1. A contract by a state to give up its power to tax any
property within it can be made only by words which show clearly and
unequivocally an intention to make such a contract.
2. The act of the Legislature of Missouri of February 16, 1865,
to provide for the completion of the North Missouri Railroad does
not so show an intention of the state to give up its power to tax
the property of the corporation owning that railroad.
3. The ordinance of the 8th of April, 1865, adopted by the
people of Missouri, as part of the constitution of the state
established on that day, was, as respected the North Missouri
Railroad Company, a true exercise of the taxing power of the state,
and not a mere change of the order of disbursing the receipts of
the earnings of the company as prescribed by the act of legislature
above named.
The North Missouri Railroad Company was incorporated by Act of
the Legislature of Missouri, March 3, 1851. By an Act of January 7,
1853, its charter was thus amended:
"The capital stock, together with all machines, wagons, cars,
engines, or carriages belonging to the company, together with all
their works or other property, and all profits which shall arise
from the same, shall be vested in the respective shareholders of
the company forever, in proportion to their respective shares, and
the same shall be deemed personal estate, and shall be exempt from
any public charge or tax whatsoever for the period of five years
from and after the passage of this act."
Under the provisions of several acts of the state legislature
between the date of its incorporation and the year 1857, the state
issued its own bonds for the benefit of the road, reserving a
mortgage on the road to secure their payment. As between the state
and the company, the latter was bound to pay the bonds and interest
on them, and it was provided that in case the company made default,
the governor should foreclose the mortgage.
About the year 1860, the company did make default in the payment
of the interest on the bonds, and had paid no part
Page 87 U. S. 47
of either interest or the principal since. No sale, however, was
made of the road, and on the 29th of March, 1863, the legislature
passed an act forbidding the governor to make a sale until he
should be required by it to do so.
By an Act of February 16, 1865, meant to provide for the
completion of the road, the company was authorized to issue
$6,000,000 of
its mortgage bonds, which should have
priority over the mortgage of this state, and this to the extent
named and no farther, was by the act made a second lien. The act
provided for the appointment of a fund commissioner for the
railroad company. It then proceeded:
"SECTION 5. And the said railroad company shall pay over to the
said fund commissioner all the
gross earnings and daily
receipts of said corporation, which shall be kept in deposit
in the bank, subject to the daily draft of said fund commissioner
as the same may be required by said corporation for actual
disbursement in operating said railroad and in
carrying on the
ordinary business of said corporation, and for the other
purposes hereinafter provided, and upon the failure of said company
to pay said money to said fund commissioner as herein provided, the
said company shall forfeit and pay to the State of Missouri for
each and every such neglect or refusal the sum of $10,000."
"SECTION 6. The said commissioner shall pay over to the said
corporation from time to time out of the funds coming into his
hands as aforesaid the amounts required for purposes of
construction and equipment of said railroad, upon vouchers of the
chief engineer, and upon the vouchers of the treasurer thereof, he
shall pay the amounts required for operating said railroad and
carrying on the ordinary business of said corporation, and he shall
pay and disburse the funds in the following order of priority,
to-wit:"
"
First. To the said corporation the amounts required,
from day to day, for the actual current expenditures in operating
said railroad and carrying on the ordinary business of said
corporation, including all sums that may be necessary for keeping
said railroad in a good state of repair, and all sums that may be
necessary for time to time for such additions to the rolling stock,
buildings, and appurtenances of said road, as may be required to
enable said corporation to accommodate and transact the business of
their said railroad, and "
Page 87 U. S. 48
"
Second, the amount of his salary as fund commissioner,
in monthly installments, and,"
"
Third, the interest upon said mortgage bonds, as the
same shall fall due; and,"
"
Fourth, the cost of construction and equipment of said
railroad as aforesaid; and,"
"
Fifth, the accruing dividends on preferred stock, not
exceeding six percent per annum thereon, in accordance with the
provisions of this act in relation thereto; and,"
"
Sixth, the interest due on the outstanding bonds of
the State of Missouri heretofore loaned to said corporation;
and,"
"
Lastly, the surplus remaining shall be applied to the
payment of the principal of said first mortgage bonds until the
same shall be fully paid off, or, if more of said bonds shall have
become due, then to the payment of the principal of the said bonds
of the State of Missouri if any still outstanding; and the balance
shall be paid to the North Missouri Railroad Company, and the said
office of fund commissioner shall then cease and be vacated."
