Source: https://supreme.justia.com/cases/federal/us/114/176/
Timestamp: 2019-04-25 18:03:52+00:00

Document:
The provision in the act of the Legislature of West Virginia incorporating the Covington & Ohio Railroad Company that "no taxation upon the property of the said company shall be imposed by the state until the profits of said Company shall amount to ten percent on the capital" was personal to that company, and did not inhere in the property so as to pass by a transfer of it.
Immunity from taxation conferred on a corporation by legislation is not a franchise. Morgan v. Louisiana, 93 U. S. 217, quoted and affirmed.
"such sale and conveyance shall pass to the purchaser at the sale not only the works and property of the company as they were at the time of making the deed of trust or mortgage, but any works which the company may, after that time and before the sale, have constructed,"
and that "upon such conveyance to the purchaser, the said company shall ipso facto be dissolved," and further that "said purchaser shall forthwith be a corporation" and "shall succeed to all such franchises, rights and privileges . . . as would have been had by the first company but for such sale and conveyance." Held (1) that purchasers thus becoming a corporation derived the corporate existence and powers of the corporation from this act, and were subject to general laws as to corporations then in force; (2) that an immunity from taxation enjoyed by the former corporation was not embraced in the words of description in the act, and did not pass to the new corporation.
This suit was begun by a bill in equity in a court of the State of West Virginia against the auditor of that state to restrain the collection of a tax, alleged to be illegal, on the ground that the plaintiff in error enjoyed an immunity from taxation. Being decided against the claim of exemption, the cause was brought here by writ of error. The grounds of the claim and the other facts which make the federal question are stated in the opinion of the Court.
This writ of error brings into review a final decree of the Supreme Court of appeals of the State of West Virginia dismissing the bill of complaint filed by the plaintiff in error, the error assigned being that that court gave effect to a statute of the state alleged to be void, on the ground that it impaired the obligation of a contract between the plaintiff in error and the State of West Virginia.
The statute thus drawn in question is an Act of the Legislature of West Virginia passed March 7, 1879, subjecting the property of the plaintiff in error in that state to taxation.
of said company shall amount to ten percent on the capital of the company."
The plaintiff in error (complainant below), alleging that it was entitled to the benefit of this exemption by way of contract with the state, and that no profits had been made by it upon its capital, prayed for an injunction to restrain the appellee, the Auditor of West Virginia, from proceeding under the Act of March 7, 1879, to assess and collect any tax upon its property within the state.
"all the rights, interest, and privileges of whatsoever kind in and to the Covington and Ohio Railroad, and appurtenances thereunto belonging, now the property of the State of West Virginia, upon condition that it shall within six months after its incorporation, as provided in the tenth section of the act, commence and within six years complete, equip, and operate a railroad,"
etc., as therein described, and a failure to comply with this condition operated to forfeit the title to the road, which should then revert to the state.
"they are empowered to make a contract with any parties who shall give the best terms and the most satisfactory assurances of capacity and responsibility, and to introduce into said contract any additional stipulations for the benefit of the state and in furtherance of the purposes herein declared and not inconsistent with this act, which contract shall be, to all intents and purposes, as much a part of this charter as if the same had been herein included at the time of the passage of this act."
The certificate of these commissioners of the due execution of such a contract, and the organization of the company, should operate to confer upon said company all the benefits of this charter, subject only to the provisions of the Code of Virginia for the government of internal improvement companies so far as not inconsistent with that act.
entitled to all the benefits of the charter of the Covington and Ohio Railroad, and to all the rights, interests, and privileges which by this act are conferred upon the Chesapeake and Ohio Railroad Company when organized."
Accordingly, on August 31, 1868, the Commissioners of Virginia and of West Virginia entered into a contract with the Virginia Central Railroad Company, by which the Chesapeake and Ohio Railroad Company was formed and under which it was organized, and the same was approved, ratified, and confirmed by an act of the Legislature of West Virginia "confirming and amending the charter of the Chesapeake and Ohio Railroad Company, passed January 26, 1870." Among other things, it was therein provided that the company might borrow such sums of money at a rate of interest not exceeding eight percent per annum as might be necessary, in addition to the funds arising from stock subscriptions for the completion of the road, and should have power to execute a lien on its property and resources to secure the payment of the principal and interest of such loans, and the Chesapeake and Ohio Railroad Company was thereby declared to be entitled to all the benefits of the charter of the Covington and Ohio Railroad, and to all the rights, interests, benefits, and privileges, and be subject to all the duties and responsibilities, provided and declared in the said contract and in the statutes therein referred to.
