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Delaware Railroad Tax Minot v. Philadelphia Wilington and Baltimre Railroad Company/Opinion of the Court

By an act of the legislature of Maryland, passed in 1831, and its supplement, a corporation called the Delaware and Maryland Railroad Company was created, with authority to construct and maintain a railroad from a point on the Delaware and Maryland line to some point on the Susquehanna River; and by the nineteenth section of the act it was provided that the shares of the capital stock of the company should be exempt from the imposition of any tax or burden by the State assenting to the act, except upon that portion of the permanent and fixed works of the company, which might be within the State of Maryland. By an act of the legislature of Delaware, passed in 1832, and its supplement, another corporation was created, called the Wilmington and Susquehanna Railroad Company, with authority to construct and maintain a railroad from a point on the boundary line of Pennsylvania and Delaware to the city of Wilmington, and thence towards the Susquehanna in the direction of Baltimore. In 1835 these two companies were, under acts of the legislatures of Maryland and Delaware, consolidated into one company, under the name of the latter-the Wilmington and Susquehanna Railroad Company. The act of Delaware, authorizing the consolidation on her part, provided that the holders of the stocks of the two companies should, when consolidated, hold, possess, and enjoy all the property, rights, and privileges, and exercise all the power granted to, and vested in, the companies, or either of them, by that law, or any other law or laws of that State, or of Maryland. The act of Maryland, authorizing the consolidation on her part, contained a similar provision. Held, that the purpose of the two provisions was to vest in the new company the rights and privileges which the original companies had previously possessed under their separate charters; the rights and privileges in Maryland which the Maryland company had there enjoyed, and the rights and privileges in Delaware which the Delaware company had there enjoyed; not to transfer to either State and enforce therein the legislation of the other. The new company, after the consolidation, stood in each State as the original company had previously stood in that State, invested with the same rights, and subject to the same liabilities. The act of consolidation, so far as Delaware was concerned, had only this effect.

APPEAL from the Circuit Court of the United States for the District of Delaware; in which court William Minot filed a bill against the Philadelphia, Wilmington and Baltimore Railroad Company and the State Treasurer and Collector of State Taxes of Delaware, to enjoin the collection of certain taxes.

On the 8th of April 1869, the legislature of the State of Delaware passed an act taxing railroad and canal companies in the State. The first section of the act provided that all railroad and canal companies, incorporated under the laws of the State and doing business therein, should, on the first day of January then next, and on the first day of January of each year afterwards, pay to the treasurer of the State for the use of the State, in addition to the taxes then imposed by law upon such companies, a tax of ''three per cent. upon their net earnings or income received from all sources during the preceding year;'' with a proviso, that when a line of railroad or canal belonging to any company liable to the tax lay partly in the State and partly in an adjoining State or States, the part or share of such net earnings or income of the company only should be subject to the tax, as would be in that proportion to the whole net earnings or income of the company, which the length of the road or canal within the limits of the State should bear to the whole length of such road or canal.

The fourth section of the act provided that every company of the class designated should, in addition to other taxes, also pay to the treasurer of the State for its use, on the first day of July then next, and on the first day of July of each year thereafter, or within thirty days from such period, a tax of ''one-fourth of one per cent. upon the actual cash value of every share of its capital stock;'' with a proviso similar in its character to that of the first section, namely, that when the line of the railroad or canal belonging to a company liable to the tax lay partly in the State and partly in an adjoining State or States, the company should only be required to pay the tax on such number of the shares of its capital stock as would be in that proportion to the whole number of shares, which the length of the road or canal within the limits of the State should bear to the whole length of such road or canal.

Another section of the act further provided that every railroad company should also pay to the State treasurer on the first day of January then next, and on the first day of January of each year thereafter, or within thirty days from such period, for the use in the State of every locomotive belonging in whole or in part to the company, and used by it at any time during the preceding year, a tax of $100; and for the like use of each passenger car thus owned and used, a tax of $25, and of each freight car and truck thus owned and used, a tax of $10.

The act required the president or treasurer of every company liable to these several taxes, to furnish the State treasurer with statements showing its net earnings or income from all sources during the preceding year, the number of locomotives, passenger cars, freight cars of every description, and trucks belonging to the company and used by it in the State at any time during that period, and the number of shares of the capital stock of the company, with an estimate and appraisement of the actual cash value of each share, and to pay the taxes chargeable. The act also made provision for an estimate of the earnings and an assessment of the taxes in case the statement required was not furnished, and for the collection of the taxes by sale of the property of the company, if they were not voluntarily paid.

The defendant, the Philadelphia, Wilmington and Baltimore Railroad Company, is a corporation created under the laws of Delaware, so far as it exists in that State. By connection with other companies with which under one common name it is consolidated by the legislation of Pennsylvania and Maryland, hereafter particularly mentioned, its road extends to Philadelphia in one State, and to Baltimore in the other. It is, therefore, a corporation liable to taxation by the terms of the act of April 8th, 1869, and is within the provisos of both its first and fourth sections.

The tax upon this company, imposed by the fourth section, became due for the first time in July, 1869, and in October following, in response to demands of the State treasurer, the president of the company furnished to that officer a statement showing that the capital stock of the company consisted of 186,088 shares of the value of $50 each, accompanied by a protest against the legality of the tax. Soon afterwards, Minot, the complainant, a citizen of Massachusetts, and a stockholder in the company, addressed a written communication to its president inquiring whether the company intended to protect his interests as a stockholder by resisting the collection of the tax, and stating that as the tax was not a legal one protection against its levy should be provided. This communication was submitted to the directors, who, in answer, resolved that while they protested against the legality of the tax, they declined to take the responsibility of interfering to prevent its collection, leaving the stockholders at liberty to assert their rights in such way as they might think proper. Minot thereupon filed the present bill. Though the immediate occasion of the bill was the apprehended attempt on the part of the State of Delaware to enforce the tax imposed upon the company by the fourth section of the act of April 8th, 1869, the complainant charged that all the taxes imposed by the act in question were illegal, and sought to have the legislation imposing them, so far as it affected the Philadelphia, Wilmington, and Baltimore Railroad, the corporation defendant, declared to be unconstitutional and invalid and the collection of the taxes enjoined.

The Circuit Court adjudged the tax imposed for the use of the rolling stock to be invalid, and enjoined its enforcement, but sustained the legaility of the other taxes, and a decree in conformity with this ruling was entered, from which both parties appealed to this court. On the hearing in this court the State officers of Delaware withdrew their appeal, and the inquiry of the court was thus limited to the validity of the act of April, 1869, so far as it imposed the taxes specified in its first and fourth sections.

The invalidity of that act, so far as it imposed these taxes upon the defendant corporation, was asserted upon the following grounds:

1st. That it violated the contract between the State of Delaware and the company contained in the charter of the latter.

2d. That it imposed taxes upon property beyond the jurisdiction of the State.

3d. That it conflicted with the power of Congress to regulate commerce among the several States; and,

4th. That it interfered with the right of transit for persons and property from one State into or through another.

The defendant corporation, as already mentioned, was formed by union with companies chartered by other States, and to understand fully the positions of the appellant, reference must be had to the original corporations, and the legislation by which they were created. By an act of the legislature of Maryland, passed in 1831, and its supplement, a corporation called the Delaware and Maryland Railroad Company was created, with authority to construct and maintain a railroad from a point on the Delaware and Maryland line to some point on the Susquehanna River; and by the nineteenth section of the act it was provided that the shares of the capital stock of the company should be exempt from the imposition of any tax or burden by the State's assenting to the act, except upon that portion of the permanent and fixed works of the company, which might be within the State of Maryland. By an act of the legislature of Delaware, passed in 1832, and its supplement, another corporation was created, called the Wilmington and Susquehanna Railroad Company, with authority to construct and maintain a railroad from a point on the boundary line of Pennsylvania and Delaware to the city of Wilmington, and thence towards the Susquehanna in the direction of Baltimore to the Delaware and Maryland line. The act provided that the company should pay annually into the treasury of the State a tax of eight per cent. on the dividends exceeding six per cent. of the capital stock actually paid in.

In 1835 these two companies were, under acts of the legislatures of Maryland and Delaware, consolidated into one company, under the name of the latter-the Wilmington and Susquehanna Railroad Company. The act of Delaware, authorizing the consolidation on her part, provided that the holders of the stocks of the two companies should, when consolidated, hold, possess, and enjoy all the property, rights, and privileges, and exercise all the power granted to, and vested in, the companies, or either of them, by that law, or any other law or laws of that State, or of Maryland. The act of Maryland, authorizing the consolidation on her part, contained a similar provision. The act of Delaware, at the same time, repealed the provision

in the charter of the original Wilmington and Susquehanna Railroad Company, requiring the payment of the tax of eight per cent. on the dividends exceeding six per cent. of the capital stock actually paid in, and provided that ''the consolidated company should pay annually into the treasury of the State, a tax of one-quarter of one per cent. on its capital stock of four hundred thousand dollars, the tax to be paid in semiannual instalments, on the first of January and July of each year''.