"SECTION 9. The holders of the bonds of the State of Missouri
heretofore issued to the North Missouri Railroad Company are hereby
authorized to convert the same, with interest accrued thereon, into
preferred stock of the North Missouri Railroad Company, and the
holders thereof shall be entitled to receive a special dividend
thereon, not exceeding the rate of six percent per annum
in the
manner and in the order of priority above herein
provided."
The thirteenth section provided for an acceptance of this act by
the stockholders, and enacted that in the event of its being so
accepted,
"
It shall be and become of full force and binding effect
upon the said corporation and the State of Missouri."
The act was accepted in due form by the stockholders.
On the 8th of April, 1865, a convention of the people of
Missouri adopted "An ordinance for the payment of state and
railroad indebtedness." This ordinance levied on the railroad
company an annual tax of ten percent of all its gross receipts for
the transportation of freight and passengers, and directed that it
should be appropriated by the
Page 87 U. S. 49
general assembly to the payment of the principal and interest
now due or hereafter to become due upon the bonds of the state and
the bonds guaranteed by the state issued to the company.
The provisions of the ordinance will be seen more fully on pages
87 U. S. 3940,
supra, beginning near the bottom of the former page, at
the place marked with a *.
Under this ordinance, the Assessor of St. Louis County assessed
$68,257 (being ten percent) upon the gross receipts of the company
from October 1, 1866, to October 1, 1867, and delivered the same to
one Maguire, collector of taxes, who, on the company's refusal to
pay the bill, levied upon its engines, cars, &c. The company
thereupon sued him in trespass in one of the state courts, where a
case was stated for the judgment of the court, and by which it was
agreed that if the court should be of opinion that the ordinance
referred to was unconstitutional, there should be judgment for the
company for costs and nominal damages, and if of the opinion that
it was constitutional, judgment for Maguire for costs.
The Supreme Court of Missouri, where the case finally got --
referring among other clauses of the act of 1865, to that which
provided for the payment in the first place of the "amounts
required from day to day, for the actual current expenditures for
carrying on the ordinary business of the corporation" -- within
which it considered the payment of taxes to fall -- rendered
judgment for Maguire, and the company brought the case here.
One Jessup, who claimed the whole road under a sale, also stood
in some way on the record as a plaintiff in error.
Page 87 U. S. 54
MR. JUSTICE CLIFFORD delivered the opinion of the Court.
Much discussion of the evidence in the case will be unnecessary,
as the principal facts are embodied in an agreed statement, which
is made a part of the record.
By the agreed statement it appears that the plaintiff company is
a corporation established by the laws of the state, and that the
other plaintiff claims to be the legal owner of all the property
lately owned by the corporation. Said company was incorporated on
the third of March, 1851, with a capital stock of six millions of
dollars divided into shares of one hundred dollars each.
Pecuniary aid in large amounts was furnished to the company by
the state, as appears from several legislative acts. Such aid was
granted by the Act of the twentythird of December, 1851, in terms
as follows: that when evidence is produced satisfactory to the
governor that the company has collected fifty thousand dollars on
their capital stock and that they have expended the same in the
survey, location, and construction of the railroad, the governor
shall cause to be issued and delivered to the company special bonds
of the state to the same amount as a loan of public credit, bearing
interest and payable as therein provided. Provision is also made in
the same section that upon like proof that the company have
expended the whole of the sum realized from those bonds, and that
they have also expended a further sum of the same amount of their
own moneys, that the governor shall in like manner cause to be
issued and delivered to the company further like bonds for the same
amount, and so on in like manner as often as the company shall from
time to time furnish like evidence that they have expended from
their own moneys further sums, of not less than fifty thousand
dollars for the construction of the railroad and that they have
expended for the purpose the whole of the proceeds of the bonds
previously issued by the state, the governor shall cause to be
issued and delivered to the company further like bonds in
installments of the same amount, not exceeding in all the sum of
two millions of dollars.
