Railroad Company v. Maryland
88 U.S. 456 (1874)

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U.S. Supreme Court

Railroad Company v. Maryland, 88 U.S. 21 Wall. 456 456 (1874)

Railroad Company v. Maryland

88 U.S. (21 Wall.) 456

ERROR TO THE COURT

OF APPEALS OF MARYLAND

Syllabus

1. A stipulation in the charter of a railroad company that the company shall pay to the state a bonus or a portion of its earnings is not repugnant to the Constitution of the United States.

2. Such a stipulation is different in principle from the imposition of a tax on the movement or transportation of goods or persons from one state to another. The latter is an interference with and a regulation of commerce between the states, and beyond the power of the state to impose; the former is not.

3. The power of a state to construct railroads and other highways and to impose tolls, fare, or freight for transportation thereon is unlimited and uncontrolled. The disposition of the revenues thus derived is subject to its own discretion. But a state cannot impose a tax on the movement of persons or property from one state to another.

4. The cases of Crandall v. State of Nevada, 6 Wall. 42, and Freight Tax Cases, 16 Wall. 232, cited and affirmed.

Page 88 U. S. 457

5. Relief from onerous and burdensome rates of transportation imposed under state authority must be sought in the competition of different lines and perhaps in the power of Congress to establish post roads and facilitate military and commercial intercourse between the different parts of the country.

6. The charter of the Baltimore & Ohio Railroad Company for constructing and working a branch railroad between Baltimore and Washington contained a stipulation that the company at the end of every six months should pay to the state one-fifth of the whole amount received for the transportation of passengers. This charter was accepted and complied with for many years. Held:

1st. That this stipulation was not repugnant to the Constitution of the United States.

2d. T hat it was a contract to pay, and not a receipt of money belonging to the state, and, if unconstitutional, the objection could be set up as a defense to an action brought by the state to recover the money.

3d. That as the alleged unconstitutionality of the stipulation was set up as a defense, the state court was bound to pass upon it, and having decided against the exemption thus claimed, this Court is authorized to review the decision.

A statute of Maryland granted to the Baltimore & Ohio Railroad Company the right to make a branch or lateral road from Baltimore to Washington City and of employing machinery and carriages thereon for the transportation of freight and passengers. [Footnote 1] And it was further enacted,

"That the company shall be entitled to charge and take for conveying each person, the whole distance between the Cities of Baltimore and Washington, not exceeding two dollars and fifty cents, and in proportion for every shorter distance."

"That the said company shall pay to the treasurer of the Western Shore of Maryland, on the first Monday in January and July in each and every year, for the use of the state, one-fifth of the whole amount which may be received for the transportation of passengers on said railroad by said company during the six months last preceding. "

Page 88 U. S. 458

There were other statutes on the main subject, but this one presents the substance of the enactments.

This enactment was accepted, and the payment made for many years of one-fifth of $1.50, the fare asked. However, after a certain time, the railroad company denied the constitutionality of the stipulation to pay, and refused further payment. Hereupon the state sued the company in one of the state courts of Baltimore.

The action was indebitatus assumpsit. The declaration contained two counts: the first for money due and payable, the second for money had and received. In answer to a demand of the defendant for a bill of particulars, the following was filed by the state.

"The claim is for the particulars following, viz.: for $500,000, being the one-fifth part of the whole amount of moneys received by the defendant for the transportation of passengers upon the Washington branch of the Baltimore & Ohio Railroad, from the 1st day of January, 1860, to the 1st day of January, 1870; which said sum of $500,000 was received by the defendant for the use of the plaintiff, and was due and in arrears to the plaintiff at the time of the institution of this action."

The defendant pleaded the general issue, and on that issue the case was tried.

The record showed that at the trial of the cause, after all the acts of assembly constituting the charter referred to, and bearing on the question, had been submitted, the defendant, by his counsel, prayed the court to instruct the jury that these acts, so far as they provided that the defendant should pay to the treasurer of the Western Shore of Maryland, on the first Monday of January and July in each and every year, for the use of the state, one-fifth of the whole amount that may be received for the transportation of passengers on the branch road mentioned in said acts during the six months last preceding, were unconstitutional, because in conflict with the Constitution of the United States, and secondly, that the defendant was not estopped from setting up the defense.

The plaintiff, on the other hand, prayed the court to instruct

Page 88 U. S. 459

the jury that even if the said provision was unconstitutional, still the defendant, by accepting the terms of the charter, was bound to pay to the state the one-fifth part of the passage money in question.

The court granted the prayer of the defendant and refused that of the plaintiff, and a verdict and judgment were rendered for the former.

The Court of Appeals of Maryland reversed the judgment and awarded a venire de novo.