This consolidated company was, in 1838, united with two other railroad companies, one called the Baltimore and Port Deposit Railroad Company, chartered by the legislature of Maryland in 1831, with authority to construct and maintain a railroad from Baltimore to Port Deposit, on the Susquehanna River; and the other called the Philadelphia, Wilmington, and Baltimore Railroad Company, chartered by the legislature of Pennsylvania in the same year, with authority to construct and maintain a railroad from Philadelphia to the Delaware State line. These three companies were, under acts of the legislatures of these States, Delaware, Maryland, and Pennsylvania, consolidated into one company with a common stock, retaining as its corporate name the name of the company chartered by Pennsylvania. The act of the legislature of Delaware, under which the consolidation was effected, declared that the respective companies should 'constitute one company, and be entitled to all the rights, privileges, and immunities which each and all of them possess, have, and enjoy, under and by virtue of their respective charters.'

Previous to the consolidation, the three companies had constructed and were operating their respective railroads, which, together, formed a connected line of railroad from Philadelphia to Baltimore, vi a Wilmington, excepting the interval between the eastern terminus of the Baltimore and Port Deposit railroad, on the western bank of the Susquehanna, and the western terminus of the Wilmington and Susquehanna railroad, on the eastern bank of the same river, which interval was supplied by a ferry; but the line was inferior in structure and equipment to that since maintained by the consolidated company.

Since the consolidation, the Philadelphia, Wilmington, and Baltimore Railroad Company had built a bridge across the Susquehanna, in the State of Maryland, at a great expense, and had thus established and now maintains a continuous railroad route between Philadelphia and Baltimore, and had expended large sums in laying an additional main track, sidings and turnouts, and in building depots and stations, and in furnishing an adequate equipment of rolling-stock. The capital stock of the company when the bill was filed was represented by 186,088 fully paid shares of the par value of $50 each, of which 184,524 shares were held by persons who were neither citizens nor residents of Delaware.

The capital stock of the Maryland and Pennsylvania companies, previous to and at the time of the consolidation of these companies with the Delaware company, represented real and personal estate of great value (locally situated in these States) belonging to stockholders not domiciled in Delaware.

The entire length of the railroad of the consolidated Philadelphia, Wilmington, and Baltimore Railroad Company, including a branch in the State of Maryland, known as the Port Deposit Branch, is 97 74/100 miles, of which 23 8/10 miles are in the State of Delaware; but the value of the property of the company locally situated in the State of Delaware is much less than 2308/9974 of its entire property; the bridge across the Susquehanna, in the State of Maryland, representing alone an expenditure exceeding $1,500,000, and the value of the depot and station grounds, in the States of Pennsylvania and Maryland, with the buildings and structures thereon, exceeding 7666/9974 of the value of the entire depot and station property of the company.

Messrs. J. E. Gowen, G. C. Gordon, and J. P. Comegys, for the appellant:

1st. The tax imposed upon the shares of the capital stock of the Philadelphia, Wilmington and Baltimore Railroad Company by the act of April 8th, 1869, was a violation of the contract between the State of Delaware and the company contained in the charter of the latter.

There is no doubt that a State may by contract exempt particular property from taxation. All that is necessary is that the language of the contract be plain, and the purpose to relinquish unquestionable. The exemption relied on in the present case is not founded on an ordinary charter. In assenting to the creation and organization of the present Philadelphia, Wilmington and Baltimore Railroad Company, the State of Delaware contracted with corporations and citizens of other States whose property was not in any way subject to her power of taxation. The question to be determined was not so much as to what right of taxation should be relinquished by the State, as to what right of taxation should be assumed by it. It can scarcely be thought that the negotiation between the State of Delaware and the foreign corporations, proceeded on the basis that the State of Delaware would, in the absence of any provision on the subject, acquire an unlimited right to tax the franchises of these corporations. If such a theory had been entertained, it would necessarily have occurred to the parties interested that the States of Maryland and Pennsylvania could exercise the same prerogative, and that the proposed corporation would be subjected to the taxation of three distinct sovereignties in none of which would the corporators be adequately represented.

When, then, the State of Delaware prescribed the terms of taxation on which she would consent to the proposed consolidation, these terms may fairly be considered, not in the light of the release, but in that of the acquisition of a privilege; so far, indeed, as the foreign companies were concerned.

What now are the provisions of the charter on the subject of taxation?

By the original act of incorporation of the Wilmington and Susquehanna Railroad Company (act of January 18th, 1832), the company was required to pay an annual tax of eight per cent. on all dividends which may exceed six per centum on the capital stock actually paid in, and this was the only measure of taxation specifically prescribed in the act.

Such being the status of the company, the act of July 24th, 1835, providing for its consolidation with the Delaware and Maryland Railroad Company of Maryland, repealed this provision of the original act, and then enacted that the consolidated company 'shall pay annually into the treasury of the State a tax of one-quarter of one per cent. on the capital stock thereof of $400,000; the said tax to be paid semi-annually, &c., in each and every year hereafter. This provision, we contend, meant that the tax on capital stock, for which the consolidated company was to be liable, should be that specified, viz., a quarter of one per cent. on the sum of $400,000, and that no greater or other tax should thereafter be imposed on its capital. This tax was to be imposed annually thereafter; that is, annually during the existence of the consolidated corporation. A suggestion that the State of Delaware might, immediately after the Maryland company had accepted the terms on which it was authorized to unite with the Delaware company, impose a more onerous rate of taxation on the capital stock of the united companies than that specified, would undoubtedly have been treated as an injurious imputation on the good faith of the legislature of Delaware.

Doubtless it may be said that notwithstanding that the act specified the tax which it would lay, it did so without saying that no further or different tax should ever be laid, and that, therefore, a further and different one may be laid. Such seems to have been the doctrine held by the Supreme Court of Pennsylvania in The Easton Bank v. The Commonwealth of Pennsylvania, where it was said that a bank rechartered under a law relating to it and a number of other banks, which provided that dividends should be taxed at a certain rate, was not exempt from the operation of a subsequent general law which increased the tax on dividends. But the doctrine is met and denied by this court in a case decided since the case in Pennsylvania; the case of Raleigh and Gaston Railroad Company v. Reid. There the charter contained an exemption from taxation for a term of fifteen years; but, after the expiration of this limitation, the legislature was to be at liberty to tax the individual shares of the stockholders whenever their annual profits exceeded eight per cent., provided that the tax did not exceed twenty-five cents a share per annum; and it was held that a tax levied on the company after the expiration of the fifteen years, but before the annual profits had reached eight per cent., was a violation of the contract. 'When a statute,' said Davis, J., in delivering the opinion of this court, 'limits a thing to be done in a particular mode, it includes a negative of any other mode.' Is not this case in point? The legislature had asserted its right to tax the stock in a particular way after the expiration of a certain period, but it had not expressly said that it would not tax the stock in some other way, or that it would not tax the lands or personal property of the company; but the court held that the mode of taxation specified in the charter excluded any other mode. In the present case the legislature agreed that the tax on the capital stock of the consolidated company should be one thousand dollars a year, and by so doing did they not agree that it should not be ten thousand dollars, or twenty thousand dollars, or anything else than one thousand dollars?

Indeed in Pennsylvania in a case much later than that of the Easton Bank, the same court that made the decision there, declared the following to be one of the conclusions derivable from a review of the decisions of this court on the subject of charter contracts between the State and corporations:

'If the legislature, in creating a corporation, prescribe a rate of taxation, and expressly release the power to impose further taxes, or do not expressly reserve the power to themselves, a subsequent tax law does impair the obligation of the contract, and is void.'

A conclusion which is plainly inconsistent with the decision in the Easton Bank case.

But the contract immunity from taxation claimed for the capital stock of the present consolidated Philadelphia, Wilmington and Baltimore Railroad Company rests on other grounds.

The Maryland act by which the 'Delaware and Maryland Railroad Company' was incorporated contained the following provision:

'And the shares of the capital stock of said company shall be deemed and considered personal estate, and shall be exempt from the imposition of any tax or burden by the State's assenting to this law, except upon that portion of the permanent and fixed works of said company which may lie within the State of Maryland.'

