text:
Humaston v. American Telegraph Company/Opinion of the Court

Whether or not the court erred in its charge, and in the exclusion of the evidence excluded, depends on the proper interpretation of the contract and the rule of damages which shall be applied in this action to the breach of it.

It is insisted by the plaintiff that the defendant promised to pay him for his invention four hundred shares in addition to the one hundred shares paid on the delivery of the title, unless the arbitrators should relieve the company by fixing some less amount, and a great deal of learning touching the doctrine of conditions subsequent and precedent has been invoked in support of this position. But this doctrine has no application here, for, manifestly, this is not an undertaking to which a condition subsequent could be attached. It is easy to determine why this contract was made, the nature of it, and the acts to be performed by the contracting parties. The American Telegraph Company were engaged in carrying on the telegraph business in some portions of the country, and naturally desirous of appropriating to itself any new invention which would facilitate the transmission of telegraphic messages. Humaston claimed that his system just patented would do five times as much business on one wire as the ordinary systems then in use. If it could do this with equal accuracy and reliability and at no greater cost, the value of it could be hardly overestimated, but there had been no experiments to test the question of whether or not it was capable of doing these things. It might do the work claimed for it and yet be so unreliable, or the expense of working and using it so much greater than the expense of working and using the inventions then open to the public or used by the company, that its purchase would be dear at any price. The company, desirous of possessing everything new and useful in the line of their business, were willing to risk something in the acquisition of these inventions, but unwilling to pay the estimate of value which Humaston put upon them without trial of their utility. This estimate was $50,000, as the proof on the trial was that the stock of the company stood at par in the market at the date of the contract. The company said to Humaston, We will take your patents, whether valid or not, and pay you $5000 for them if you and Lefferts stipulate not to compete with us for a period of ten years, and if they are valid, whether useful or not, the compensation shall be increased to $10,000. But we cannot promise additional compensation unless, after proper experiment, your system shall be proved to be worth more. It may be that your claim of rapid performance can be sustained, and yet the system, owing to its greater cost than those now in use, or some other controlling practical consideration, be of comparatively little value to us. This can only be determined, after trial, by some impartial tribunal. We are willing that this tribunal shall be referees mutually selected, to whom shall be submitted the question of whether we shall pay anything more than the $10,000 already paid, after the merits of your system have been tested by them and its capability and value established. They may reach the conclusion that you are sufficiently compensated already, and if they do, their award must be accepted as a final settlement of the matters of difference between us. If they reach a contrary conclusion they must fix the amount of consideration which we are to pay in addition to what you have already received; but this must be within the limit of four hundred shares of stock equivalent to $40,000.

This is a fair analysis of the provisions of the contract and of the considerations on which it was based. Instead of it binding the company to pay four hundred shares, unless a less number was fixed by the arbitrators, it left them to say whether Humaston was entitled to any more than he had already got, and if so, how much. There was no concession by the company that the inventions were worth any more to it than the hundred shares. If might turn out on the trial that the price already paid was excessive, or, on the contrary, that it was not sufficiently remunerative. This point of value the triers were to determine, and if determined favorably to the plaintiff he would have a cause of action against the defendant. Until this determination, if there had been no interruption to the arbitration, no cause of action could arise. It was a reasonable provision that the value of these inventions should be submitted to the arbitration of practical business men, and if Humaston, instead of the company, had refused to proceed with the arbitration he could not resort to an action, for the defendant would not have been in default, and, therefore, not liable to suit. But the defendant broke the agreement and revoked the submission, and Humaston asks that in consequence of this wrongful action of the defendant his rights may be determined by the court and jury, instead of by arbitration.

It becomes, therefore, important to determine what is the measure of liability for the breach of contract by the defendant. If we are correct in our interpretation of the contract, this action cannot be supported as an action seeking damages for breach of contract to deliver stock, for there was no engagement to deliver any, except on a condition which has not happened, and there is no proof that the arbitrators would have found that Humaston was entitled to receive more stock than he had already obtained.

