# St. Louis, Iron Mountain & Southern Railway Co. v. Berry (41 Ark. 509)

The Arkansas Supreme Court's decision in St. Louis, Iron Mountain & Southern Railway Co. v. Berry, 41 Ark. 509 (1883), was affirmed upon appeal to the U.S. Supreme Court. See 113 U.S. 465 (1885).
Supreme Court of Arkansas
41 Ark. 509
St. Louis, Iron Mountain & Southern Railway Co. v. Berry et al., Railroad Commissioners
Appeal from Pulaski Chancery Court
* Court Documents
* Opinion of the Court
* Linked cases: 113 U.S. 465
The legislature was not restrained by the Constitution of 1836 from granting immunity from taxation, and could bind the state by an act exempting a railroad corporation from taxes.
2. TAXATION: Immunity from. Construction of act.
Every act of the legislature granting immunity from taxes must be strictly construed, and be so clear that there can be no reasonable doubt or controversy about its terms. If, on fair construction, there is a reasonable doubt whether the contract of exemption claimed in the act is made out, this doubt must be solved in favor of the State. An intention to surrender the power of taxation will not be imputed unless the language of the act leaves no other alternative.
3. RAILROADS: Consolidation: Effect of.
The legal effect of a consolidation of railroad companies is to extinguish the constituent companies and to create a new corporation with property, liabilities, and stockholders of the old companies which pass out of existence.
4. CAIRO AND FULTON R. R.: Power to consolidate with other companies.
Under the charter of the Cairo & Fulton Railroad company, it had no power to consolidate with other companies after it was completed, as the authority to consolidate was only to "facilitate its early construction." But it did have such power under the act of July 23rd, 1868.
5. TAXATION: Immunity from, not transferred to consolidated company.
The immunity from taxation granted to a railroad company does not pass to a new company, with which it becomes consolidated unless the statute granting the immunity so clearly provides for its transfer as to leave no room for controversy.
6. RAILROAD: Conditional exemption from taxes.
A provision in a railroad charter exempting the road and equipments from taxes until the income should amount to a certain per cent. per annum on the cost of construction and equipments, implies an accounting by the company to the State, showing the cost of construction and equipments and the annual receipts and expenditures of the road, as a means of ascertaining when the right to tax it accrues.
APPEAL from Pulaski Chancery Court.
HON. D. W. CARROLL, Chancellor.
​J. M. Moore and Dodge & Johnson, for Appellants.
C. B. Moore, Attorney-General, and U. M. and G. B. Rose, for Appellees.
The exemption clause of the act incorporating the Cairo & Fulton R. R. Co., is to receive a strict construction. The rule governing in such cases is laid down very explicitly in Bailey v. McGuire, 22 Wall., 226. It is never for the interest of the State to surrender the power of taxation, and an intention to do so will not be imputed to it unless the language employed leaves no alternative. Ib.
Exemptions from taxation are never presumed. * * * The presumptions are always the other way. Railway Co. v. Loftin, 94 U.S., 594.
The reference in the charter to that of the Mississippi Valley R.R. Co., does not help the plaintiff. The rule as to the construction of what is called a "reference statute" is laid down in Bing v. Justices of Surrey, 2 Tenn. R., 510.
In R.R. Co. v. Loftin, 30 Ark., 711, the reference clause is mentioned, but the court decided the case exclusively on the provisions of the charter of the Cairo & Fulton R.R. Co. The Supreme Court of the U.S. said, "The twenty-fifth section of the Mississippi Valley charter, even if it was incorporated with that of the Cairo & Fulton Co., of which there may be doubt, does not materially change the effect of the eleventh section"—and they did not find it needful to pass on this question except as above. Railway Co. v. Loftin, 94 U.S., 563.
We assert that there is nothing in the charter of the Cairo & Fulton R.R. Co. authorizing it to consolidate with any other road. The word "consolidate" is not found in the charter. It is avoided with elaborate care.
To have allowed a consolidation would have defeated, forever, the enforcement of taxation as provided by the ​eleventh section of the charter, whenever it should pay "ten per centum per anum." By consolidation, the consolidating companies are extinguished and a new corporation is created. McMahon v. Morrison, 16 Ind., 172; Lauman v. Lebanon R.R. Co., 30 Penn. St., 42.
This was not authorized by the tenth section of the charter, which gave the company power to make joint stock with any other railroad, "and to form one board of directors for the management of their (not its) affairs."