The Delaware act of July 24th, 1835, providing for consolidation of the Wilmington and Susquehanna Railroad Company of Delaware with the Delaware and Maryland Railroad Company of Delaware, declared that the two companies, when consolidated, should be styled 'The Wilmington and Susquehanna Railroad Company,' and that by and under that corporate name the holders of the stock of the said railroad companies should

'Hold, possess, and enjoy all the property, rights, and privileges, and exercise all the powers granted to and vested in the said railroad companies, or either of them, by this or any other law or laws of this State or of the State of Maryland.'

These terms are as broad and general as they could be made. The consolidated company was to possess every right and privilege which either of the original companies possessed or enjoyed under any law of Maryland or Delaware. It was not said that the consolidated company should possess and enjoy every right, privilege, &c., which the laws of Delaware conferred on the Delaware company. The purport and effect of the act is, 'that they shall, when united, have all the rights and immunities in this State (Delaware) which each of them had in the State by which it was chartered.' It is true that the phrase, 'in this State,' is not actually used; but the legislature which passed the act was the legislature of Delaware, and they were confirming rights and privileges to be exercised and enjoyed in Delaware, and not elsewhere. We, therefore, contend that, as immunity from taxation of its capital stock was a privilege which the Maryland company enjoyed, the consolidated company succeeded to the same immunity. The stock of the Delaware and Maryland Railroad Company is now represented by and forms an integral part of the stock of the consolidated company, and when the stock of the latter company is taxed that of the former is taxed also. The theory that the Delaware act of consolidation was merely intended to secure to the consolidated company all the privileges in Maryland which the Maryland company possessed, and in Delaware all the privileges which the Delaware company formerly possessed, disregards the terms of the Delaware act, and imputes to the Delaware legislature the assumption of legislative power in the State of Maryland.

It is true that the exemption from taxation contained in the original charter of the Delaware and Maryland Railroad Company referred to Maryland taxation only; but still it was an exemption from State taxation, and as such a privilege of the company; and when this, with all other privileges of the Maryland company, was conferred upon the consolidated company in Delaware, the latter company thereby acquired the privilege of exemption of its capital stock from State taxation, and that in Delaware meant Delaware State taxation.

2d. The tax on capital stock imposed by the fourth section of the act of April 8th, 1869, was an unlawful usurpation by the State of Delaware of the right to tax property beyond its jurisdiction.

The tax is imposed, in the first instance, upon the actual cash value of every share of the capital stock of every railroad and every canal company in Delaware; but with a proviso that where the line of railroad or canal belonging to any company liable to the tax lies partly in Delaware and partly in an adjoining State or States, 'such company shall only be required to pay the tax aforesaid on such number of the shares of its capital stock as will be in that proportion to the whole number of shares of such capital stock which the length of said railroad or canal within the limits of this State bears to the whole length of such railroad or canal.'

The tax, therefore, whether considered as a tax upon shares of stock as representing the property of the corporation, or as representing the property of the individual stockholders, was not imposed upon the Delaware property of the corporation or upon property of the Delaware stockholders only; and if it can be sustained at all, must be sustained on a theory which would sustain the taxation of the entire capital stock of the company by each of the three States of Delaware, Maryland, and Pennsylvania, irrespective of the amount invested in each State, or of the residence of the stockholders. For it is obvious that any apportionment of taxation according to the mileage of the road in each State must be purely arbitrary. No one would expect to find that the ratio of mileage of the road in Delaware, to its entire length, was the same as that of the capital invested in Delaware to the entire capital of the company, or that the proportion of Delaware stockholders could be ascertained in the same way. In fact, it is admitted in this case, that while the entire length of the railroad is 99 74/100 miles, of which 23 8/10 are in Delaware, the value of the property of the company locally situated in the State of Delaware is much less than that which would be indicated by the ratio of these figures; and that of the 186,088 shares of the capital stock of the present company, 184,524 are held by persons who are neither citizens nor residents of Delaware.

Treating the question then as practically and substantially whether the State of Delaware can lawfully tax the entire capital stock of the Philadelphia, Wilmington and Baltimore Railroad Company, we have a question which is decisively answered in the negative by the judgment of this court in the case of Railroad Company v. Jackson. It was there held that 'a State has no power to tax the interest on bonds secured in this case by mortgage given by a railroad corporation, and binding every part of the road, when the road is partially in another State; one road incorporated in two States.' The decision was placed on the ground that to permit such taxation would be giving effect to State legislation upon property and interests lying beyond the State jurisdiction.

3d. The tax on capital stock imposed by the fourth section of the act of April 8th, 1869, was a violation of the clause of the Constitution of the United States which confers upon Congress the power 'to regulate commerce with foreign nations and among the several States.'

4th. It was an unlawful interference with the constitutional right of transit for persons and property from one State into or through another.

These two points may be considered together.

That the imposition of a tax upon the capital invested in the railroad between Philadelphia and Baltimore does really regulate the interstate commerce upon the railroad, seems evident; and that such a tax does interfere with and burden the right of passage for persons or property from one State to another may be said to be equally evident.

It is true that the same objections could be made to a State tax upon the railroad or the capital stock or the earnings of a railroad company where operations were confined to the territory of the State which levied the tax; and it is equally true that a tax upon horses and wagons in one State would to some extent affect commerce between the States. But the answer to the argument implied by this suggestion is, that the agencies and instruments of commerce must be subject to the taxation of the States within whose jurisdiction they exist, and the power of Congress to regulate commerce between the States must ex necessitate, be qualified by the indirect operation of the exercise of this power as well as of the State power to regulate its own domestic commerce. Where, however, a State undertakes to tax, even within its own jurisdiction, interstate commerce, much more when it undertakes to tax interstate commerce, or the agencies or instrumentalities of interstate commerce, beyond its jurisdiction, it usurps the prerogative of the Congress of the United States, and infringes the constitutional rights of citizens of the United States, since its taxing power does not extend to such subjects.

If the State Delaware had, in plain terms, imposed a tax upon the capital invested in the Pennsylvania and Maryland sections of the Philadelphia, Wilmington and Baltimore Railroad, or the earnings derived from the use of these sections, the tax would probably be admitted by all to be a burden laid upon interstate commerce or intercourse. Those who denied it to be such would have to establish that a tax upon a railroad used almost entirely for commerce and intercourse between the States was not a tax upon such commerce or intercourse.

The tax actually imposed by the State of Delaware is a tax upon the railroad in Maryland and Pennsylvania. A certain portion of the entire capital of the company is taxed, and that portion represents the railroad in the three States. It is an admitted fact in this case that the capital thus selected greatly over-represents, the property of the company locally situated in Delaware. The excess taxed is invested in Maryland and Pennsylvania. It has already been attempted to be shown that the taxing power of Delaware cannot be exercised over property beyond its jurisdiction; and as the property here sought to be taxed is a railroad extending through three States and used almost entirely for interstate intercourse and the earnings of that railroad, we submit that this tax is an unconstitutional interference with, and taxation of, interstate commerce and intercourse.

If this tax can be sustained then it would seem to follow that Pennsylvania, Maryland, and Delaware can each and all tax the entire capital and the entire earnings of this one railroad; and that the same rule would hold good in the case of a railroad chartered by a much greater number of States. The effect of such a system of taxation upon the commerce and intercourse between the States is too obvious to be stated.

Messrs. T. F. Bayard and E. Saulsbury, for the State officers of Delaware, contra.

Mr. Justice FIELD, after stating the facts of the case, delivered the opinion of the court, as follows:

It is contended by the appellant that the act of Delaware of April 8th, 1869, so far as it imposes taxes upon the corporation defendant, violates the contract between the State and the corporation contained in the charter of the latter. His position is that the provision, in the act of Delaware of 1835, by which the Wilmington and Susquehanna Railroad Company was united with the Delaware and Maryland Railroad Company, that the new company should pay annually into the treasury of the State a tax of one-quarter of one per cent. upon its capital stock of four hundred thousand dollars, being accepted by the stockholders of the two companies by their union into one company, constituted a contract between the new company and the State of Delaware, which precluded that State from imposing any greater or different tax upon the capital stock of the new company; and that the provision in the same act of Delaware, that the new company should possess all the rights and privileges vested in the original companies, or either of them, by that law, or any other law of that State or of Maryland, extended to the new company the same exemption from taxation on its shares of capital stock, which was possessed by the Maryland corporation under its charter; and that the same limitation upon the taxation of the capital stock, and the same immunity of the shares from any taxation, were extended to the corporation defendant by the provisions of the act of Delaware under which this latter company was formed.