Upon the second trial, the same instructions were asked by each party respectively, and the court below, in conformity with the decision of the Court of Appeals, refused the instruction asked for by the defendant and granted that asked for by the plaintiff, and a verdict and judgment were rendered for the latter. This judgment was affirmed by the Court of Appeals, and was now brought here under the assumption that it was within section 709 of the Revised Statutes, the old twenty-fifth section of the Judiciary Act.

Page 88 U. S. 467

MR. JUSTICE BRADLEY delivered the opinion of the Court.

The first question raised has reference to jurisdiction.

It appears by the record that the question of the constitutionality of the stipulation, under the statute of Maryland, was distinctly raised by the defendant, with a denial of any estoppel precluding such a defense. The counsel for the plaintiff contend, and the Court of Appeals of Maryland held, that whether the stipulation by the state for one-fifth of the passage money was constitutional or not, it was received by the company for the state, and was the money of the state, the company being merely the agent of the state to collect it, and that the company was therefore bound to respond to the state for it on the ground that an agent or receiver cannot withhold the money of his principal under pretense of illegality in the transaction by virtue of which it was obtained. The general doctrine referred to is a sound one, and if it were applicable to this case, it would follow that the constitutional question was not necessarily involved; but as this question was in fact passed upon by the Court of Appeals and ruled against the defendants, though not the principal ground on which it placed its judgment, it would be our duty under our recent rulings on the construction of the act of 1867 to assume jurisdiction of the case and review the judgment of the state court on the constitutional point. But with great respect for the opinion of that learned court, we are compelled to differ with it as to the applicability to the present case of the doctrine referred to. We

Page 88 U. S. 468

cannot concur in the position that any part of the passenger money, when received by the company, became or was the money of the state. It was the money of the railroad company alone. The railroad company was authorized by its charter to charge the passenger for transporting him between Baltimore and Washington what it did charge him. The state cannot be permitted to deny that it had power to confer upon the company such a franchise; nor can it be permitted to say that the passenger could complain of any extortion practiced upon him, for the fare, so far as he was concerned, was perfectly legitimate. It might have been greater than it was, and yet he would have had no right to complain. The state, at least, is estopped from saying that he could justly do so. The company, then, charged a lawful fare. The money all went into its treasury together, and one portion was not distinguished from another. The company was simply under a contract to pay to the state one-fifth of the whole amount received for the transportation of passengers. If there was anything unconstitutional in the arrangement, it was this contract. The grant of the right to build the road and operate it was constitutional; the right to charge fare and freight was constitutional; the amount of such fare and freight would have been entirely in the discretion of the company if it had not been limited by the grant. There is, in short, nothing in the whole transaction between the state and the company to which, in a constitutional point of view, the slightest exception can be taken except this contract to pay to the state a portion of the amount received. In the cases in which it has been held that parties engaged in an illegal undertaking are answer able to one another for moneys received therein, it was the undertaking, and not the agreement to pay over the moneys received, which was obnoxious to the law or its policy. In this case, it is not the transaction out of which the money grew, but the agreement to pay over a portion of it, which is vicious, if anything is vicious, and the transaction is only vicious, if at all, because of the reflected effect of the agreement upon it. We think no case can be found where the

Page 88 U. S. 469

agreement itself to divide a common fund or to pay over money received, as contradistinguished from the transaction out of which the money arose, was illegal in which it has been held that a recovery could be had. If it be said that the vice, if any, lies back of the agreement, namely in the reservation by the state of one-fifth, it would amount to the same thing. The right to recover would then stand on the reservation, and would be no better than before.

We think, therefore, that the constitutionality of the stipulation came directly in question, and could not properly be avoided in determining the case.

In approaching the merits of the case, it is unnecessary to examine in detail the various laws which constitute the charter of the railroad company in reference to the construction of the Washington branch. They were all accepted by the company, and no question of impairing the obligation of contracts is raised. The substance is simply this: that the state granted to the railroad company the franchise of constructing a railroad from Baltimore to Washington and of employing machinery and vehicles thereon for the transportation of passengers and merchandise, and of charging therefor certain rates of fare for the one and freight for the other, the passenger fare not to exceed two dollars and fifty cents per passenger for the entire distance and in that proportion for less distances, and it was stipulated that the company should, at the end of every six months, pay to the state one-fifth of the whole amount which might be received for the transportation of passengers. The question is whether such a stipulation is or is not a violation of the Constitution of the United States as being a restriction of free intercourse and traffic between the different states.

That the road is one of the principal thoroughfares in the country for interstate travel is conceded, and indeed may be judicially assumed. As, however, nearly all the railroads in the country are or may be used to a greater or less extent as links in through transportation, this road cannot in principle be regarded as an exceptional one in that respect.

