on the bonds secured by the deed of December 1, 1873. Afterwards, on November 12, 1876, a bill in chancery was filed in the Circuit Court of the United States for the Eastern District of Arkansas, by the trustees against the two companies, to foreclose those mortgages, in which suit a final decree was rendered ordering a sale of the property described in the same, embracing the property and franchises of the said companies, and the charter of the Memphis & Little Rock Railroad Company; and a sale thereof was made and confirmed, and a conveyance of the same executed to Pierson, Matthews, and Dow, in trust for the holders of the bonds of the Memphis & Little Rock Railway Company, secured by the deed of trust executed by that company. On April 28, 1877, the holders of these bonds executed certain articles of association, by which, after reciting the premises, they organized themselves into a company, claiming to become a corporation under the name of "The Memphis & Little Rock Railroad Company as re-organized," under and by virtue of the provisions of the act of January 11, 1853, for the incorporation of the original company; and afterwards, on April 30, 1877, Pierson, Matthews, and Dow conveyed to said company the property and franchises, including the charter of January 11, 1853; and thereupon the bill proceeds:

"Complainant submits that, having thus duly purchased said charter of the Memphis & Little Rock Railroad Company [p613] under the power therein contained, and having organized thereunder, it is the owner and holder thereof, and that it has and is entitled to all the privileges and benefits in said act of the general assembly mentioned and set forth, among others to the contract contained in said section 28, by which the road, with all the franchises and appurtenances, including work-shops, warehouses, and vehicles of transportation, shall be exempt from taxation for the period of twenty years from and after the date of the completion of said road. Complainant further states that said road was not completed till the fifteenth day of November, 1874, and that the time of the exemption thereafter from taxation has not expired. It further states that the defendant herein first mentioned, acting as a board of railroad commissioners for this state, have demanded from the complainant a detailed inventory of all the rolling stock belonging to the company, and the valuation thereof, as provided in section 48 of an act of the general assembly of the state or Arkansas, approved March 31, 1883, entitled, 'An act to revise and amend the revenue laws of the state of Arkansas,' and have also demanded from the complainant a statement or schedule, showing the length of the main and all the side tracks, switches, and turn-outs in each county in which the road is located, and the value of all improvements, stations, and structures, including the railroad track, as provided in section 46 of the same act.

"Complainant being willing, so far as it may without injury to itself, to comply with the laws of this said state, has, in compliance with the demand made upon it, made and returned said schedule to the said board, accompanying the same with a protest against any of the property in said schedule contained being assessed for taxation, in which protest complainant stated the grounds upon which said property was exempt from taxation.

"Complainant states and submits that all this property contained in the said schedules, [copies] of which it here with files, marked 'I' and 'J,' and all the property described in said sections 46 and 48 of said act, are the identical property which is exempt from taxation by the contract in said charter contained."

[p614] On December 9, 1874, an act was passed by the general assembly of Arkansas whereby the purchasers of a railroad of any corporation of the state and their associates acquiring title thereto by virtue of a judicial sale, or of a sale under a power contained in a mortgage or deed of trust were authorized to organize themselves into a body corporate, vested wiht all the corporate rights, liberties, privileges, immunities, powers, and franchises of and concerning the railroad so sold, not in conflict with the provisions of the constitution of the state as fully as the same were held, exercised, and enjoyed by the corporation before such sale. A certificate of such organization was required to be filed in the office of the secretary of state within six months, specifying certain particulars. Laws Ark. 1874–75, p. 57. Prior to the passage of that act there seems to have been no statute authorizing the formation of such corporations, or prescribing a mode for their organization.

In 1853, when the Memphis & Little Rock Railroad Company was chartered and organized as a corporation, the constitution of Arkansas, then in force, permitted the enactment of special acts of incorporation, and without any restriction upon the power to exempt corporations and their property from taxation. In 1868 a new constitution was adopted by the people of the state, which provided (art. 5, sec. 48) that "the general assembly shall pass no special act conferring corporate powers. Corporations may be formed under general laws, but all such laws may from time to time be altered or repealed The property of corporations, now existing or hereafter created, shall forever be subject to taxation the same as the property of individuals," and in art. 10, sec. 2, that "laws shall be passed taxing by a uniform rate all moneys, credits, investment in bonds, joint stock companies, or otherwise; and also all real and personal property, according to its true value in money."