That the charter of a private corporation is a contract between the State and the corporators, and within the provision of the Constitution prohibiting legislation impairing the obligation of contracts, has been the settled law of this court since the decision in the Dartmouth College case. Nor does it make any difference that the uses of the corporation are public, if the corporation itself be private. The contract is equally protected from legislative interference, whether the public be interested in the exercise of its franchise or the charter be granted for the sole benefit of its corporators. This doctrine is not controverted by any one; it is the established law; and the question in all cases, when it becomes necessary to apply it, is whether the particular legislative interference alleged does in fact impair the obligation of the contract; for it is not every kind of legislative interference with the powers, action, and property of the corporation which will have that result.

It has also been repeatedly held by this court that the legislature of a State may exempt particular parcels of property or the property of particular persons or corporations from taxation, either for a specified period or perpetually, or may limit the amount or rate of taxation, to which such property shall be subjected. And when such immunity is conferred, or such limitation is prescribed by the charter of a corporation, it becomes a part of the contract, and is equally inviolate with its other stipulations. But before any such exemption or limitation can be admitted, the intent of the legislature to confer the immunity or prescribe the limitation must be clear beyond a reasonable doubt. All public grants are strictly construed. Nothing can be taken against the State by presumption or inference. The established rule of construction in such cases is that rights, privileges, and immunities not expressly granted are reserved. There is no safety to the public interests in any other rule. And with special force does the principle, upon which the rule rests, apply when the right, privilege, or immunity claimed calls for any abridgment of the powers of the government, or any restraint upon their exercise. The power of taxation is an attribute of sovereignty, and is essential to every independent government. As this court has said, the whole community is interested in retaining it undiminished, and has 'a right to insist that its abandonment ought not to be presumed in a case in which the deliberate purpose of the State to abandon it does not appear.' If the point were not already adjudged it would admit of grave consideration, whether the legislature of a State can surrender this power, and make its action in this respect binding upon its successors any more than it can surrender its police power or its right of eminent domain. But the point being adjudged, the surrender when claimed must be shown by clear, unambiguous language, which will admit of no reasonable construction consistent with the reservation of the power. If a doubt arise as to the intent of the legislature, that doubt must be solved in favor of the State.

If, now, we apply this rule of construction to the provision of the act of Delaware, under which the original Wilmington and Susquehanna Railroad Company was united with the Delaware and Maryland Railroad Company, requiring the new company to pay annually into the treasury of the State a tax of one-quarter of one per cent. upon its capital stock of four hundred thousand dollars, the position of the appellant falls to the ground. That provision is not accompanied with any words indicating the intent of the legislature that no further or different tax should not be subsequently levied. Had the provision in question been embodied in an independent act, no one would pretend that the designation of the amount and character of the tax carried with it any implication, that the tax should remain unchanged in these particulars for all future time during the existence of the corporation. And it is not perceived how a different conclusion is warranted because the tax is designated in an independent section of the act, under which the new company was formed, instead of being designated in an independent act. As already observed, nothing can be taken from the power of the State in this respect by presumption or inference.

In the case of The Commonwealth v. The Easton Bank, we have an adjudication of the Supreme Court of Pennsylvania upon the precise question here presented. The Easton Bank had been chartered under a general law which prescribed the payment of taxes on its dividends at a fixed rate. A subsequent statute increased that rate, and it was argued, as here, that the designation in the original act created a contract on the part of the State that no additional tax should be laid, and that the latter act, therefore, impaired the obligation of the contract. But the court held that the designation in the original act was nothing more than a simple declaration of the tax then to be paid by the bank, and did not give the slightest intimation of an agreement or understanding, that the tax should not be increased during the existence of the charter. 'To deduce,' said the court, 'from premises so insufficient, a consequence of such magnitude, would, indeed, be a gross violation of the wholesome principle that an abandonment of the power of taxation is only to be established by clearly showing this to have been the deliberate purpose of the State.'

The position of the appellant, as to the effect of the provision in the same act of Delaware, that the new company should possess all the rights and privileges vested in the original companies, or either of them, by that act, or any other law of that State or the State of Maryland, is more plausible, but equally unfounded. It proceeds, we think, as stated by the Circuit Court, upon a misapprehension of the purpose of the provision. A similar provision, as already stated, is contained in the Maryland act authorizing, on her part, the consolidation of the companies. The purpose of the two provisions was to vest in the new company the rights and privileges which the original companies had previously possessed under their separate charters; the rights and privileges in Maryland which the Maryland company had there enjoyed, and the rights and privileges in Delaware which the Delaware company had there enjoyed; not to transfer to either State and enforce therein the legislation of the other. The new company was clothed by the legislature of Delaware, so far as that legislature could clothe it, with all the rights and privileges of both the original companies; but as the Maryland company took under the legislation of Maryland only exemption from taxation of its shares in Maryland, the privilege of the new company in this matter could only be a similar exemption in that State, not a similar exemption of the shares of its capital stock from taxation in Delaware. The new company stood in each State as the original company had previously stood in that State, invested with the same rights, and subject to the same liabilities. And the act of consolidation, so far as Delaware was concerned, had only this effect.

The act of that State under which the three companies were consolidated into one, and the present defendant corporation was formed, contained a similar provision to the one we have been considering, that the new consolidated company should be entitled to all the rights, privileges, and immunities which each and all of them possessed and enjoyed under their respective charters, a provision which, in no respect, changed the position with reference to taxation of the new company in one of the States from that of the old company in such State. Such is substantially the construction given by this court in the case of and Philadelphia, Wilmington, and Baltimore Railroad Company against Maryland, reported in the 10th of Howard. In that case the question arose whether the qualified exemption of the line of road which belonged to one of the companies was extended to the consolidated company under the provision in question; and the court said that, 'as these companies held their corporate privileges under different charters, the evident meaning of this provision is, that whatever privileges and advantages either of them possessed should in like manner be held and possessed by the new company, to the extent of the road they had respectively occupied before the union; that it should stand in their place, and possess the power, rights, and privileges they had severally enjoyed in the portions of the road which had previously belonged to them.'

We are, therefore, of opinion that the act of April 8th, 1869, is not obnoxious to the objection that it violates any contract between the State of Delaware and the company contained in the charter of the latter.

We proceed, therefore, to the second objection to the act, that it imposes taxes upon property beyond the jurisdiction of the State. If such be the fact the tax to that extent is invalid, for the power of taxation of every State is necessarily confined to subjects within its jurisdiction. The objection of the appellant is directed principally to the tax imposed by the fourth section of the act, and assumes that the tax must be considered as laid upon the shares as representing the separate property of the individual stockholders, or as representing the property of the corporation. And the argument is that if the tax be laid upon the shares of the stockholders it falls upon property out of the State, because nearly all the stockholders, at least a much greater number than the ratio of the mileage of the road in Delaware to its entire length, are citizens and residents of other States; and if the tax be laid upon the shares as representing the property of the corporation, it falls upon property out of the State, because the ratio of the mileage of the road in Delaware to its entire length is not that which the capital invested by the company in that State bears to the entire capital of the company, or that which the value of the property of the company there situated bearars to the value of its entire property

If the assumption of the appellant were correct, there would be difficulty in sustaining the validity of the tax.

In the first place, the share of a stockholder is, in one aspect, something different from the capital stock of the company; the latter only is the property of the corporation; the former is the individual interest of the stockholder, constituting his right to a proportional part of the dividends when declared, and to a proportional part of the effects of the corporation when dissolved, after payment of its debts. Regarded in that aspect it is an interest or right which accompanies the person of the owner, having no locality independent of his domicile. But whether, when thus regarded, it can be treated as so far severable from the property to which it relates as to be taxable independent of the locality of the latter is a question not necessary now to decide. The argument of the appellant assumes that it is thus severable.

In any aspect, if provision for the taxation of the shares at the locality of the company be made in its charter, their taxability at such locality is annexed as an incident to the shares, and it does not matter where the domicile of the owner may be. The tax may then be enforced through the corporation by requiring it to withhold the amount from the dividends payable thereon. The shares in the national banks created under the act of Congress of June 3d, 1864, are made taxable at the place where the bank is located, and not elsewhere; and in the case of The National Bank v. Commonwealth, reported in the 9th of Wallace, a law of Kentucky requiring the banks in that State to pay the tax laid on their shares was sustained by this court. But in the act of Delaware under which the corporation defendant was formed, there is no such provision for the taxation of the shares of the individual stockholders.