Bonds of the kind were forbidden to be delivered until
Page 87 U. S. 55
the acceptance thereof should be signified to the secretary of
state by the filing in his office of a certificate of such
acceptance under the corporate seal of the company with the
signature of the president, and the provision was that the
certificate of acceptance so executed and filed should be recorded
in the office of the secretary of state, and that it shall become
and be, according to all intents and purposes, a mortgage of said
road and every part and section thereof, and its appurtenances, to
the people of the state, for securing the payment of the principal
and interest of the sums of money for which such bonds shall from
time to time be issued and accepted.
Legislative aid was also furnished in like form to certain other
railroad companies of the state to expedite their construction and
the completion of the same, amounting in the whole to the sum of
nine millions of dollars, including the amount furnished to the
plaintiff company, all of which was secured as a first lien on the
respective railroads in like manner.
None of the companies, however, were able to complete their
railroads without further aid from the state, and on the tenth of
December, 1855, the legislature, by an act entitled "An act to
secure the completion of certain railroads in the state," enacted
that it shall be the duty of the governor, upon the application of
any of said companies, with the proof of the investment of any sum
in the actual construction and equipment of the trunk line of the
railroad, from sources other than the proceeds of the bonds of the
state, and not secured upon the road by a lien prior to that of the
state, and verified as therein required, to sign and deliver to
such company an amount in the bonds of the state equal to twice the
amount so proven to have been invested in the construction and
equipment of the said railroad since the last application and issue
of bonds to such company, and successively from time to time, upon
the application for bonds and proof of such investment, the
governor shall issue and deliver, in like manner, bonds to such
company until the aggregate amount to the plaintiff company shall
be
Page 87 U. S. 56
two millions of dollars, one million of which shall be
exclusively applied to the construction of a portion of said road
therein described; and it is made the duty of the governor to
expend the other million of dollars for the purchase of the
railroad iron necessary to lay the track of said road, from one
described point to another, and to purchase the rolling stock for
the same, and the provision is that the said iron and rolling stock
so purchased shall belong to the state until placed upon the track
for use, after which time the state shall have a first lien on said
iron and rolling stock, together with all the road and its
equipments, constructed and to be constructed, for the security of
the payment of the principal and interest of said bonds, and all
bonds issued or that may be issued to said company under this or
any former act of the legislature granting the credit of the state
to the company.
Power is also reserved to the state to enforce the lien on the
railroad for the failure on its part to pay punctually principal
and interest on the bonds issued for its benefit, as herein and
heretofore provided for in such cases; and the company shall pay at
the times herein specified,
"to the treasurer of the state one and a quarter percent, in
addition, in each year, on each thirtyyear bond, and two and a half
percent in each year on each twentyyear bond so sold or
hypothecated, to be invested at not less than seven percent
interest, in such securities as are provided in the act."
By the same section it is also provided that from the net
profits arising from the road after the same shall be completed and
in operation, a sum equal to not less than ten percent per annum
upon the net earnings of the railroad shall be paid by the company
to the treasurer of the state as a sinking fund for the purpose of
paying at maturity the bonds of the state so issued and to be
issued to the company.
Special provision is also made that the treasurer of the company
and the treasurer of the state shall be the commissioners of the
sinking fund, and that it shall be the duty of the company to pay
or remit the semiyearly interest to the designated place, as
therein provided, and in case the
Page 87 U. S. 57
company shall fail to pay such interest or to remit the amount
to the designated place, it is made the duty of the treasurer of
the state to supply the amount and remit the same, in which event
he is required to refund the amount from the sinking fund and
charge the same to the defaulting company. In that event, the
provision is that the defaulting company shall not draw any further
state bonds. Moneys, funds, and securities belonging to the sinking
fund are declared to be subject to the control, care, and
management of the fund commissioners, and the provision is that
from time to time they may invest the same in the bonds of the
state under the conditions therein provided.