In pursuance of these powers, the Chesapeake and Ohio Railroad Company completed the contemplated line of railroad and put the same in operation, not, indeed, strictly within the time limited in the charter, but the forfeiture thereby incurred was released by an Act of the Legislature of West Virginia passed February 20, 1877.
in the courts of Virginia and West Virginia, so that in the latter, all of the railroad and other property situate in that state were brought to sale under a decree of the Circuit Court for the County of Kanawha, in West Virginia, rendered on December 18, 1877, and were sold and conveyed to the purchasers, who, in pursuance of the statute then in force, applicable thereto, became a corporation under the name of the Chesapeake and Ohio Railway Company, the plaintiff in error in these proceedings.
The statute under which these proceedings took place was an act of the Legislature of West Virginia passed February 18, 1871, relating to sales made under deeds of trust or mortgages by railroads or other internal improvement companies in that state, as amended by an Act passed February 20, 1877, extending its provisions to judicial sales.
"If a sale be made under a deed of trust or mortgage executed by a railroad or other internal improvement company in this state, on all its works and property, and there be a conveyance pursuant thereto, such sale and conveyance shall pass to the purchaser at the sale not only the works and property of the company as they were at the time of making the deed of trust or mortgage, but any works which the company may, after that time and before the sale, have constructed, and all other property of which it may be possessed at the time of the sale other than debts due to it. Upon such conveyance to the purchaser, the said company shall ipso facto be dissolved. And the said purchaser shall forthwith be a corporation by any name which may be set forth in said conveyance or in any writing signed by him or them and recorded in the recorder's office of any county wherein the property so sold or any part thereof is situated or where said conveyance is recorded."
and shall not be liable for any debts of or claims against the said first company which may not be expressly assumed in the contract of purchase, and that the whole profits of the business done by such corporation shall belong to the said purchaser and his assigns. His interest in the corporation shall be personal estate, and he or his assigns may create so many shares of stock therein as he or they may think proper, not exceeding together the amount of stock in the first company at the time of the sale, and assign the same in a book kept for that purpose. The said shares shall thereupon be on the footing of shares in joint stock companies generally, except only that the first meeting of the stockholders shall be held on such day and at such place as shall be fixed by the said purchaser, of which notice shall be published for four successive weeks in a newspaper printed in each county in the state wherein said corporation may do business."
These provisions are copied from the Code of Virginia of 1860, c. 61, §§ 28, 29, and 31. This circumstance is material to the case, as urged by the plaintiff in error, in view of the provision of the first section of the Act of the Legislature of West Virginia of March 1, 1866, to incorporate the Covington and Ohio Railroad Company, which provided for its future organization as a corporation, "according to the provisions of the Code of Virginia, second edition, for the government of incorporated companies." It remains to be added that the Legislature of West Virginia passed an Act on January 31, 1879, to amend § 7 of the act to incorporate the Covington and Ohio Railroad Company so as to omit from it altogether the clause containing the exemption from taxation. C. 5, W.Va. Acts, 1879.
That the Chesapeake and Ohio Railroad Company, by virtue of its organization as a corporation under the Act of March 1, 1866, became entitled to the exemption from taxation secured by the § 7 of that act, and that as a matter of contract, is not denied or disputed. Whether the Chesapeake and Ohio Railway Company succeeded to that right and immunity is a question to be determined.
"No taxation upon the property of the said company shall be imposed by the state until the profits of the said company shall amount to ten percent on the capital of the company."
subscribed to form that company and no other. And there are no words of assignability attached, either expressly or by any implication, to this immunity. The reasons for considering such an exemption to be a privilege pertaining to the corporation, and not inhering in the property and passing to an assignee, were fully stated by MR. JUSTICE FIELD in delivering the opinion of the Court in the case of Morgan v. Louisiana, 93 U. S. 217, and have been uniformly applied to similar cases subsequently. Wilson v. Gaines, 103 U. S. 417; Louisville & Nashville Railroad Co. v. Palmes, 109 U. S. 244; Memphis & Little Rock Railroad Co. v. Railroad Commissioners, 112 U. S. 609; St. Louis, Iron Mountain & Southern Railway Co. v. Railroad Commissioners, 113 U. S. 465. And the circumstances of the case distinguish it from that of Humphrey v. Pegues, 16 Wall. 244.
"Such sale and conveyance shall pass to the purchaser at the sale not only the works and property of the company as they were at the time of making the deed of trust or mortgage, but any works which the company may, after that time and before the sale, have constructed, and all other property of which it may be possessed at the time of the sale other than debts due to it."
office of any county wherein the property so sold, or any part thereof, is situated or where said conveyance is recorded."
Thus is formed a new corporate body succeeding to the title of the property sold and conveyed to it, but deriving its existence from this law, and not from the original act of incorporation which constituted the charter of its predecessor, and with such powers, rights, privileges, franchises, and immunities only as are conferred upon it by the law which has brought it into being.