Where the legislature gives its consent to the consolidation of corporations, the effect is to dissolve the former corporations and create a new corporation upon such terms and conditions as may be prescribed by the act of consolidation. McMahan v. Morrison, 16 Ind., 172. And the new consolidated corporation takes subject to the constitutional provisions in force when the consolidation takes effect. State v. Sherman, 22 Ohio S., 411; Central Railroad Company v. State, 54 Ga., 402; Atlantic R.R. Co. v. State, 55 Ga., 312; State v. Northern C. R.R. Co., 44 Ind., 165; Shields v. Ohio, 26 Ohio St., 90; State v. Atlanta R.R. Co., 60 Ga., 269; Atlanta R.R. Co. v. State, 63 Ga., 485.
It is argued that the plaintiff R.R. Co. cannot be taxed without impairing the obligation of its contract with the State.
The question thus presented is a federal one, and the supreme court of the U.S. has decided the question in language that silences all debate, in Shields v. Ohio, 95 U.S., 319; a case in no wise distinguishable in principle from this. It differed from this case in two respects—
* The acts permitting the consolidation were passed before the adoption of the new constitution of Ohio, of 1851.
* The provisions of the new constitution were less stringent than those of our constitution of 1868.
​Yet the supreme court of the U.S. held that the privileges granted in the original charter, in so far as inconsistent with the constitution of 1851, had ceased to exist.
It is insisted that this question was decided the other way in Zimmer v. State, 30 Ark., 677. This question did not and could not arise in that case.
The remark of the court as to the effect of the consolidation in the chartered rights of the company were the merest dicta, and are in reality no part of the decision.
The doctrine laid down in Shields v. Ohio, has been affirmed in R.R. Co. v. Maine, 96 U.S. 499; a very strong case for us. And to the same effect is R.R. Co. v. Georgia, 98 U.S. 359.
The recently decided case of Louisville R.R. Co. v. Palmes, 3 S.C. Reporter, 193, merits special attention. The facts in that case are almost identical with the case under consideration. The court, reaffirming Shields v. Ohio, declared "that in cases of corporations created by consolidation, the powers of the new company did not pass to it by transmission from its constituents, but resulted from a new legislative grant, that could not transcend the constitutional authority existing at the time it took effect."
But, even admitting we are wrong in all the foregoing propositions, the result is still the same.
The ten per cent. mentioned in the charter of the C. & F. R.R. Co. relates to "the amount invested in building and equipping it." St. L. R.R Co. v. Loftin, 30 Ark., 710.
Plaintiff offered no admissible evidence of costs of construction and equipment. It did not even offer its books. If it had done so, they could not be regarded. Burt v. Byers, 10 Ark., 398; State Bk. v. Barber, 12 Id., 775; Same v. Fowler, 15 Id., 160; Sessions v. Peay, 19 Id., 266.
Estimate made second hand from the books by plain ​plaintiff's accountant are still worse. Those estimates are wonderful. Plaintiff's auditor says the books show a cost of construction and equipment of the C. & F. road up to date of construction, May 1, 1874, $23,157,000.62.
In the Loftin case above cited (30 Ark., 698), the same plaintiff stated that "the total cost of said railroad and equipments was about $11,157,000." Now, in some mysterious way, it is more than doubled. According to this sliding scale, there is no hope that the road will ever pay the requisite ten per cent. As the testimony of plaintiff was inadmissible, it was not necessary to move to exclude it. Fricks v. Rector, 4 Ark., 277; Barraque v. Price, 9 Id., 548; Hardy v. Heard, 15 Id., 188.
The only testimony in the transcript, as to the cost of building and equipping the road, is that of the witness Hughes.
His estimate, made from actual acquaintance with the cost and construction of railroads in this State, (including bridges first made of wood and now replaced by iron), of the total cost of the road and its equipment is $7,712,500.
The auditor of plaintiff states the net income of the main line in Arkansas for 1882 to be $1,312,612.26, which is more than ten per cent. on $7,712,500.
Even taking the branch roads of plaintiff into consideration, which cannot be done, as they are plainly not included in any exemption with the main road, the evidence shows the net earnings of the road largely over ten per cent.
Undoubtedly, plaintiff never had any exemption, but if it ever had, the evidence clearly shows that its prosperity has outgrown the exemption, and the exemption has long since ceased.
[Opinion of the court by Justice WILLIAM W. SMITH.]
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