The action can be supported for the value of the property, and this was the proper subject of inquiry at the trial. The company covenanted to pay this value, to be ascertained in a particular mode, and as they have prevented this mode being adopted, they cannot take advantage of their own wrong and deprive the plaintiff of the opportunity of showing to the court and jury what it is. In lieu of the award of the arbitrators the verdict of the jury can be asked by the plaintiff to determine it. The ascertainment of this value was the essence of the contract, the thing on which the submission was based, and the revocation of the submission leaves the jury to settle it. Benjamin, in his Treatise on Sales, says, if the performance of the condition for a valuation be rendered impossible by the act of the vendee the price of the thing sold must be fixed by the jury on a quantum valebat, as in Clarke v. Westrope, where the outgoing tenant sold the straw on a farm to the incomer, at a valuation to be made by two indifferent persons, but, pending the valuation, the buyer consumed the straw. And the doctrine of the text is sustained by adjudged cases in this country and England.

Nothing is, therefore, due on this contract, unless the court and jury, sitting in the place of the arbitrators, shall decide that the plaintiff is entitled to recover for the sale of his inventions more than he has already received. The case was tried on this theory, and the court charged the jury that the value of a specified amount of stock was not the legal measure of the plaintiff's damages, but that he was entitled to recover the excess (if any there was) which the value of what he sold and transferred to the company, enhanced by the agreement of the plaintiff and Lefferts not to enter into competition with the company, as stipulated in the contract, had, when sold and delivered, over the amount which he had already received; and this the parties agreed was one hundred shares of the defendant's stock, of the aggregate value of $10,000, with interest on such excess from the date of the revocation of the powers of the arbiters. This charge is in conformity with the views we have expressed of the obligations of this contract, and of the rule of damages applicable to the breach of it.

It is urged, however, that the court erred in excluding testimony of the value of the defendant's stock both when they sold out to the Western Union Company, and when the revocation occurred.

It is not perceived how the sale to the Western Union Company changed the rights of the parties, for there is nothing to show that it hindered the defendants from acquiring in the market at any time a sufficient number of shares of its stock to comply with the award which it was expected the arbitrators would be suffered to make long after this sale took place.

If there had been an agreement to deliver a certain quantity of stock, and an action had been brought for the conversion of it, on the ground that the defendant by the sale to another company had put it out of its power to comply with the terms of its agreement, evidence of the value of the stock at the time the sale occurred would be competent. And so would evidence of its value at the date of the revocation, if the plaintiff was in a position to support an action for damages for breach of contract to deliver stock. But as he is limited in his recovery to the value of his inventions when sold and delivered, evidence of the value of shares of stock at all is only proper as tending to show the estimate put upon the property by the parties at the time they made their bargain. And as the value of the stock in 1861, when the contract was concluded, was directly shown, its value at any other time became unimportant. The Circuit Court proceeded on the theory, and we think correctly, that the defendant intended to give for and considered the plaintiff's property worth (if it performed certain conditions) the cash equivalent of five hundred shares of stock. This was $50,000, which the plaintiff must also have adopted as his estimate of the value of the property when he sold it, as he offered evidence tending to show that it was worth that sum, and claimed that the evidence proved the fact. The conflict of testimony on the worth of the Humaston inventions was very great, for the defendant also introduced evidence tending to prove, and claimed it was proved, that these inventions were of no value, or if any, no more than the amount already paid for them.

In this condition of the evidence it was a difficult matter for the jury to settle the issue submitted to them, but as they were able to do it with the aid of the court and eminent counsel, after a lengthy trial, by finding a considerable verdict for the plaintiff, it would seem that he ought to be satisfied with it.

At any rate there is no error in the record, and the judgment must be

AFFIRMED.


text: Talk:Humaston v. American Telegraph Company/Opinion of the Court

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


text:
Kehr v. Smith

APPEAL from the Circuit Court for the Eastern District of Missouri.