Page 88 U. S. 470

Commerce on land between the different states is so strikingly dissimilar, in many respects, from commerce on water that it is often difficult to regard them in the same aspect in reference to the respective constitutional powers and duties of the state and federal governments. No doubt commerce by water was principally in the minds of those who framed and adopted the Constitution, although both its language and spirit embrace commerce by land as well. Maritime transportation requires no artificial roadway. Nature has prepared to hand that portion of the instrumentality employed. The navigable waters of the earth are recognized public highways of trade and intercourse. No franchise is needed to enable the navigator to use them. Again, the vehicles of commerce by water being instruments of intercommunication with other nations, the regulation of them is assumed by the national legislature, so that state interference with transportation by water, and especially by sea, is at once clearly marked and distinctly discernible. But it is different with transportation by land. This, when the Constitution was adopted, was entirely performed on common roads and in vehicles drawn by animal power. No one at that day imagined that the roads and bridges of the country (except when the latter crossed navigable streams) were not entirely subject, both as to their construction, repair, and management, to state regulation and control. They were all made either by the states or under their authority. The power of the state to impose or authorize such tolls as it saw fit was unquestioned. No one then supposed that the wagons of the country, which were the vehicles of this commerce, or the horses by which they were drawn, were subject to national regulation. The movement of persons and merchandise, so long as it was as free to one person as to another, to the citizens of other states as to the citizens of the state in which it was performed, was not regarded as unconstitutionally restricted and trammeled by tolls exacted on bridges or turnpikes, whether belonging to the state or to private persons. And when, in process of time, canals were constructed, no amount

Page 88 U. S. 471

of tolls which was exacted thereon by the state or the companies that owned them was ever regarded as an infringement of the Constitution. When constructed by the state itself, they might be the source of revenues largely exceeding the outlay without exciting even the question of constitutionality. So when, by the improvements and discoveries of mechanical science, railroads came to be built and furnished with all the apparatus of rapid and all-absorbing transportation, no one imagined that the state, if itself owner of the work, might not exact any amount whatever of toll or fare or freight or authorize its citizens or corporations, if owners, to do the same. Had the state built the road in question, it might, to this day, unchallenged and unchallengeable, have charged two dollars and fifty cents for carrying a passenger between Baltimore and Washington. So might the railroad company, under authority from the state, if it saw fit to do so. These are positions which must be conceded. No one has ever doubted them.

This unlimited right of the state to charge or to authorize others to charge toll, freight, or fare for transportation on its roads, canals, and railroads arises from the simple fact that they are its own works, or constructed under its authority. It gives them being. It has a right to exact compensation for their use. It has a discretion as to the amount of that compensation. That discretion is a legislative -- a sovereign -- discretion, and in its very nature is unrestricted and uncontrolled. The security of the public against any abuse of this discretion resides in the responsibility to the public of those who, for the time being, are officially invested with it. In this respect, it is like all other legislative power when not controlled by specific constitutional provisions, and the courts cannot presume that it will be exercised detrimentally.

So long, therefore, as it is conceded (as it seems to us it must be) that the power to charge for transportation and the amount of the charge are absolutely within the control of the state, how can it matter what is done with the money, whether it goes to the state or to the stockholders of a private

Page 88 U. S. 472

corporation? As before said, the state could have built the road itself and charged any rate it chose, and could thus have filled the coffers of its treasury without being questioned therefor. How does the case differ, in a constitutional point of view, when it authorizes its private citizens to build the road and reserves for its own use a portion of the earnings? We are unable to see any distinction between the two cases. In our judgment, there is no solid distinction. If the state, as a consideration of the franchise, had stipulated that it should have all the passenger money and that the corporation should have only the freight for the transportation of merchandise, and the corporation had agreed to those terms, it would have been the same thing. It is simply the exercise by the state of absolute control over its own property and prerogatives.

The exercise of power on the part of a state is very different from the imposition of a tax or duty upon the movements or operations of commerce between the states. Such an imposition, whether relating to persons or goods, we have decided the states cannot make, because it would be a regulation of commerce between the states in a matter in which uniformity is essential to the rights of all, and therefore requiring the exclusive legislation of Congress. [Footnote 2] It is a tax because of the transportation, and is therefore virtually a tax on the transportation, and not in any sense a compensation therefor or for the franchises enjoyed by the corporation that performs it.