In the second place, assuming that the tax is upon the property of the corporation, if the ratio of the value of the property in Delaware to the value of the whole property of the company be less than that which the length of the road in Delaware bears to its entire length, and such is admitted to be the fact, a tax imposed upon the property in Delaware according to the ratio of the length of its road to the length of the whole road must necessarily fall upon property out of the State. The length of the whole road is in round numbers one hundred miles; the length in Delaware is twenty-four miles. The tax upon the property estimated according to this ratio would be in Delaware 24/100 or 6/25 of the amount of the tax upon the whole property. But the value of the property in Delaware is not 6/25 of the value of the whole property, but much less than this proportion would require.

We repeat, therefore, that upon the assumption made by the appellant there would be difficulty in sustaining the tax.

We do not think, however, the assumption is correct. As we construe the language of the fourth section, the tax is neither imposed upon the shares of the individual stockholders nor upon the property of the corporation, but is a tax upon the corporation itself, measured by a percentage upon the cash value of a certain proportional part of the shares of its capital stock; a rule which, though an arbitrary one, is approximately just, at any rate is one which the legislature of Delaware was at liberty to adopt.

The State may impose taxes upon the corporation as an entity existing under its laws, as well as upon the capital stock of the corporation or its separate corporate property. And the manner in which its value shall be assessed and the rate of taxation, however arbitrary or capricious, are mere matters of legislative discretion. It is not for us to suggest in any case that a more equitable mode of assessment or rate of taxation might be adopted than the one prescribed by the legislature of the State; our only concern is with the validity of the tax; all else lies beyond the domain of our jurisdiction.

Nothing was urged in the argument specially against the tax upon the corporation under the first section of the act, which is determined by the net earnings or income of the company. Whatever objections could be presented are answered by the observations already made upon the tax under the other section. A tax upon a corporation may be proportioned to the income received as well as to the value of the franchise granted or the property possessed.

It remains to notice the objections that the act of 1869 conflicts with the power of Congress to regulate commerce among the several States, and interferes with the right of transit of persons and property from one State into or through another.

The tax imposed by the act in question affects commerce among the States and impedes the transit of persons and property from one State to another just in the same way, and in no other, that taxation of any kind necessarily increases the expenses attendant upon the use or possession of the thing taxed. That taxation produces this result of itself constitutes no objection to its constitutionality. As was very justly observed by this court in a recent case, 'Every tax upon personal property, or upon occupations, business, or franchises, affects more or less the subjects, and the operations of commerce. Yet it is not everything that affects commerce that amounts to a regulation of it, within the meaning of the Constitution.'

The exercise of the authority which every State possesses to tax its corporations and all their property, real and personal, and their franchises, and to graduate the tax upon the corporations according to their business or income, or the value of their property, when this is not done by discriminating against rights held in other States, and the tax is not on imports, exports, or tonnage, or transportation to other States, cannot be regarded as conflicting with any constitutional power of Congress.

From the views expressed, it follows that the judgment of the Circuit Court must be

AFFIRMED, AND IT IS SO ORDERED.


text: Talk:Delaware Railroad Tax Minot v. Philadelphia Wilington and Baltimre Railroad Company/Opinion of the Court

license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/


text:
Chicago City Railway Company v. Allerton

APPEAL from the Circuit Court for the Northern District of Illinois; the case being thus:

The Chicago City Railway Company was a corporation owning a street railroad in Chicago. The directors of the company, without consulting the stockholders or calling a meeting of them, resolved to increase the capital stock of the company from $1,250,000 to $1,500,000. To this one Allerton, who was a stockholder, objected, and filed a bill praying for an injunction to prevent the increase. His position was that it could not be lawfully made without the concurrence of the stockholders, and in support of this view he relied upon the constitution of Illinois, adopted in July, 1870, by the thirteenth section of the eleventh article of which it is declared as follows:

'No railroad corporation shall issue any stock or bonds, except for money, labor, or property actually received and applied to the purposes for which such corporation was created, and all stock-dividends, and other fictitious increase of the capital stock, or indebtedness of any such corporation, shall be void. The capital stock of no railroad corporation shall be increased for any purpose, except upon giving sixty days' public notice in such manner as may be provided by law.'

He also relied on an act of the legislature of Illinois, passed March 26th, 1872, to execute and carry out the above provision of the constitution, by which, amongst other things, it was enacted that no corporation should change its name or place of business, increase or decrease its capital stock, or the number of its directors, or consolidate with other corporations, without a vote of two-thirds of the stock at a stockholders' meeting.

The railway company, in its answer, relied upon its charter, granted February 14th, 1859, the third and fourth sections of which were as follows:

'SECTION 3. The capital stock of said corporation shall be one hundred thousand dollars, and may be increased from time to time, at the pleasure of said corporation.

'SECTION 4. All the corporate powers of said corporation shall be vested in and exercised by a board of directors, and such officers and agents as said board shall appoint.'

The position of the company was that the third section conferred an unrestricted right to increase the capital stock at will, and that the fourth vested this power in the board of directors, and that the constitutional provision and act above referred to, if applied to this corporation, would impair the validity of the contract. It was further set up, however, that the said provision did not apply to railways worked by horse-power. The court below decreed in favor of the complainant and the company took the present appeal.

Mr. Charles Hitchcock, for the appellant; Mr. E. A. Storrs, contra.

Mr. Justice BRADLEY delivered the opinion of the court.


text: Talk:Chicago City Railway Company v. Allerton


text:
Chicago City Railway Company v. Allerton/Opinion of the Court

Without attempting to decide the constitutional question, or to give a construction to the act of the legislature, we are satisfied that the decree must be affirmed on the broad ground that a change so organic and fundamental as that of increasing the capital stock of a corporation beyond the limit fixed by the charter cannot be made by the directors alone, unless expressly authorized thereto. The general power to perform all corporate acts refers to the ordinary business transactions of the corporation, and does not extend to a reconstruction of the body itself, or to an enlargement of its capital stock. A corporation, like a partnership, is an association of natural persons who contribute a joint capital for a common purpose, and although the shares may be assigned to new individuals in perpetual succession, yet the number of shares and amount of capital cannot be increased, except in the manner expressly authorized by the charter or articles of association.

Authority to increase the capital stock of a corporation may undoubtedly be conferred by a law passed subsequent to the charter; but such a law should regularly be accepted by the stockholders. Such assent might be inferred by subsequent acquiescence; but in some form or other it must be given to render the increase valid and binding on them. Changes in the purpose and object of an association, or in the extent of its constituency or membership, involving the amount of its capital stock, are necessarily fundamental in their character, and cannot, on general principles, be made without the express or implied consent of the members. The reason is obvious.

First, as it respects the purpose and object. This may be said to be the final cause of the association, for the sake of which it was brought into existence. To change this without the consent of the associates, would be to commit them to an enterprise which they never embraced, and would be manifestly unjust.

Secondly, as it respects the constituency, or capital and membership. This is the next most important and fundamental point in the constitution of a body corporate. To change it without the consent of the stockholders, would be to make them members of an association in which they never consented to become such. It would change the relative influence, control, and profit of each member. If the directors alone could do it, they could always perpetuate their own power. Their agency does not extend to such an act unless so expressed in the charter, or subsequent enabling act; and such subsequent act, as before said, would not bind the stockholders without their acceptance of it, or assent to it in some form. Even when the additional stock is distributed to each stockholder pro rata, it would often work injustice, because many of the stockholders might be unable to take their respective shares, and might thus lose their relative interest and influence in the corporate concerns.

These conclusions flow naturally from the character of such associations. Of course, the associates themselves may adopt or assent to a different rule. If the charter provides that the capital stock may be increased, or that a new business may be adopted by the corporation, this is undoubtedly an authority for the corporation (that is, the stockholders) to make such a change by a stockholders' vote, in the regular way. Perhaps a subsequent ratification or assent to a change already made, would be equally effective. It is unnecessary to decide that point at this time. But if it is desired to confer such a power on the directors, so as to make their acts binding and final, it should be expressly conferred.

Where the stock expressly allowed by a charter has not been all subscribed, the power of the directors to receive subscriptions for the balance may stand on a different footing. Such an act might, perhaps, be considered as merely getting in the capital already provided for the operations and necessities of the company, and, therefore, as belonging to the orderly and proper administration of the company's affairs. Even in such case, however, prudent and fair directors would prefer to have the sanction of the stockholders to their acts. But that is not the present case, and need not be further considered.