Smith, assignee of Martin Meyer, a bankrupt, brought a bill in equity in the District Court for the Eastern District of Missouri, to set aside as fraudulent a deed of trust given by the bankrupt in August, 1867, to one Kehr, on a house and lot where he lived, and owned by him, to secure two promissory notes, of even date with the deed, for $2500 each, payable respectively in one and two years from date, with interest, which the bankrupt executed to a certain Schaeffer, as trustee of Clara Meyer, his wife.

The case was thus: In August, 1867, Meyer, a trader in St. Louis, and his wife agreed to separate, and entered into an agreement for this purpose. They were to live separate from each other without molestation, and the rights given to one in the articles of separation were secured to the other. In order that the wife might have sufficient means for her support the husband covenanted with a person named that he would pay to him, as trustee for the wife, the sum of $7000 on the execution of the instrument. In consideration of these and other agreements the trustee and the wife covenanted with the husband to accept the stipulated sum in full satisfaction of any claim for maintenance or support, and also for any claim for alimony or dower in case of the husband's death. The trustee also covenanted to save the husband harmless from any debts the wife might contract on his account. No fault was imputed by one to the other, but each was left at liberty, if so disposed, to prosecute an action for divorce. Two thousand dollars of the seven was paid in money to the trustee, and the balance was secured to be paid by the deed of trust, which was the subject-matter of this controversy.

At the time of this settlement by Meyer his pecuniary condition, as assumed by the District Court, a report of whose opinion in full is given in the reports for the Eighth Circuit, was thus:

He owed,      $9,306

He had property as follows:

The property charged in favor of his wife, about the

value of which witnesses differed, one valuing it at

$10,500, a sum which, free from all incumbrances,

it brought at public sale, $10,500

Other real property, at most,   632

Personalty,   5,000

$16,132

Deduct amount settled on his wife, 7,000

Leaving to pay all his debts, $9,132

The Circuit Court estimated the real estate charged at about $2000 more than did the District Court; noting, however, that being the party's homestead, the homestead right (in Missouri $1000) was chargeable on it. The result was, of course, not much different.

After the execution of the deed of separation the parties separated, but within two and a half months became reconciled, and, with the trustee, entered into articles of reconciliation, rescinding the whole of the previous agreement, except in the matter of the separate estate created by it; agreed to forget past differences, and to live together as husband and wife; it being further agreed that the husband was not to pay any interest on the notes during their reconciliation. The covenants in the first articles, except in the particular named, were declared to be void, and each party released the other from any breach of them. A 'complete condonation' was also declared by the new arrangement.

The husband and wife lived together for some four years, when the husband left the country, and soon after this he was declared a bankrupt. After the filing of the bill in this case, the property on which the notes to Mrs. Meyer were secured was, with the assent of the parties litigant, sold by the order of the court, and the right reserved to the parties to proceed against the fund. The question for decision was whether Mrs. Meyer should have these notes paid to her out of the proceeds of this property to the exclusion of the creditors of her husband.

There was some effort to prove that Mrs. Meyer had received from a first husband's estate a considerable amount of money, which Meyer, who was her second, had received and used for his own purposes; and that this use of it by him was the equitable basis of the settlement of $7000. The deed of settlement, however, did not allude to this as a consideration, nor allude to it otherwise, and there was no sufficient proof of the fact that when she married Meyer she had any property, or that afterwards she ever got any from any source independently of Meyer himself.

The District Court decreed in favor of the assignee, and the Circuit Court having affirmed that decree, the wife and her trustee took this appeal.

Messrs. N. Meyer, M. Blair, and F. A. Dick, for the appellant; Mr. S. Knox, contra.