All funds derived from the sale of state bonds were expended,
but still the railroad was not completed, and on the third of
March, 1857, the legislature made a further loan of credit to the
company of one and a half millions of dollars, to be issued in
bonds and to be expended upon the railroad south of the junction
therein described, which bonds were to be issued in installments of
two hundred thousand dollars, upon proof furnished to the governor
of the expenditure for the same purpose of a sum equal to their par
value in the construction of the railroad, and the company was
authorized by the same act to establish and keep a ferry across the
Missouri River where its road strikes the same for all purposes
connected with the company, and for general purposes, by paying the
usual license tax provided by law in such cases.
Bonds could not be lawfully issued under that act until the
company accepted the act, and it was provided that the failure to
pay any part of the principal or interest of the bonds should be a
forfeiture of all right in such company to demand or receive any
further issue of bonds, and in that event it was made the duty of
the governor to foreclose the mortgage of the state and to enforce
her lien on the property of the company.
Before the year expired, to-wit on the nineteenth of November
following, the legislature authorized the governor to issue to the
plaintiff company a further amount of two hundred
Page 87 U. S. 58
and fifty thousand dollars in the bonds of the state, to
complete a described portion of the road, and the same act provided
that the act should not be construed to release the railroad from
any penalty or forfeiture to which the company may be liable under
such prior laws.
Authority was conferred upon the company by the Act of the
sixteenth of February, 1865, to issue their own bonds to the amount
of six millions of dollars, and to secure the same by a first
mortgage of their railroad and appurtenances, as more fully set
forth in the act. Such bonds were to be issued in three classes and
were to be applied as therein provided, and to facilitate the sale
of the bonds, the state relinquished her first lien and mortgage
upon the main line of the railroad, retaining
only a
second lien and mortgage thereon until the principal and interest
of said bonds are paid in full. By the same act, the legislature
created a fund commissioner and enacted that whenever any portion
of said bonds shall be issued, that they shall be placed in the
hands of the fund commissioner to be negotiated, and the proceeds
paid over to the corporation for the purposes and under the
regulations and restrictions provided in the same act, but the act
was not to be operative unless accepted by the company in the mode
therein provided. Prior inconsistent provisions in relation to the
plaintiff company were repealed by the twelfth section of the act,
and the provision is that the work on the west branch should not be
expedited to the exclusion of the construction of the main line of
the railroad.
Those several acts were duly accepted by the company and were in
force on the eighth of April following. Interest was paid by the
company on the bonds issued until the year 1860, when the company
made default, and such interest has never been paid. On the said
eighth of April, the people of the state adopted an ordinance as a
part of their constitution which provides to the effect that an
annual tax of ten percent of all their gross receipts, with an
immaterial exception, shall be levied and collected of the company
and two other companies therein named, for the
Page 87 U. S. 59
period of two years, as therein described, and fifteen percent
thereafter, which tax shall be assessed and collected in the county
of St. Louis in the same manner as other state taxes are assessed
and collected, and shall be appropriated by the legislature to the
payment of the principal and interest now due or hereafter to
become due upon the bonds of the state issued to the company.
Such receipts for the transportation of freight and passengers
for the first of the two years, not including any sum received from
the excepted source, amounted to six hundred and eightytwo thousand
five hundred and seventy dollars, and the agreed statement shows
that a tax of ten percent, amounting to sixtyeight thousand two
hundred and fiftyseven dollars, was assessed in the proper county
on the gross receipts of the railroad for that year, under the
provisions of the said ordinance. None of the principal of the
bonds was due at the time the tax was assessed, but the interest on
the same, to an amount greater than the amount of the tax, was due
at that time.
Payment of the tax being refused the defendant, as the
collector, seized the property of the company to satisfy the same,
and the plaintiffs here brought an action of trespass against the
collector to test the validity of the tax in the state circuit
court for the county where the tax was assessed. Service was made
and the defendant appeared, when the parties waived a jury and
submitted the case to the court upon an agreed statement of facts.
Hearing was had and the court rendered judgment for the e
plaintiffs and the defendant excepted and appealed to the supreme
court of the state, where the judgment of the state circuit court
was reversed and a judgment rendered for the defendant. Whereupon
the plaintiffs sued out a writ of error and removed the cause into
this Court.
