In the absence of a contract protected by the impairment clause
of the federal Constitution, whether a statutory exemption has been
repealed by a subsequent statute is a question of state law in
which the decisions of the highest court of the state are
binding.
It is only where an irrepealable contract exists that it is the
duty of this Court to decide for itself irrespective of the
decisions of the state court whether a subsequent act impairs the
obligation of such contract.
Even though federal courts might exercise independent judgment,
in this case the decisions of the Supreme Court of Maryland are
followed to the effect that an act directing a new assessment of
property in the state and expressly declaring that property of
every railroad in the state be valued and assessed amounted to a
repeal of prior exemptions from taxation where there was no
irrepealable contract.
A proviso in a state statute taxing all property of railroads
that no irrepealable contract of exemption shall be affected
construed as expressing the legislative intent to repeal all
exemptions not protected by binding contracts beyond legislative
control.
135 F. 977 reversed.
The facts are stated in the opinion.
Page 203 U. S. 114
MR. JUSTICE DAY delivered the opinion of the Court.
The respondent, Samuel Bancroft, Jr., began an action in the
Circuit Court of the United States for the District of Maryland to
enjoin the County
Commissioners of Wicomico County from levying taxes on the
property of the Baltimore, Chesapeake & Atlantic Railway
Company, alleging that he was the holder of twenty bonds secured by
mortgage upon the company's property, which, under the laws of the
state, had been exempted from taxation. Such proceedings were had
that a decree was entered enjoining taxation of certain property of
the railway company. Upon appeal to the circuit court of appeals,
the judgment was affirmed, 135 F. 977, and the case was brought
here by writ of certiorari.
Page 203 U. S. 115
The case was tried upon an agreed statement of facts, from which
the following, pertinent to the determination of the case, may be
extracted: the Baltimore & Eastern Shore Railroad Company,
organized to build a line of road from Eastern Bay, in Talbot
County, to Salisbury, Wicomico County, in the same state, by act of
the Legislature of Maryland, was granted certain privileges
(chapter 133, Acts of the Assembly, 1886), sections 2, 4, and 5
being as follows:
"SEC. 2.
And be it enacted, That said corporation shall
have perpetual existence, and its franchises, property, shares of
capital stocks, and bonds shall be exempt from all state, county,
or municipal taxation for the term of thirty years, counting from
the date of the completion of said road between the termini
mentioned in its charter."
"SEC. 4.
And be it enacted, That the said Baltimore
& Eastern Shore Railroad Company aforesaid shall have power to
unite, connect, and consolidate with any railroad company or
companies, either in or out of this state, so that the capital
stock of said companies so united, connected, and consolidated
(respectively) may, at the pleasure of the directors, constitute a
common stock, and the respective companies may thereafter
constitute one company and be entitled to all the property,
franchises, rights, privileges, and immunities which each of them
possess, have, and enjoy under and by virtue of their respective
charters."
"SEC. 5.
And be it enacted, That the Baltimore &
Eastern Shore Railroad Company shall have power to lease or
purchase and operate any railroad or railroads, either in or out of
this state, for the purpose of carrying on their business, and any
other railroad company in this state shall have the right to lease
or sell its railroad or other property to the said Baltimore &
Eastern Shore Railroad Company."
The Baltimore & Eastern Shore Railroad Company accepted the
provisions of the act and completed the construction of its road
between the termini named in August, 1891. In June, 1890, it
purchased the property of the
Page 203 U. S. 116
Wicomico & Pocomoke Railroad Company, extending from
Salisbury to Ocean City. Afterwards, the Baltimore & Eastern
Shore Railroad Company mortgaged the entire property to secure
$1,600,000 of mortgage bonds. This mortgage was foreclosed in 1894,
and the purchaser proceeded to organize a new corporation -- the
Baltimore, Chesapeake & Atlantic Railway Company -- the
respondent becoming the holder of some of its mortgage bonds. This
reorganization was under sections 187 and 188 of Art. 23, Maryland
Code of 1888, which provides as follows:
"SEC 187, that in case of the sale of any railroad under
foreclosure of mortgage, the purchaser may form a corporation for
the purpose of owning, possessing, maintaining, and operating such
railroad, by filing in the office of the Secretary of State a
certificate of the name and style of such corporation, the number
of directors, etc."
"SEC. 188. Such corporation shall possess all the powers,
rights, immunities, privileges, and franchises in respect to such
railroad, or the part thereof included in such certificate, and in
respect to the real and personal property appertaining to the same,
which were possessed or enjoyed by the corporation which owned or
held such railroad previous to such sale under or by virtue of its
charter, and any amendments thereto, and of [any] other laws of
this state,"
etc.
Under authority of the Maryland statutes, the Baltimore,
Chesapeake & Atlantic Railway Company issued the mortgage bonds
of which respondent is the holder. The County Commissioners of
Wicomico County have levied and assessed taxes upon the railroad
company's property, and threatened to sell the same for nonpayment
thereof. The circuit court held, and the circuit court of appeals
affirmed the judgment, that sections 187 and 188 of the Maryland
Code, extending immunities to the new company, had the effect to
exempt from taxation certain property of the reorganized company,
and that the exemption constituted a contract between the state and
the company entitled to protection under the contract
Page 203 U. S. 117
clause of the federal Constitution, against the subsequent
attempt of the county commissioners to levy taxes upon the
property.