Mr. Justice DAVIS delivered the opinion of the court.

title: Kehr v. Smith


text: Talk:Kehr v. Smith

title: Talk:Kehr v. Smith


text:
Kehr v. Smith/Opinion of the Court

It is unnecessary to discuss the question whether the settlement made, in view of actual separation, could be upheld or not in the condition of the husband's affairs, because this case must turn on what occurred afterwards. All the elements of value which entered into the composition of the first agreement ceased to exist when the parties became reconciled. The marital relations were resumed on the basis of mutual forgiveness for past misconduct, and the wife became entitled to support from her husband and to dower in his estate. These rights of the wife had been relinquished in the first contract, and this relinquishment was the only consideration to support it. The withdrawal of the consideration left the notes without any element of value in them, and the execution of the new contract, followed by cohabitation, placed the parties exactly where they would have been if there had been no separation. The notes thus became a voluntary gift, and it can make no difference in their character that they are reserved as a separate estate to the wife. It is not a question in the case whether, as between the parties, they could not be enforced. The question is whether a husband, at the time largely indebted, can make a voluntary donation or even voluntary conveyance to his wife to the prejudice of his creditors. An attempt is made to show that Meyer received from his wife a considerable amount of money obtained by her from her first husband's estate, and that this formed part of the consideration of the settlement when they separated; but there is no evidence of any value to prove such a state of things. Besides, the articles of separation decide this point against the wife, as no notice is taken of it, and it is hardly possible, if the fact were as claimed, that on such an occasion it would not have been mentioned.

In this controversy, therefore, with creditors, the gift must be treated as purely voluntary; a gift being nothing more than the transfer of property without consideration.

We could not profitably add anything to what has been so well said by the district judge in his opinion in this case on the subject of the indebtedness and property of Meyer at the time of the settlement upon his wife. On a careful consideration of the whole evidence we are satisfied that the value of the property was not materially different from the estimate he put upon it. If he erred at all in this estimate it was within a very narrow limit. The homestead on which the notes were secured was the only piece of real estate of any consequence owned Meyer, and witnesses differed as to its value, but the opinion of one was sustained by what it brought at the sale, which was the criterion of value adopted by the District Court. In this he may have been mistaken, but if so, the mistake was within the limits of $2000, which the Circuit Court thought was about the worth of the property. Outside of the homestead the assets of Meyer were uncertain, but they did not exceed, if they equalled, the estimate of the District Court. The conclusion reached by that court, after going into particulars, was that the estate of Meyer could not have exceeded the sum of $16,132. Deducting from this the sum of $7000 paid, and agreed to be paid, to the wife, would leave $9132 to meet debts confessedly due, amounting to $9306.

Surely the voluntary provision for the wife, in such a condition of things, is not sustainable against existing creditors. Nor can it be supported on the theory that the whole estate was worth a few thousand dollars more. Suppose it was, there would still be that extent of embarrassment, which would have a direct tendency to impair the rights of creditors. In such a case a presumption of constructive fraud is created, no matter what the motive which prompted the settlement. Meyer was not only largely indebted for a person in his situation, but it is easy to see it would have been close work for his creditors to have made their debts, if they had tried to enforce their collection by judicial process, a surer way of ascertaining the real worth of the property than by the opinions of indifferent persons, as experience has proved that this kind of testimony is often unreliable on such a subject. The ancient rule, that a voluntary post-nuptial settlement can be avoided, if there was some indebtedness existing, has been relaxed, and the rule generally adopted in this country at the present time, will uphold it, if it be reasonable, not disproportionate to the husband's means, taking into view his debts and situation, and clear of any intent, actual or constructive, to defraud creditors. #fn-s-s

Testing this settlement by this rule, it must be taken to be in bad faith towards existing creditors, as, clearly, it was out of all proportion to the means of the husband, considering his state and condition, and seriously impairs his ability to respond to the demands of his creditors.

It is well settled, where a deed is set aside as void as to existing creditors, that all the creditors, prior and subsequent, share in the fund pro rata. #fn-s-s-s

We have considered the contract in this case as if it were executed, because no point is made by the respondents that it is executory, and the case has been argued by both sides on the theory that the law applicable to an executed contract of this sort applied to the one in controversy. It may well be doubted whether in any case a mere promise by the husband, without consideration, to pay money to the wife at a future time, can be enforced against the claims of creditors.