It is often difficult to draw the line between the power of the state and the prohibitions of the Constitution. Whilst it is commonly said that the state has absolute control over the corporations of its own creation, and may impose upon them such conditions as it pleases, and like control over its own territory, highways, and bridges, and may impose such exactions for their use as it sees fit, on the other hand, it is conceded that it cannot regulate or impede interstate commerce nor discriminate between its own citizens and

Page 88 U. S. 473

those of other states prejudicially to the latter. The problem is to reconcile the two propositions, and as the latter arises from the provisions of the Constitution of the United States, and is therefore paramount, the question is practically reduced to this: what amounts to a regulation of commerce between the states, or to a discrimination against the citizens of other states? This is often difficult to determine. In view, however, of the very plenary powers which a state has always been conceded to have over its own territory, its highways, its franchises, and its corporations, we cannot regard the stipulation in question as amounting to either of these unconstitutional acts. It is not within the category of such acts. It may, incidentally, affect transportation, it is true; but so does every burden or tax imposed on corporations or persons engaged in that business. Such burdens, however, are imposed diverso intuitu, and in the exercise of an undoubted power. The state is conceded to possess the power to tax its corporations; and yet every tax imposed on a carrier corporation affects more or less the charges it is compelled to make upon its customers. So the state has an undoubted power to exact a bonus for the grant of a franchise, payable in advance or in futuro; and yet that bonus will necessarily affect the charge upon the public which the donee of the franchise will be obliged to impose. The stipulated payment in this case, indeed, is nothing more nor less than a bonus; and so long as the rates of transportation are entirely discretionary with the states, such a stipulation is clearly within their reserved powers.

Of course, the question will be asked, and pertinently asked, has the public no remedy against exorbitant fares and freights exacted by state lines of transportation? We cannot entirely shut our eyes to the argument ab inconvenienti. But it may also be asked, has the public any remedy against exorbitant fares and freights exacted by steamship lines at sea? Maritime transportation is almost as exclusively monopolized by them as land transportation is by the railroads. In their case, the only relief found is in the existence

Page 88 U. S. 474

or fear of competition. The same kind of relief should avail in reference to land transportation.

Whether, in addition to this, Congress, under the power to establish post roads, to regulate commerce with foreign nations, and among the several states, and to provide for the common defense and general welfare, has authority to establish and facilitate the means of communication between the different parts of the country, and thus to counteract the apprehended impediments referred to, is a question which has exercised the profoundest minds of the country. This power was formerly exercised in the construction of the Cumberland road and other similar works. It has more recently been exercised, though mostly on national territory, in the establishment of railroad communication with the Pacific coast. But it is to be hoped that no occasion will ever arise to call for any general exercise of such a power, if it exists. It can hardly be supposed that individual states, as far as they have reserved, or still possess, the power to interfere, will be so regardless of their own interest as to allow an obstructive policy to prevail. If, however, state institutions should so combine or become so consolidated and powerful as, under cover of irrevocable franchises already granted, to acquire absolute control over the transportation of the country, and should exercise it injuriously to the public interest, every constitutional power of Congress would undoubtedly be invoked for relief. Some of the states are so situated as to put it in their power, or that of their transportation lines, to interpose formidable obstacles to the free movement of the commerce of the country. Should any such system of exactions be established in these states as materially to impede the passage of produce, merchandise, or travel from one part of the country to another, it is hardly to be supposed that the case is a casus omissus in the Constitution. Commercially, this is but one country, and intercourse between all its parts should be as free as due compensation to the carrier interest will allow. This is demanded by the "general welfare," and is dictated by the spirit of the Constitution, at least.

Page 88 U. S. 475

Any local interference with it will demand from the national legislature the exercise of all the just powers with which it is clothed.

But whether the power to afford relief from onerous exactions for transportation does or does not exist in the general government, we are bound to sustain the constitutional powers and prerogatives of the states, as well as those of the United States whenever they are brought before us for adjudication, no matter what may be the consequences. And in the case before us we are of opinion that these powers have not been transcended.

Judgment affirmed.

[Footnote 1]

An act of Congress, Act of March 2, 1831, 4 Stat. at Large 476, gave authority to carry the branch from the line between Maryland and the District of Columbia into the City of Washington.

[Footnote 2]

Crandall v. Nevada, 6 Wall. 42; Case of Freight Tax, 16 Wall. 232, 83 U. S. 279.

MR. JUSTICE MILLER, dissenting:

I am of opinion that the statute of Maryland requiring the railroad company to pay into the treasury of the state one-fifth of the amount received by it from passengers on the branch of the road between Baltimore and Washington, confined as it is exclusively to passengers on that branch of the road, was intended to raise a revenue for the state from all persons coming to Washington by rail, and had that effect for twenty-five years, and that the statute is therefore void within the principle laid down by this Court in Crandall v. Nevada.*

73 U. S. 6 Wall. 35.

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