It was decided by the supreme court of Arkansas, in the case of Oliver v. Memphis and Little Rock Railroad Co., 30 Ark. 128, that the 28th section of the act of January 11, 1853, incorporating that company, already quoted, was a contract be- [p615] tween it and the state, which could not be impaired by these provisions of the state constitution, because it was protected by the constitution of the United States.

On October 13, 1874, the present constitution of Arkansas was adopted and took effect. Among its provisions are these: That the general assembly shall pass no special act conferring corporate powers (art. 12, sec. 2); that corporations may be formed under general laws, which laws may, from time to time, be altered or repealed (art. 12, sec. 6); that all property subject to taxation shall be taxed according to its value; that the following property shall be exempt from taxation: public property used exclusively for public purposes, churches used as such, cemeteries used exclusively as such, school buildings and apparatus, libraries and grounds used exclusively for school purposes, and buildings and grounds and materials used exclusively for public charity (art. 16, sec. 5); that all laws exempting property from taxation, other than as above provided, shall be void (art. 16, sec. 6); that the power to tax corporations and corporate property shall not be surrendered or suspended by any contract or grant to which the state may be a party (art. 16, sec. 7); and that the general assembly shall not remit the forfeiture of the charter of any corporation then existing, or alter or amend the same, or pass any general or special law for the benefit of such corporation, except upon condition that such corporation should thereafter hold its charter subject to the provisions of the constitution (art. 17, sec. 8).

It was in April, 1877, that the plaintiff in error was organized as a corporation, deriving its authority for that purpose, as it claims, under the special act of January 11, 1853, but without power to do so, as is claimed on behalf of the defendant in error, except as enabled by the act of December 9, 1874.

Mr. B. C. Brown for plaintiff in error.—Under the statutes of Arkansas the pleadings amount to an admission that the original charter contained an exemption from taxation, that there was authority to mortgage that charter, that it was mortgaged, that the mortgage was foreclosed, and that the mortgaged [p616] charter was acquired by the plaintiff in error under the foreclosure sale. We admit that a corporation takes only so much as is granted in express words, or by fair implication; that on exemption from taxation is not to be presumed; that the party claiming the exemption must show his right. But there is another proposition—which the court overlooked—that a status or right shown to have been once established or existing is presumed to continue, and it is for him who alleges that it has ended or changed to show when and how the end or change occurred. It is conceded that the property held by plaintiff and now sought to be taxed was at one time exempt. This was established by the Supreme Court of the State itself, in The State v. Oliver, 30 Ark. 129. Before this cause was instituted, both the Supreme Court of Arkansas and this court had held that "a State can no more impair the obligation of a contract by adopting a Constitution than by passing a law." Jacoway, v. Denton, 25 Ark. 625; White v. Hart, 13 Wall. 646. The contract here was that the company created by the act of 1853 might "mortgage its charter." Not mortgage the "franchise." Not mortgage the "right to build and operate a railroad." Not mortgage the "exemption from taxation," but mortgage the charter. The words "charter," and "act of incorporation" are used "convertibly," and mean the same thing. Humphrey v. Pegues, 16 Wall. 244. The grant of a power grants everything necessary to give it beneficial effect; United States v. Fisher, 2 Cranch, 358; McCulloch v. Maryland, 4 Wheat. 316, 428; Fletcher v. Oliver, 5 Ark. 289, 299; N.W. Fertilizing Co. v. Hyde Park, 70 Ill. 634. The power to pledge the franchises and rights of a corporation implies, as incident thereto, the power to pledge everything that may be necessary to the enjoyment of the franchise, and upon which its real value depends. Phillips v. Winslow, 18 B. Mon. 431. Either the whole charter passed or nothing. There is no middle ground. The exemption from taxation was not separable from the body of the charter. This court has held that, with legislative permission, any privilege or immunity may pass. Humphrey v. Pegues, cited above; Tomlinson v. Branch, 15 Wall. 460; Pacific Railroad Co. v. McGuire, 20 Wall. 36. In [p617] the cases of Morgan v. Louisiana, 93 U.S. 217, and Louisville & Nashville Railroad Co. v. Palmes, 109 U.S. 244, relied upon by the other side, there was no such permission.

Mr. U. M. Rose, for defendants in error.

Mr. Justice Matthews delivered the opinion of the court.