DECREE AFFIRMED.

title: Kehr v. Smith/Opinion of the Court


text: Talk:Kehr v. Smith/Opinion of the Court

title: Talk:Kehr v. Smith/Opinion of the Court


text:
Pacific Railroad Company v. Maguire

ERROR to the Supreme Court of Missouri, the question involved having been the right of a tax-collector of the State of Missouri to levy a tax authorized by an ordinance of the State named, on the property of the Pacific Railroad Company, a corporation incorporated by the said State. The case was thus:

By an act of March 12th, 1849, the railroad company was incorporated, as already mentioned, with a capital of $10,000,000, for the purpose of building a railroad across the State, from the city of St. Louis, on the eastern line of the State, to a point indicated in the western line. Authority was given to the counties through which it should pass to subscribe for the stock, and it was invested also with the powers usually conferred upon such companies.

By an act passed February 22d, 1851, it was enacted that when a certain sum had been collected of the capital stock and expended in the survey and construction of the road, the bonds of the State to the same amount should be lent to the road, and further loans were authorized, not to exceed $2,000,000. The loan was made a lien on the road, and the company was required to pay the principal and interest of the bonds.

By an act of December 25th, 1852, certain public lands were vested in the company, and the company were authorized to build a southwestern branch road to the western boundary of the State. Provision was made for the issue of an additional $1,000,000 of the bonds of the State, to be used in aid of the work proposed, with precaution that subscriptions should have been made and should previously have been applied by the company to amounts stated, and that the bonds should not be sold at less than their par value, and that the road should be completed and put in operation within five years after the passage of the act. The companies were to pay the principal and interest of these bonds also, and the State had its lien.

The twelfth section contained the following provision:

'The said Pacific Railroad and the said Southwestern Branch Railroad shall be exempt from taxation respectively until the same shall be completed, opened, and in operation, and shall declare a dividend, when the road-bed, buildings, machinery, engines, cars, and other property of such completed road, at the cash value thereof, shall be subject to taxation at the rate assessed by the State on other real and personal property of like value. . . . Provided, that if said company shall fail, for the period of two years after said roads respectively shall be completed and put in operation, to declare a dividend, then the said company shall no longer be exempt from the payment of said tax, nor from the forfeitures and penalties in this section imposed.'

This act and its grants were duly accepted by the company, in a mode which the act prescribed, in case the company desired to accept it.

This constituted one ground relied on, in connection with certain other matters, by the company. Now, as to another ground relied on by them, in connection with the same certain other matters, as ground independent of that already stated.

With the outbreak of the rebellion, in 1861, both the railroad company and the State made default in the payment of the interest on the State bonds, and on the 10th of February, 1864, the westernmost sixty-five miles of the road being yet unfinished, the legislature passed an act authorizing the company to issue its bonds for $1,500,000 and to mortgage that unfinished part; the State agreeing to relinquish for this object and to this extent her first lien, and retaining only a second one.

The bonds when issued were to be delivered to a fund commissioner, created by the act, and to be sold by him, and the money arising from such sale was to be applied by him to the construction and equipment of the road. The act also required all the gross earnings of the road to be paid to said find commissioner, and that he should, after paying the running expenses of the road and his salary, apply the residue, first to the extension and equipment of the road until it was completed, after reserving sufficient for the payment of the interest accruing semi-annually on the bonds sold; secondly, to the purchase or payment of the bonds; third, to the payment of the interest on certain other bonds authorized by the act, which were never issued; fourth, to the payment of dividends on certain preferred stock, also authorized by the act, which was never issued; the surplus, if any, to the purchase of State bonds with the interest coupons.

This act was duly accepted by the company. The fund commissioner was appointed, the mortgage executed, the bonds issued by the company and sold by the fund commissioner, and the money arising from such sales and from the earnings of the road was applied by him in the manner provided in the act.

The fund commissioner continued in the discharge of the duties imposed by the act until October, 1868, when his office was abolished, the bonds being at that time still unpaid.