"The corporation created by or in consequence of such sale and conveyance shall succeed to all such franchises, rights, and privileges, and perform all such duties as would have been had or should have been performed by the first company but for such sale and conveyance,"
transfer of the franchises of the company. But the term must always be considered in connection with the corporation or property to which it is alleged to appertain. The franchises of a railroad corporation are rights or privileges which are essential to the operations of the corporation, and without which its road and works would be of little value -- such as the franchise to run cars, to take tolls, to appropriate earth and gravel for the bed of its road, or water for its engines, and the like. They are positive rights or privileges without the possession of which the road of the company could not be successfully worked. Immunity from taxation is not one of them. The former may be conveyed to a purchaser of the road as part of the property of the company; the latter is personal, and incapable of transfer without express statutory direction."
now demanded either from the state or the prior possessor. The contract of the creditors would be fully met, on failure of payment of the stipulated debt, by subjecting to sale the property pledged for its payment, with such rights, franchises, and privileges only as were necessary for its beneficial use and enjoyment. The immunity from taxation, as we have already said, was not necessarily included in that designation. The debtor corporation and its creditors combined could not confer upon the purchasers any rights which were not assignable, and as no consideration moved to the state for a renewal of the grant, there is no motive for finding by mere construction and implication what the words of the law have failed to express. That certainly is not a reasonable interpretation for which no sufficient reason can be assigned.
We conclude, therefore, that the act from which the plaintiff in error derives its corporate existence and powers in West Virginia does not contain a renewal of the grant by exemption from taxation which, in the 7th section of the Act of March 1, 1866, applied to the Chesapeake and Ohio Railroad Company.
Were it otherwise, so that we should be constrained to hold that the language of the Act of West Virginia of February 18, 1871, as amended by that of February 20, 1877, had the force of a grant to the plaintiff in error of the exemption of taxation vested by the 7th section of the Act of March 1, 1866, in the Chesapeake and Ohio Railroad Company, nevertheless we should be compelled also to hold on distinct grounds that the exemption thus conferred did not take effect as a contract protected from repeal by the Constitution of the United States. On the supposition now made, it would still be true that all the rights of the plaintiff in error as a corporation other than the title to the property it acquired by the judicial sale had their origin in and depended upon the acts of 1871-1877 under and by which it was created a corporation. It can in no sense be regarded as the identical corporate body, of which it became the successor, merely discharged by a process of insolvency from further liability for past debts, which is the view pressed upon us in argument by counsel for plaintiff in error.
The language of the statutes expressly contradicts this assumption. The old corporation in terms is dissolved. The purchasers are as explicitly declared to become a corporation, and its corporate powers are conferred by reference to those which had belonged to their predecessors. The language of the law, the reason involved in its provisions, and the precedents of cases heretofore decided by this Court foreclose further controversy on this point. Shields v. Ohio, 95 U. S. 319; Railroad Co. v. Maine, 96 U. S. 499; Railroad Co. v. Georgia, 98 U. S. 359; L. & N. Railroad Co. v. Palmes, 109 U. S. 244.
". . . And the right is hereby reserved to the legislature to alter any charter or certificate of incorporation hereafter granted to a joint stock company, and to alter or repeal any law applicable to such company."
privileges on the same shall be passed unless public notice of the intended application for such act be given under such regulations as shall be prescribed by law."
The incorporation of the plaintiff in error comes within the provisions both of the Constitution and the Code of 1868. Its charter is the law of 1871, as amended by that of 1877. Its certificate of incorporation is the conveyance to it, by the name it has chosen, as a purchaser at the judicial sale, or set forth in some writing signed by such purchaser and recorded as required. It is a charter granted under a general law, which the constitution declares to be subject to legislative alteration and amendment. The laws subject its property to taxation, and which form the subject of the present controversy, are but the exercise of that legislative discretion, which, as it became the law of the contract itself, cannot be complained of as a breach of the contract.
The conclusion is not weakened by the suggestion that the rights of the plaintiff in error originate in the provisions of the Code of Virginia referred to in the Act of March 1, 1866, incorporating the Covington and Ohio Railroad Company, and of which the acts of 1871-1877 are reenactments. For even then they would not antedate the provision of the Constitution of 1863, nor avoid the effect of the reasoning of this Court in the case of St. Louis, Iron Mountain & Southern Railway Co. v. Railroad Commissioners, 113 U. S. 465. The rights of the plaintiff in error as a corporation are determined by the law in force when it came into being, although there is no ground on which it can be contended that there was any legislative contract in the Act of March 1, 1866, for the further creation of any corporation in favor of possible purchasers at judicial sales under decrees of foreclosure of deeds of trust or mortgages.

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