DECREE AFFIRMED.


text: Talk:Chicago City Railway Company v. Allerton/Opinion of the Court


text: Mercantile Mutual Insurance Company v. Folsom


text: Talk:Mercantile Mutual Insurance Company v. Folsom


text:
Mercantile Mutual Insurance Company v. Folsom/Opinion of the Court

ERROR to the Circuit Court for the Southern District of New York; the case being thus:

On the 6th of January, 1869, the schooner B. F. Folsom (John Orlando, master), and owned by a person whose name she bore, Mr. B. F. Folsom, resident in Philadelphia, together with Orlando, the captain and husband, sailed from Boston for Montevideo and Buenos Ayres. When out six days she sprung a leak, and in a few days afterwards became wholly disabled. Another vessel, bound for Bremen, passing along, took off all aboard and carried them to Bremerhaven, an outer port of Bremen, where, on the 18th of February, 1869, all were safely landed. The vessel itself was lost. At Bremerhaven, the master being wholly without funds or credit, could not telegraph. But he wrote two days after his arrival, that is to say, he wrote on the 20th of February, to Mr. Folsom, at Philadelphia, and mailed the letter on the day on which it was written.

On the 1st of March, 1869, the Mercantile Mutual Insurance Company of New York insured the vessel, valued at $35,000, on Folsom's application, 'at and from the first day of January, 1869, at noon, until the first day of January, 1870, at noon;' nothing being said in the policy about 'lost or not lost,' nor about who was the master of the vessel, nor on what voyage she then was.

The letter of the master to Folsom which had been mailed at Bremen on the 20th of February, 1869, arriving in due course at Philadelphia was received by Folsom, and the loss of the vessel being indisputable, Folsom claimed the insurance-money. The company declining to pay, he brought suit in ordinary form on the policy. Plea, the general issue.

The cause was tried without a jury, the jury having been waived by a stipulation duly filed, pursuant to the act of Congress of March 3d, 1865, which authorizes such mode of trial and enacts in regard to it,

'The findings of the court upon the facts, which findings MAY be either general or special, shall have the same effect as the verdict of a jury. The rulings of the court in the case, in the progress of the trial, when excepted to at the time, may be reviewed by the Supreme Court of the United States upon a writ of error, or upon appeal, provided the rulings be duly presented by a bill of exceptions. When the finding is special, the review may also extend to the determination of the sufficiency of the facts found to support the judgment.'

On the trial the policy having been put in evidence, and it being admitted that the proper preliminary proofs of loss and of interest had been furnished by the plaintiff to the company, the plaintiff rested. The record proceeded:

'Whereupon the counsel for the said defendant did then and there insist before the judge of the said Circuit Court, on the behalf of the said defendant, that the said several matters so produced and given in evidence on the part of the said plaintiff, as aforesaid, were insufficient and ought not to be admitted or allowed as decisive evidence to entitle the said plaintiff to a verdict. But to this the counsel for the said plaintiff did then and there object, and insist before the judge of the said Circuit Court that the same were sufficient and ought to be admitted and allowed to entitle the said plaintiff to a verdict, and the judge of the said Circuit Court did then and there declare and deliver his opinion, that the said several matters so produced and given in evidence on the part of the said plaintiff were sufficient to entitle the said plaintiff to a verdict.'

To this ruling the defendant excepted.

The insurance company then showed that on the 22d of February, 1869, there had been published in various newspapers in New York, as also in two newspapers in Philadelphia, this telegraphic despatch:

'LIVERPOOL, February 21st.

'The Orlando, from Baltimore for Buenos Ayres, has been lost at sea. Crew saved and landed at Bremerhaven.'

Folsom had seen and read this despatch, and the insurance company which took, at its office in New York, the papers containing it, kept what was called a despatch-book, in which the despatch, together with records of seventeen other marine disasters, was, on the same 22d of February when it appeared, posted by a clerk, whose duty it was to post in such book notices of all marine disasters. Over the despatch was written in large letters 'ORLANDO.'

It was admitted by the plaintiff that in Lloyd's Register there was no schooner named Orlando, but that there was a bark named Orlanda, a whaler, and that a bark of the name of Orlando had been owned, within two or three years, by a person who was then a partner of the plaintiff; and that at the time when he applied for the insurance he did not call the company's attention to the publication which had appeared in the papers, and that he made the application himself.

The company in turn admitted that in the Register for the year 1869, which they used in their office, as in the Register of 1868, which they also had used, the schooner 'B. F. Folsom' was rated, and that under such name and rating there appeared the name of 'J. Orlando, captain.'

The company then offered in evidence Folsom's application for insurance, which was in these words:

'Insurance is wanted by B. F. Folsom for account of whom it may concern, loss, if any, payable to him, for $3000, on schooner B. F. Folsom; vessel valued at $35,000, and to be insured at and from the first day of January, 1869, at noon, until the first day of January, 1870, at noon.'

The purpose of the offer of this evidence was apparently to show that in applying for insurance Folsom had suppressed the name of the master, Orlando, and the ports to which the vessel was sailing, to wit, Montevideo and Buenos Ayres, and so to bring on the inference that in the application he meant to divert the company's recollection or attention from the despatch previously received by it and on its books, in which it was mentioned that a vessel, where the peculiar name of 'Orlando' appeared, and which vessel the despatch mentioned was on her way to Buenos Ayres, as one port, had been lost at sea.

The plaintiff objected to the reception of the evidence on the ground that the application was merged in the policy, and that the plea did not allege that the policy was obtained by any fraud or misrepresentation. The court rejected the evidence.

The company's counsel then requested the court to rule on numerous propositions, substantially as follows:

First. That as the loss occurred before the issuing of the policy, and the words, 'lost or not lost,' were not contained therein, the insurance never took effect, and that, therefore, the plaintiff could not recover.

Second. That at the time of the application for insurance, and the issuing of the policy, the plaintiff ought to have communicated to the company—

(a.) The existence of the despatch appearing in the newspapers.

(b.) That he had seen it.

(c.) The surmises or conjectures, if any, which he had with reference to the same.

Third. That it was incumbent upon the plaintiff to prove affirmatively, that at the time of application for insurance and of the issuing of the policy, he had communicated to the company the information that the vessel had sailed on a voyage from Boston to Montevideo and Buenos Ayres, and that the name of her master was John Orlando.

Fourth. That the master having failed to advise the owner by telegraph of the loss of the vessel, the plaintiff could not recover.

But the judge of the Circuit Court refused to rule in accordance with any one of these several requests; to which refusals the counsel for the defendant excepted.

Both parties here rested. The record proceeded:

'And the counsel for the defendant, after the putting in of the evidence was completed, and before the conclusion of the trial, further insisted that the matters so proved and given in evidence, on the part of the said defendant, as hereinbefore set forth, taken in connection with the matters proved and given in evidence, on the part of the plaintiff, as hereinbefore set forth, were sufficient and ought to be admitted and allowed as decisive evidence to entitle the said defendant to a decision in their favor, and to bar the said plaintiff of his action aforesaid, and did then and there pray the said court to admit and allow the said matters so proved and given in evidence, in connection as aforesaid, to be conclusive evidence in favor of the said defendant, to entitle them to a decision in their favor, and to bar the said plaintiff of his action aforesaid; but the said court decided that the matters so proved and given in evidence on the part of the said defendant, taken in connection with the matters so proved and given in evidence on the part of the said plaintiff, were not sufficient to bar the said plaintiff of his action aforesaid, and refused to make and render its decision in favor of the said defendant, but found in favor of the plaintiff, upon the evidence, for the sum of $3348.20; to which decision the said counsel for the defendant then and there duly excepted.' Thereupon the counsel for the defendant requested the court to make the certain special findings of fact [setting them out], to the end that the same might be reviewed. The record proceeded:

'But the court refused to make any special findings of fact herein, to which refusal the counsel for the defendant did then and there except.'

The company brought the case here on error.

Mr. J. C. Carter, for the Insurance Company, plaintiff in error:

1. A radical error of the court below was in refusing to make any special finding of facts. The chief argument of the other side will be that it has not done so, and that, therefore, under the act of March 3d, 1865, we have not got the case which we wish to have the judgment of this court upon at all before it. But this omission of the court below to comply with our request we assign as error. The right of having an appellate tribunal pass upon matters of law in all contests between parties, is regarded in some sort as a sacred right by our people. It is given in the broadest terms by the great Judiciary Act of 1789. The act of March 3d, 1865, could not have meant to deprive the suitor of this right, by leaving it to the discretion of the judge to say whether or not he will have his judicial capacity passed on by a higher tribunal. Such a construction would make the act a trap, to injure suitors, instead of an enactment for their benefit. It is the suitor, therefore, not the judge who, under the provision that 'the findings may be either general or special,' is to elect in what form he will have them.