On the 4th day of July, 1865, the present constitution of Missouri, together with an ordinance known as the Railroad Ordinance as a part thereof, went into effect. The provisions of the ordinance are as follows:

'SECTION 1. There shall be levied and collected from the pacific Railroad Company, the North Missouri Railroad Company, and the St. Louis and Iron Mountain Railroad Company, an annual tax of ten per centum of all their gross receipts for the transportation of freight and passengers (not including amounts received from and taxes paid to the United States) from the 1st of October, 1866, to the 1st of October, 1868, and fifteen per centum thereafter; which tax shall be assessed and collected in the county of St. Louis, in the same manner as other State taxes are assessed and collected, and shall be appropriated by the General Assembly to the payment of the principal and interest now due or hereafter to become due, upon the bonds of the State, and the bonds guaranteed by the State, issued to the aforesaid railroad companies.

'The tax in this ordinance specified shall be collected from each company hereinbefore named only for the payment of the principal and interest on the bonds for the payment of which such company shall be liable; and whenever such bonds and interest shall have been fully paid, no further tax shall be collected from such company, but nothing shall be received by the State in discharge of any amounts due upon said bonds except cash or other bonds or obligations of this State.

'Should either of said companies refuse or neglect to pay said tax, as herein required, and the interest or principal of any of said bonds, or any part thereof, remain due and unpaid, the General Assembly shall provide by law for the sale of the railroad and other property, and the franchises of the company that shall be thus in default, under the lien reserved to the State, and shall appropriate the proceeds of such sale to the payment of the amount remaining due and unpaid from said company.'

At the time of the passage of this ordinance the road was under construction, and it was not completed and put in operation until the 1st of April, 1866. It was then completed and put in operation.

In pursuance of the ordinance above quoted, one Maguire, a collector of taxes for the State of Missouri, assessed a tax against the company for the year beginning October 1st, 1866, at 10 per cent. on $2,536,440, that being the gross earnings of the road for that year.

The tax was assessed in the same manner as other State taxes were assessed in said county, 10 per cent. as a tax under the ordinance just above recited, amounting to the sum of $253,644. No dividend had been declared or paid when the levy in question was made, and two years had not elapsed from the completion of the road.

The company refused to pay the tax and Maguire seized its property. The company sued him for a trespass. He justified under the ordinance.

A case setting forth the facts above given was agreed on and stated, for the judgment of the court, and on it the company contended that the ordinance was unconstitutional so far as it affected them, because it was a law passed by the State 'impairing the obligation of contracts,' and because it deprived the company of its property without due process of law.

It was agreed that if the court adjudged the ordinance invalid it should give judgment in favor of the company for six cents damages and costs, and if valid give judgment against it for costs only. The Supreme Court of Missouri adjudged the ordinance valid, and the company brought the case here.

Messrs. W. M. Evarts, J. Baker, and J. B. Henderson, for the company, plaintiff in error, placed the case on the following among other grounds:

title: Pacific Railroad Company v. Maguire


text: Talk:Pacific Railroad Company v. Maguire


text:
Pacific Railroad Company v. Maguire/Opinion of the Court

1. That by the twelfth section of the act of December 25th, 1852, the company was exempted from the payment of the tax in question.

2. That by the act of February 10th, 1864, the entire earnings of the road were appropriated to other purposes, wholly inconsistent with the payment of the tax in question, and that they were actually paid to the agent of the State as therein required, and by him paid out under the authority of the said act.

Messrs. Montgomery Blair and F. A. Dick, with whom was Mr. A. H. Buckner, contra, contended:

1. That the twelfth section of the act of 25th December, 1852, referred to tax for general purposes, and applied only to tax on the corporate property, road-bed, machinery, buildings, &c.; and that the act would not prevent a tax on the franchise or on the earnings of the company.

2. That the ordinance did not impose a tax, since it merely applied the income of the company to the payment of debts which were alike debts of the State and of the company.

Mr. Justice HUNT delivered the opinion of the court.