Notwithstanding this decision of the circuit court of appeals,
it is now conceded in the brief of the respondent's counsel, so far
as this argument is concerned, that there was no binding contract
upon the state entitled to protection under the federal
Constitution (Article I, Section 10) against state impairment of
the obligation of the contract. In view of the provisions of the
Maryland Constitution, this concession would seem in harmony with
the right reserved in that instrument to amend, repeal, and alter
charters.
Northern Central Railway Co. v. Maryland,
187 U. S. 258.
And see Wisconsin & Michigan Railway Co. v. Powers,
191 U. S. 379. But
it is insisted, conceding that the exemption from taxation was
merely a bounty or gratuity, it extended to the reorganized company
by force of the Maryland statutes above quoted, and has never been
repealed nor withdrawn by the state, and therefore the bondholder,
being directly interested in the property, has a right to be
protected by injunction against the levying of such taxes so long
as the act remains in force.
The questions arising in this case as to the construction and
force of the acts of the legislature of the state have been before
the Supreme Court of Maryland in three cases:
Baltimore,
Chesapeake & Atlantic Railway Co. v. Ocean City, 89 Md.
89;
Baltimore Chesapeake & Atlantic Railway Co. v. Wicomico
County, 93 Md. 113, and
Baltimore, Chesapeake &
Atlantic Railway Co. v. Wicomico County, 63 A. 678. In these
cases, it was held that the exemption from taxation provided for by
the laws above quoted did not extend to the reorganized company,
and in the last case, decided March 27, 1906, since the decision in
the circuit court of appeals, it was held that the General
Assessment Law of 1896 (Acts of 1896, c. 120) declaring that the
property of every railroad should be assessed for county and
municipal purposes, and providing that nothing
Page 203 U. S. 118
in the act should discharge or release any irrepealable contract
or obligation existing at the date of the passage of the act,
amounted to a recall of the immunity granted by the former law,
which had at all times been subject to repeal by the state, and
that, conceding the immunity extended to the reorganized company
under section 187 of the statute, the repeal of the exemption did
not violate any contract with the state, entitled to the protection
of the federal Constitution.
As we have said, the argument addressed to this Court is rested
upon the proposition that the subsequent law of 1896, imposing
taxes upon the property of the railroad company in general terms,
did not repeal prior legislation, which, properly construed, gives
the privilege of exemption from taxation to the property of the
reorganized railroad company. We therefore are to consider a case
wherein there is no contention that a valid and binding contract
has been impaired by state action, and the questions are as to the
proper construction of the statute, and whether a repealable
exemption from taxation has been withdrawn by subsequent
legislation of the state.
Previous decisions of this Court have settled the proposition
that whether such exemption has been in fact repealed by a
subsequent state statute is a question of state law in which the
decisions of the highest courts of the state, in the absence of
contract, are binding, and that it is only where the exemption is
irrepealable, thus constituting a contract, that it becomes the
duty of this Court to decide for itself whether the subsequent act
did or did not impair the obligation of the contract.
Gulf
& Ship Island R. Co. v. Hewes, 183 U. S.
66,
183 U. S. 74;
Northern Central Railway Co. v. Maryland, 187 U.
S. 258,
187 U. S.
266-267. It is contended, however, that inasmuch as the
respondent acquired his bonds in 1896, which were issued in 1894 at
a time when none of the Maryland decisions above referred to had
been made, the first of them being in 1899, the construction of the
statutes and their continued force are questions for the federal
courts having jurisdiction of the cause and the parties. And
further, that, while
Page 203 U. S. 119
the federal tribunals will differ reluctantly from the state
courts upon a question of the validity of state statutes, and will
"lean towards an agreement of views with the state courts,"
nevertheless, they must in such cases exercise an independent
judgment in determining the force and validity of state statutes.
Burgess v. Seligman, 107 U. S. 20,
107 U. S. 23;
Great Southern Fire Proof Hotel Co. v. Jones, 193 U.
S. 532, and cases cited in the opinion in that case.
If we could concede the soundness of this contention, we are of
opinion that the Court of Appeals of Maryland was right in holding
that the legislation of 1896 (Acts of 1896, c. 120), directing a
new assessment of the property of the state, and expressly
declaring that the property of every railroad in the state should
be valued and assessed for county and municipal purposes, had the
effect to withdraw the prior exemption from taxation if a proper
construction of the legislation of the state would extend it to the
property of the reorganized company. The act contains the
significant proviso that nothing therein contained shall be held to
discharge, release, impair, or affect any irrepealable contract or
obligation of any kind whatsoever existing at the date of the
passage of the act. This proviso evidences the legislative intent
to repeal exemptions from taxation which were not protected by
binding contracts beyond legislative control, if any such existed,
and to bring all property within the taxing power of the state. We
agree with the reasoning expressed by the Court of Appeals of
Maryland upon this branch of the case. 63 A. 683.
From this view, it follows that the decree of the circuit court
of appeals must be
Reversed, and the cause remanded to the circuit court with
directions to dismiss the bill.