2. But if this were not so we have enough left to ask a reversal. At the close of the plaintiff's case we insisted that the plaintiff's evidence was insufficient to entitle him to a verdict. He had introduced and relied on his policy; a policy which was fatally defective in the fact that it contained neither the expression 'lost or not lost,' nor any equivalent expression. Now, when a chattel has been destroyed it has ceased to be the subject of ownership; and every contract in reference to it, based on the implied understanding and agreement that it is in existence, is void. This undoubtedly is the general principle. And though an exception exists in the contract of insurance, it exists only-in view of the very hazardous nature of the assumption-when the insurer expressly agrees to assume the risk of a prior total loss of the thing, and though it thus at the time of the contract have no existence at all. This sort of agreement is made by the long-used and well-defined words 'LOST OR NOT LOST.' And from the language of good text-books it would seem as if the very words were essential.

'A time policy, like a voyage policy, may be effected retrospectively if it contain the clause 'lost or not lost."

'When the words 'lost or not lost' (Gallic e sur bonnes et mauvaises nouvelles) are inserted, they render the underwriters liable in respect of loss by any of the above perils, though the ship be lost at the time of insurance, a circumstance which but for those words would avoid the policy.'

'These words, 'lost or not lost,' which follow the word 'insured' in the policy, are words of the greatest importance in this contract.'

Certainly if these exact words are not essential, some words of equivalent meaning are. But no words of like effect with the confessedly proper ones were used in this policy; for making the policy cover the past month in terms, by fixing the date instead of the place of departure, will not alter the effect of the contract, or make the risk greater.

The court also erred in refusing to admit the application for insurance. It was made by Folsom himself, and by showing what he had stated and what he had not stated, it tended directly to the purpose for which it was offered.

[The counsel then went into a learned argument to show that Folsom had knowledge of facts material to the risk and had concealed them; that the burden of proof rested on him to show the communication of them to the company, and that no presumption existed in his favor that he had done so, or that he was ignorant of a material fact which it was shown might have been known to him; that concealment might be proved as a defence under the plea of the general issue. He also argued that it was the duty of Orlando, captain and part owner of the vessel, to communicate by telegraph (that being a usual mode of communication) to the other owners the loss of the vessel, and that the omission to do so rendered void the policy issued after such loss might by that means have been communicated.]

It is perfectly settled, under the act of March 3d, 1865, that if the finding be a general one, the appellate court will only review questions of law arising on the exceptions contained in the bill of exceptions, and the errors of law apparent on the face of the pleadings. The finding here was general, and of course all that latter part of the learned counsel's argument is irrelative to what is before the court.

Neither was the court bound to find specially. There is nothing in the act which obliges it to do so. If the party cannot dictate to a jury whether it shall find specially or generally, why shall he to a court?

So as to what was insisted on below at the close of the plaintiff's case. It was in effect a motion for a peremptory nonsuit against the plaintiff's will, a thing which by the settled modern practice of the Federal courts is not allowable. But if it were not this sort of motion and were allowable, the assumption made in it is a wrong one, and the whole argument is without weight; it being perfectly settled that the words 'lost or not lost,' however usual, are not essential words, and that any other words by which a meaning to insure 'lost or not lost' is shown, are as good. That here the purpose to make what was in effect 'a lost or not lost' policy is plain. If it was not the purpose, the clause by which it was provided that the insurance was to take effect two months before the date of the policy would be nugatory, and the absurd result would follow that the assured was paying for insurance during two months when the company assumed no risk whatever. In Hammond v. Allen, the court (Story, J.) says:

'The policy would be binding though the ship were lost at the time, and though the policy had not the words, 'lost or not lost."

There is nothing in text-writers, which, rightly interpreted, denies what we say.

The court did not err, as the exception implies, in refusing to receive Folsom's application for insurance. The policy, which confessedly was the company's act, followed it exactly. It did not state any more than the application, who the master of the vessel was, or to what port she was sailing. The application had no tendency to show that Folsom did not communicate all material facts which he knew, and answer truly all questions put to him which the company thought material. The very fact that the application was retrospective showed that it was for a vessel that might be lost. Besides all which it is notorious as matter of fact, that the applications are never filled by the applicant for insurance. The secretary or clerks of the company fill them, after such inquires as they please to make, and the applicant simply signs the blank filled up. More especially was it inadmissible to bring on an inference of fraud after the company had admitted that in the Lloyd's Register used by it, both in the years 1868 and 1869, the name and rating of the schooner B. F. Folsom appeared, as well as the fact that John Orlando was her master, and when, in addition, the insurance company had introduced no evidence tending to show that such concealment, if any took place, was material to the risk.

As to the other points made by opposing counsel, though they are not, in view of the fact that the finding was general and not special, upon matters which are before this court at all, it may be observed that the company knew of the despatch as well as Folsom; that the assured is not bound to communicate to underwriters intelligence of so general and indifferent a nature as here, where neither the correct name of the vessel, her correct port of departure, or her correct first port of destination was given-as that its application to the subject is doubtful and remote; nor to communicate to them what is in newspapers taken by themselves, especially what they have actually cut out and signalized as matter to be noted; nor to communicate to them the mere surmises or conjectures which were in the mind of the assured, and which may or may not have led to the insurance. As to the objection that no telegram was sent, it is answer enough that Captain Orlando was penniless and could not send a telegram, even if one were obligatory in ordinary cases. But, as already said, none of these points, in view of the general finding, come before this court.

Mr. Justice CLIFFORD delivered the opinion of the court.

Underwriters in a policy of marine insurance undertake, in consideration of a certain premium, to indemnify the party insured against loss arising from certain perils of the sea, or sea risks to which the ship, merchandise, or freight of the insured may be exposed during a particular voyage of for a specified period of time. Long experience shows that such a system is essential to commerce, as it tends to promote the spirit of maritime adventure by diminishing the risk of ruinous loss to which those who engage in it would otherwise be exposed. Losses of the kind cannot be prevented by any degree of human forecast or skill, but the system of insurance, as practiced among merchants, enables those engaged in such pursuits to provide themselves with indemnity against the consequences of such disasters. By such contracts either associated capital becomes pledged for such indemnity, or the loss is so distributed among different underwriters that the ultimate sufferers are not in general seriously injured. Indemnity is the great object of the insured, but the underwriter pursues the business as a means of profit.

On the first of March, 1869, the defendant subscribed a time policy of insurance in the sum of three thousand dollars, for a premium of twelve per cent. net, upon the schooner B. B. Folsom, her tackle, apparel, and other furniture, valued at thirty-five thousand dollars; in which policy it is recited that the insurance is to the plaintiff on account of whom it may concern, and in case of loss, to be paid in funds current in the city of New York; and the policy contains the clause following, to wit: 'insured at and from the first day of January, 1869, at noon, until the first day of January, 1870, at noon,' with liberty to the insured, if on a passage at the expiration of the term, to renew the policy for one, two, or three months, at the same rate of premium, provided application be made to the company on or before the expiration of the first term. Also 'privileged to cancel the policy at the expiration of six months, pro rata premium to be returned for time not used, no loss being claimed.' Prior to the date of the policy, to wit, on the sixth of January in the same year, the schooner set sail and departed from the port of Boston, bound on a voyage to the port of Montevideo, laden with an assorted cargo, and during the voyage she met with tempestuous weather, and on the thirtieth of the same month, by the force of the wind and waves was wrecked, foundered, and sunk, and was wholly lost to the plaintiff. Seasonable notice of the loss was given to the defendants, and payment being refused the plaintiff brought an action of assumpsit to recover the amount insured. Service having been made the defendants appeared and pleaded the general issue, and the parties having in due form waived a trial by jury, went to trial before the court without a jury. Matters of fact were accordingly submitted to the court, and the court found that the defendants did undertake and promise the plaintiff in manner and form as he, the plaintiff, in his writ and declaration had alleged, and assessed damages for the plaintiff in the sum of three thousand three hundred and forty-eight dollars and twenty cents, and the court rendered judgment for the plaintiff for the amount so found. Exceptions were filed by the defendants, and they sued out a writ of error and removed the cause into this court.

By the terms of the act of Congress permitting issues of fact in civil cases to be tried and determined by the court without the intervention of a jury, it is provided that the finding of the court upon the facts may be either general or special, and that the finding shall have the same effect as the verdict of a jury.