Corporate powers were conferred upon the company by the Act of
the third of March, 1851, but the act of incorporation contains no
provision whatever exempting the property of the company from
taxation. Three years later, the charter was amended, and the sixth
section of the amendatory act
Page 87 U. S. 60
provided that the capital stock, with all machines, wagons,
cars, engines, or carriages belonging to the company, with all
their works or other property, and all profits which shall arise
from the same, shall be vested in the shareholders in proportion to
their shares, and that the same shall be deemed personal estate and
shall be exempt from any public charge or tax whatsoever for the
period of five years from and after the passage of the act, which
period has long since elapsed.
Attempt is made in argument to show that an exemption from
taxation may be implied from some of the provisions of the act to
provide for the completion of the railroad and its west branch.
Based solely on that theory the error assigned is that the
ordinance of the state imposing the tax is in violation of that
provision of the Constitution which prohibits the states from
passing any law impairing the obligation of contracts. Pursuant to
that theory the plaintiffs contend that the legislative act to
complete the railroad enacted a mode of making payments by the
company to the state, which, when the act was accepted by the
company, became a binding contract between the parties, within the
protection of that provision of the Constitution, and that as such
it could not be rescinded by any subsequent legislation, and that
the ordinance does impair the obligation of that contract by
providing another and a different mode of enforcing the payments
without the consent of the company.
Serious difficulty would arise in sustaining the judgment of the
state court if the view assumed in the proposition was correct,
that the ordinance was a mere change of the order of disbursing the
receipts and earnings of the company, instead of being what it
purports to be on its face, an expression of the sovereign will of
the people of the state levying taxes to pay and discharge the
indebtedness of the state.
Power to tax is granted for the benefit of the whole people, and
none have any right to complain if the power is fairly exercised
and the proceeds are properly applied to discharge the obligations
for which the taxes were imposed. Such a
Page 87 U. S. 61
power resides in the state government as a part of itself, and
need not be reserved when property of any description is granted to
individuals or corporate bodies. [
Footnote 1]
Unless exempted in terms which amount to a contract not to tax,
the property, privileges, and franchises of a corporation are as
much the legitimate subjects of taxation as any other property of
the citizens which is within the sovereign power of the state.
Repeated decisions of this Court have held, in respect to such
corporations, that the taxing power of the state is never presumed
to be relinquished, and consequently that it exists unless the
intention to relinquish it is declared in clear and unambiguous
terms. [
Footnote 2]
Express exemption is not pretended, nor does the act to provide
for the completion of the railroad contain any provision which,
when properly construed, affords any support to the proposition
that any such contract exists between the company and the state,
either express or implied, even if it could be admitted that mere
implication is sufficient, which may well be questioned, as the
current of the decisions of this Court warrant the conclusion that
if such an exemption be claimed it must be made to appear in clear,
explicit, and unequivocal terms.
Authorities from numerous sources are cited by the plaintiffs,
but none of them shows that a lawful tax on a new subject, or an
increased tax on an old one, interferes with a contract or impairs
its obligation within the meaning of the Constitution, even though
such taxation may affect particular contracts, as it may increase
the debt of one person and lessen the security of another or may
impose additional burdens upon one class and release the burdens of
another, still the tax must be paid unless prohibited by the
Constitution, nor can it be said that it impairs the obligation of
any existing contract in its true legal sense. [
Footnote 3]
Page 87 U. S. 62
Properties of every kind over which the sovereign power of a
state extends are objects of taxation outside of the means and
instruments of the Federal government. [
Footnote 4]
Unrestricted by constitutional limitations the only restraint
upon the taxing power of the states is the responsibility of those
in whom the power is lodged, and the power of appropriation of the
proceeds, when not so restrained, is equally unlimited. [
Footnote 5]
Questions not involved in the assignment of errors will not be
examined, nor is it necessary, as all agree that the main question
in the case is whether the ordinance impairs the obligation of any
contract made and concluded between the state and the company
before the ordinance was adopted.
Unless the power of the state to tax the company was surrendered
by the antecedent act to provide for the completion of the
railroad, it must be conceded that the power exists, as it is plain
that none of the other acts referred to afford any support whatever
to such a proposition.
