1. A statute exempting all the property of a railroad
corporation from taxation, exempts not only the rolling stock and
real estate owned by it and required by the company for the
successful prosecution of its business, but its franchise also.
2. A charter to a railroad company containing such an exemption
is a contract, and a law subsequently passed, laying a tax on the
company's franchise, rolling stock, or real property, violates the
obligation of the contract, and is void.
In 1853 the Legislature of North Carolina chartered the
Wilmington and Raleigh Railroad Company. One section of the charter
ran thus:
"It shall be lawful for the president and directors to purchase
with the funds of the company, and place on the said railroad, all
machines, wagons, vehicles, carriages, and teams of any description
whatsoever which may be deemed necessary for the purposes of
transportation, and all the property purchased by the said
president and directors, and that which may be given to the
company, and the works constructed under the authority of this act,
and all profits accruing on the said works and the said property
shall be vested in the respective shareholders of the company and
their successors and assigns forever, in proportion to their
respective shares, and the shares shall be deemed personal
property,
and the property of said company and the shares
therein shall be exempt from any public charge or tax
whatsoever."
With this charter in force, the franchise and rolling stock of
the company were assessed, under a subsequent law and pursuant to
it, for taxation by the state of North Carolina and the county of
Halifax, in two parts -- one, the apportioned share for the County
of Halifax, assessed in each case upon the entire franchise and
rolling stock jointly, and the other a tax assessed upon certain
lots of land in Halifax County, appurtenant to and forming a part
of the property of the company, and necessary to its business.
Page 80 U. S. 265
On application for injunction against one Reid, sheriff, who was
going to seize the company's property for nonpayment of the tax --
the application for the injunction being made on the ground that
the subsequent law impaired the obligation of a contract -- the
supreme court of the state adjudged that the law did not do this,
and that the tax was valid. The case was accordingly now brought
here by the company to review that judgment.
It may be here added that provisions exempting the property of
companies chartered by it exist in the cases of numerous companies
incorporated by the Legislature of North Carolina, beginning with
the charter to the Dismal Swamp Canal Company, A.D. 1790. In some
cases, the provision exempted the company from all taxes forever;
in others but for a limited time. In some, all dividends were
exempted; in others, dividends when not exceeding a certain rate
percent. Such exemptions are more observable in earlier times than
in later ones.
Page 80 U. S. 266
MR. JUSTICE DAVIS delivered the opinion of the Court.
It has been so often decided by this Court that a charter of
incorporation granted by a state creates a contract between the
state and the corporators which the state cannot violate that it
would be a work of supererogation to repeat the reasons on which
the argument is founded. It is true that when a corporation claims
an exemption from taxation, it must show that the power to tax has
been clearly relinquished by the state, and if there be a
reasonable doubt about this having been done, that doubt must be
solved in
Page 80 U. S. 267
favor of the state. If, however, the contract is plain and
unambiguous and the meaning of the parties to it can be clearly
ascertained, it is the duty of the court to give effect to it the
same as if it were a contract between private persons, without
regard to its supposed injurious effects upon the public
interests.
It may be conceded that it were better for the interest of the
state that the taxing power, which is one of the highest and most
important attributes of sovereignty, should on no occasion be
surrendered. In the nature of things, the necessities of the
government cannot always be foreseen, and in the changes of time,
the ability to raise revenue from every species of property may be
of vital importance to the state, but the courts of the country are
not the proper tribunals to apply the corrective to improvident
legislation of this character. If there be no constitutional
restraint on the action of the legislature on this subject, there
is no remedy except through the influence of a wise public
sentiment reaching and controlling the conduct of the lawmaking
power.
There is no difficulty whatever in this case. The General
Assembly of North Carolina told the Wilmington & Weldon
Railroad Company, in language which no one can misunderstand, that
if they would complete the work of internal improvement for which
they were incorporated, their property and the shares of their
stockholders should be forever exempt from taxation. This is not
denied, but it is contended that the subsequent legislation does
not impair the obligation of the contract, and this presents the
only question in the case. The taxes imposed are upon the franchise
and rolling stock of the company and upon lots of land appurtenant
to and forming part of the property of the company and necessary to
be used in the successful operation of its business. It certainly
requires no argument to show that a railroad corporation cannot
perform the functions for which it was created without owning
rolling stock and a limited quantity of real estate, and that these
are embraced in the general term property. Property is a word of
large
Page 80 U. S. 268
import, and in its application to this company included all the
real and personal estate required by it for the successful
prosecution of its business. If it had appeared that the company
had acquired either real or personal estate beyond its legitimate
wants, it is very clear that such acquisitions would not be within
the protection of the contract. But no such case has arisen, and we
are only called upon to decide upon the case made by the record,
which shows plainly enough that the company has not undertaken to
abuse the favor of the legislature.
It is insisted, however, that the tax on the franchise is
something entirely distinct from the property of the corporation,
and that the legislature therefore was not inhibited from taxing
it. This position is equally unsound with the others taken in this
case. Nothing is better settled than that the franchise of a
private corporation -- which in its application to a railroad is
the privilege of running it and taking fare and freight -- is
property, and of the most valuable kind, as it cannot be taken for
public use even without compensation.
* It is true it is
not the same sort of property as the rolling stock, roadbed, and
depot grounds, but it is equally with them covered by the general
term "the property of the company," and therefore equally within
the protection of the charter.
It is needless to argue the point further. It is clear that the
legislation in controversy did impair the obligation of the
contract which the General Assembly of North Carolina made with the
plaintiff in error, and it follows that the judgment of the Supreme
Court must be
Reversed and the cause remanded for further proceedings in
conformity with this opinion.
* Redfield on Railways 129, ยง 70.