The first question is this: By the acts organizing this company, and by the acts loaning the credit of the State and the proceedings under the same, was an agreement created on the part of the State that the Pacific road should not be taxed until it was built and finished and had declared a dividend, and that for two years after it was finished it should be liable to taxation only in common with other property of the State and at the same rate?

The right of taxation is a sovereign right, and presumptively belongs to the State in regard to every species of property and to an unlimited extent. The right may be waived in particular instances, but this can only be done by a clear expression of the legislative will. The cases of Tomlinson v. Branch, and Tomlinson v. Jessup, in this court, and many others referred to in those cases, show that when a contract of exemption from taxation is thus established it is binding upon the State, and the action of the State in the passage of laws violating its terms will not be sustained. The principles of law are sufficiently settled. The real question arises upon their application to the facts of the case.

Upon the facts presented by the agreed case before us we are of the opinion—

1st. That the twelfth section of the act of 1852 created a contract between the State and the railroad company, by which the railroad was exempt from taxation until it was completed and put in operation, and until it should declare a dividend on its capital stock, not, however, extending longer than two years after its completion.

2d. That the ordinance of 1865, imposing a tax of ten per cent. upon its gross earnings before the road was completed and in operation, and had declared a dividend, was a violation of this contract, and that the levy for its enforcement was illegal.

We omit a reference to other questions which have been argued and express no opinion upon them. We base our opinion upon the effect of the statutes already cited.

The authorities which have been referred to show that a State legislature may make a contract to exempt a corporation from taxation by which it will be bound.

That the facts recited constitute such an agreement we think sufficiently plain. The Pacific corporation was unable to raise funds for completing its road. To induce it to go on with its work and to induce individuals and counties to subscribe for what the legislature evidently deemed an enterprise of public benefit, it made loans of the credit of the State from time to time. To make the franchise still more valuable to the company, and to the end that individuals and counties should be induced to subscribe to the stock, the legislature added an exemption from taxation until the road should be completed and in operation, and should have declared a dividend. That the money value of this exemption was great is evident from the fact that the tax imposed for a single year, commencing October 1st, 1866, amounted to $253,644.

This transaction amounted to a contract between the State and the corporation that there should be no taxation of the company until the occurrence of the stipulated events. In delivering the opinion in The Wilmington Railroad v. Reid, Mr. Justice Davis says: 'It has been so often decided by this court that a charter of incorporation granted by a State creates a contract between the State and the corporators, which the State cannot violate, that it would be a work of supererogation to repeat the reasons on which the argument is founded. . . . If the contract is plain and unambiguous, and the meaning of the parties to it can be clearly ascertained, it is the duty of the court to give effect to it the same af if it were a contract between private persons, without regard to its supposed injurious effects upon the public interests.' The statute of 1852 provided for an exemption from taxation of the 'Pacific Railroad,' its bed, and of its 'buildings, machinery, engines, cars, and other property.' The tax imposed by the ordinance of 1865 was an 'annual tax of ten per centum of all their gross receipts for the transportation of freight and passengers.' It was directed 'to be levied and collected from the Pacific Railroad.' In The Wilmington Railroad v. Reid, it was held that a statute exempting all the property of a railroad company from taxation exempts not only the rolling stock and real estate owned by it and required by the company for the successful prosecution of its business, but its franchise also. In the case before us the road-bed, buildings, machinery, cars, and other property not only, but the 'Pacific Railroad' is declared to be exempt from taxation. We cannot doubt that a contract not to tax a railroad company or its property is broken by the levy of a tax upon its gross receipts for the transportation of freight and passengers.

A suggestion is made that the imposition in question is not a tax, for the reason that the ordinance imposing it provides that the same shall be appropriated by the General Assembly in payment of the principal and interest due and to become due upon the bonds issued to the company by the State. The purpose to which the State shall apply the proceeds of a tax is not material so long as it is a public purpose, and that the payment of the debts of a State is a public purpose does not admit of doubt. It is called a tax both in the agreed statement of facts before us and in the ordinance imposing it. Thus, 'there shall be levied and collected an annual tax of ten per centum of all their gross receipts,' &c., 'which tax shall be assessed and collected in the county of St. Louis in the same manner as other State taxes are assessed and collected.' 'The tax in this ordinance specified shall be collected from each company,' &c. . . . 'Should either of said companies refuse or neglect to pay said tax as herein required,' &c. A tax upon receipts is one of the recognized modes of taxing corporations, as well under State laws as under the laws of the General Government.