Five years before that act was passed, the company made default
in the payment of the interest falling due on the bonds which the
state issued for their benefit, and by that act the legislature
postponed and released the lien of the state, which was a first
lien on all their property to the amount of four millions three
hundred and fifty thousand dollars, and accepted in its stead a
second lien upon the same property in order that the company might
issue six millions of dollars of bonds of their own and be able to
secure their payment, principal and interest, by a first mortgage
upon the same property, to complete the main line of the road and
its west branch and the bridge therein described.
Moneys belonging to the company from that time were to be placed
in the hands of the fund commissioner created by the act, and were
to be disbursed by him as follows:
(1) Amounts required for the actual current expenditures in
operating the railroad and carrying on the ordinary business
Page 87 U. S. 63
of the corporation, including all sums that may be necessary for
keeping the same in a good state of repair, and for such additions
to the rolling stock, &c., as may be required to enable the
company to transact the business of the railroad.
(2) Amounts sufficient to pay the salary of the fund
commissioner.
(3) Amounts sufficient to pay the interest upon said first
mortgage bonds, as the same shall fall due.
(4) Amounts necessary to pay the cost of the construction and
equipment of the railroad.
(5) Amounts sufficient to pay accruing dividends on preferred
stock, not exceeding six percent per annum thereon, as provided in
the act.
(6) Amounts sufficient to pay the interest due on the
outstanding bonds of the state previously loaned to the
company.
(Lastly) He shall disburse the surplus to the payment of the
principal of said first mortgage bonds until the same shall be
fully paid off, or if none of such bonds shall have become due,
then to the payment of the principal of the bonds of the state, if
any are still outstanding, and the balance shall be paid over to
the company.
Further examination of those provisions is certainly
unnecessary, as it is too plain for argument that they do not
afford the slightest support to the views of the plaintiffs. On the
contrary, they are entirely silent upon the subject of taxation and
fully justify the remarks of the state court when they say that the
subject of taxation forms no part of the contract contained in the
act under consideration. [
Footnote
6]
Nothing is said about taxation, and it does not seem to have
entered into the contract between the parties, but was obviously
left where the law had placed it before the act was passed; nor was
any provision made for the payment of taxes unless it may be held
that the disbursements for that purpose may fairly be included in
such as are required to pay the current expenditures in carrying on
the ordinary business of the corporation. [
Footnote 7]
Reference is also made to some other sections of the act
Page 87 U. S. 64
as supporting the proposition submitted by the plaintiffs, but
it is so obvious that they cannot be so regarded without departing
from the established rules of law applicable in such cases that it
is not necessary to pursue the discussion.
Like controversy exists between the state and another of the
railroads mentioned in the ordinance, in which case it is contended
that the ten percent charge imposed by that instrument is not a tax
within any correct meaning of that word, that it is an
appropriation of the property of the company without due process of
law, or the taking of the property of the company without just
compensation, but no such questions are open for examination in
this case, as no such errors are assigned in the record.
Judgment affirmed.
THE CHIEF JUSTICE dissented. STRONG J., did not sit.
[
Footnote 1]
Cooley on Constitutional Limitations 127280.
[
Footnote 2]
Society for Savings v.
Coite, 6 Wall. 606;
Philadelphia and
Wilmington Railroad Co. v. Maryland, 10 How. 393;
Providence Bank v.
Billings, 4 Pet. 561;
Jefferson
Bank v. Skelly, 1 Black 436;
Ohio Life
Insurance & Trust Co. v. Debolt, 16 How.
416.
[
Footnote 3]
Blackwell on Tax Titles (2d ed.) 408.
[
Footnote 4]
Hamilton Co. v.
Massachusetts, 6 Wall. 639.
[
Footnote 5]
Griffin v. The Mayor, 4 Comstock 419;
Crowell v.
Lawrence, 41 N.Y. 141.
[
Footnote 6]
City of St. Louis v. Insurance & Trust Co., 47 Mo.
155.
[
Footnote 7]
Railroad Company v. Maguire, 49 Mo. 490;
Pacific
Railroad v. Maguire, 51 Mo. 142.