Where a jury is waived, as therein provided, and the issues of fact are submitted to the court, the finding of the court may be either general or special, as in cases where an issue of fact is tried by a jury; but where the finding is general the parties are concluded by the determination of the court, except in cases where exceptions are taken to the rulings of the court in the progress of the trial. Such rulings, if duly presented by a bill of exceptions, may be reviewed here, even though the finding is general, but the finding of the court, if general, cannot be reviewed in this court by bill of exceptions or in any other manner. Facts found by a jury could only be re-examined under the rules of the common law, either by the granting of a new trial by the court where the issue was tried or to which the record was returnable, or by the award of a venire facias de novo by an appellate court for some error of law which intervened in the proceedings. Nothing, therefore, is open to re-examination in this case except such of the rulings of the court made in the progress of the trial as are duly presented by a bill of exceptions. All matters of fact, under such a submission, must be found by the Circuit Court and not by the Supreme Court, as the act of Congress provides that the issues of fact may be tried and determined by the Circuit Court where the suit is brought. Inferences of fact must also be drawn by the Circuit Court, as it is the Circuit Court and no the Supreme Court which, by the agreement of the parties, is substituted for a jury. None of these rules are new, as they were established by numerous decisions of this court long before the act of Congress in question was enacted. Propositions of fact found by the court, in a case where the trial by jury is waived, as provided in the act of Congress, are equivalent to a special verdict, and the Supreme Court will not examine the evidence on which the finding is founded, as the act of Congress contemplates that the finding shall be by the Circuit Court; nor is the Circuit Court required to make a special finding, as the act provides that the finding of the Circuit Court may be either general or special, and that it shall have the same effect as the verdict of a jury. Where a case is tried by the court without a jury, the bill of exceptions brings up nothing for revision except what it would have done had there been a jury trial. Tested by these considerations, it is clear that the exceptions of the defendants to the rulings of the court refusing to make any special finding, as requested by their counsel, may be overruled without any further remark.

Exception is also taken by the defendants to the refusal of the court to decide that the evidence introduced by the plaintiff in the opening was not sufficient to entitle the plaintiff to a verdict.

Having introduced the policy, the plaintiff proved by the master that the schooner, on the sixth of January prior to the date of the policy, departed on her voyage, and that she was lost at the time and by the means before stated. In addition to the incidents of the loss, he also proved the circumstances under which the master and crew were saved from the wreck and carried to the port of Bremerhaven, by the vessel which rescued them; that the master wrote to the owner by the first mail from that place after their arrival there, and that he was unable to use the telegraph, as he had no funds to prepay a telegram. Due notice of the loss and of the interest of the plaintiff having been admitted the plaintiff rested, and the defendants moved the court to decide that the evidence was not sufficient to entitle the plaintiff to a verdict, which the court refused to do.

Suppose the motion is regarded as a motion for a nonsuit, it was clearly one which could not be granted, as it is well-settled law that the Circuit Court does not possess the power to order a peremptory nonsuit against the will of the plaintiff. Power to grant a peremptory nonsuit is not vested in a Circuit Court, but the defendant may, if he sees fit, at the close of the plaintiff's case, move the court to instruct the jury that the evidence introduced by the plaintiff is not sufficient to warrant the jury in finding a verdict in his favor, and it is held that such a motion is not one addressed to the discretion of the court, but that it presents a question of law, and that it is as much the subject of exceptions as any other ruling of the court in the course of the trial. All things considered the court is inclined, not without some hesitation, to regard the motion as one of the latter character, and in that view it presents the question whether, by the terms of the policy, the risk was within it, as the proofs show that the loss occurred before the policy was issued.

Policies of insurance intended to have a retroactive effect, usually contain the words 'lost or not lost,' and the defendants contend that the policy in this case, inasmuch as it does not contain those words, does not cover the loss described in the declaration; but it is well-settled law that other words may be employed in such a contract which will have the same operation and legal effect, and it appears that the policy in this case, by its express terms, was to commence on the first day of January, 1869, and to continue until the first day of January, 1870. Elementary writers and the decisions of the courts make it perfectly certain that the phrase 'lost or not lost' is not necessary to make a policy retroactive. It is sufficient if it appear by the description of the risk and the subject-matter of the contract that the policy was intended to cover a previous loss. Contracts of the kind are as valid as those intended to cover a subsequent loss, if it appears that the insured as well as the underwriter was ignorant of the loss at the time the contract was made.

Viewed in the light of these suggestions, it is quite clear that it would have been error if the Circuit Court had decided as requested by the defendants, and that the decision made by the Circuit Court in denying the motion was correct.

Attempt was also made at the trial to set up the defence that the plaintiff concealed material facts from the defendants at the time the policy was granted, but the Circuit Court found that the charge was not sustained by the evidence, which is all that need be said upon the subject, as it is quite clear that the finding of the Circuit Court, where the trial by jury is waived, as in this case, is not the proper subject of review in the Supreme Court, to which it may be added, that if the rule were otherwise the court here would be compelled to come to the same conclusion as that reached by the Circuit Court.

Issues of fact, however, under such a submission, are to be tried and determined by the Circuit Court, and it is equally clear that the findings of the Circuit Court, even when special, cannot be reviewed by the Supreme Court, except for the purpose of determining whether the facts found are sufficient to support the judgment, as the express provision is that the finding of the Circuit Court in such a case shall have the same effect as the verdict of a jury.

Exception was also taken to the ruling of the court in refusing to admit as evidence the application for insurance when tendered by the defendants in support of the defence of concealment.

Apparently it was offered to show that it did not state where the vessel was at that time or from what port she had sailed or on what voyage she was bound, but the court was of the opinion, and ruled, that inasmuch as the instrument contained no statement in respect to any one of those matters, and that its terms were exactly the same as those of the policy, the contents were immaterial to the issue, as the contents could have no tendency to show that the plaintiff, when he made the application, did not communicate to the defendants all the material facts and circumstances within his knowledge, and answer truly all questions put to him in regard to those several matters. Evidently the burden of proof to establish such a defence is upon the party pleading it, and the court here is of the opinion that the ruling of the Circuit Court, as fully explained in the opinion given at the time, and in the opinion subsequently given denying the motion for new trial, was correct.

Special findings of fact were requested by the defendants, and they excepted in numerous instances to the rulings of the court refusing to comply with such requests, all of which are overruled upon the ground that the finding of the Circuit Court upon the facts may be either general or special, as heretofore more fully explained. Requests that the court would adopt certain conclusions of law were also presented by the defendants, in the nature of prayers for instruction, as in cases where the issues of fact are tried by a jury, which were refused by the Circuit Court, and the defendants also excepted to such refusals. None of these exceptions have respect to the rulings of the court in admitting or rejecting evidence, nor to any other ruling of the Circuit Court which can properly be denominated a ruling in the progress of the trial, as every one of the refusals excepted to appertain to some request made to affect or control the final conclusion of the court as to the plaintiff's right to recover. Such requests or prayers for instruction, in the opinion of the court, are not the proper subjects of exception in cases where a jury is waived and the issues of fact are submitted to the determination of the court. Exceptions are allowed to the rulings of the court in the progress of the trial, and the provision is that the review, if the finding is special, may also extend to the determination of the sufficiency of the facts found to support the judgment. Where the finding is general, as in this case, nothing is open to review but the rulings of the court in the progress of the trial, and as none of the last-named exceptions, which are the ones now under consideration, were of that class, they are all overruled. Like a special verdict, a special finding furnishes the means of reviewing such questions of law arising in the case as respect the sufficiency of the facts found to support the judgment but where the finding is general the losing party cannot claim the right to review any questions of law arising in the case, except such as grow out of the rulings of the Circuit Court in the progress of the trial, which do not in any proper sense include the general finding of the Circuit Court nor the conclusions of the Circuit Court embodied in such general finding, as such findings are in the nature of a general verdict and constitute the foundation of the judgment. No review of such a finding can be made here under a writ of error, unless it is accompanied by an authorized special statement of the facts, without imposing upon this court the duty of hearing the whole case, law and fact, as on an appeal in a chancery or in an admiralty suit, which would operate as a repeal of the provisions in the act of Congress, that issues of fact in such cases may be tried and determined by the Circuit Court, and would also violate that clause of the twenty-second section of the Judiciary Act, which prohibits this court from reversing any case 'for any error in fact.'

Whether any ruling of the Circuit Court other than the rulings in admitting or rejecting evidence can properly be regarded 'as rulings in the progress of the trial,' within the meaning of that phrase in the act of Congress, it is not necessary in this case to decide, as it is clear that neither the general finding of the Circuit Court nor the conclusions of the Circuit Court as embodied in the general finding fall within that category.

JUDGMENT AFFIRMED.


text: Talk:Mercantile Mutual Insurance Company v. Folsom/Opinion of the Court