The ordinance of 1852 was either the imposition of a tax or it was an act of high-handed violence, a forcible seizure of private property, without law or authority, an act which, if committed by an individual, would amount to robbery. The case before us will justify no such imputation upon the State of Missouri.

The result of these views is the REVERSAL OF THE JUDGMENT below, and in accordance with the stipulation in the record, judgment is ordered in favor of the plaintiff in error for six cents damages and for costs, and the case is remanded, with directions that a judgment be entered accordingly.

I concur in the judgment of the court which has just been announced, but not for the reasons assigned. If the assessment complained of is a tax, then I agree with the majority of the court in the opinion that it is a violation of the twelfth section of the act of December 25th, 1852, and void. I think, however, it is not a tax, but an exaction of the payment of the debt due from the railroad company to the State, and as such inconsistent with the provisions of the act of February 10th, 1864, which, upon its acceptance by the company, became a contract between the parties and binding upon each.

Justices CLIFFORD and MILLER dissented from the opinion of the court, because the act of the legislature referred to did not, in their judgment, exempt the company from the tax imposed by the ordinance.

Mr. Justice STRONG did not sit in the case.


text: Talk:Pacific Railroad Company v. Maguire/Opinion of the Court


text:
North Missouri Railroad Company v. Maguire

ERROR to the Supreme Court of Missouri, the case being thus:

The North Missouri Railroad Company was incorporated by act of the legislature of Missouri, March 3d, 1851. By an act of January 7th, 1853, its charter was thus amended:

'The capital stock, together with all machines, wagons, cars, engines, or carriages belonging to the company, together with all their works or other property, and all profits which shall arise from the same, shall be vested in the respective shareholders of the company forever, in proportion to their respective shares, and the same shall be deemed personal estate, and shall be exempt from any public charge or tax whatsoever for the period of five years from and after the passage of this act.'

Under the provisions of several acts of the State legislature between the date of its incorporation and the year 1857, the State issued its own bonds for the benefit of the road, reserving a mortgage on the road to secure their payment. As between the State and the company the latter was bound to pay the bonds and interest on them, and it was provided that, in case the company made default, the governor should foreclose the mortgage.

About the year 1860 the company did make default in the payment of the interest on the bonds, and had paid no part of either interest or the principal since. No sale, however, was made of the road, and on the 29th of March, 1863, the legislature passed an act forbidding the governor to make a sale until he should be required by it to do so.

By an act of February 16th, 1865, meant to provide for the completion of the road, the company was authorized to issue $6,000,000 of its mortgage bonds, which should have priority over the mortgage of this State; and this to the extent named, and no farther, was by the act made a second lien. The act provided for the appointment of a fund commissioner for the railroad company. It then proceeded:

'SECTION 5. And the said railroad company shall pay over to the said fund commissioner all the gross earnings and daily receipts of said corporation, which shall be kept in deposit in the bank, subject to the daily draft of said fund commissioner, as the same may be required by said corporation for actual disbursement in operating said railroad, and in carrying on the ordinary business of said corporation, and for the other purposes hereinafter provided; and upon the failure of said company to pay said money to said fund commissioner, as herein provided, the said company shall forfeit and pay to the State of Missouri, for each and every such neglect or refusal, the sum of $10,000.

'SECTION 6. The said commissioner shall pay over to the said corporation, from time to time, out of the funds coming into his hands as aforesaid, the amounts required for purposes of construction and equipment of said railroad, upon vouchers of the chief engineer, and upon the vouchers of the treasurer thereof, he shall pay the amounts required for operating said railroad and carrying on the ordinary business of said corporation; and he shall pay and disburse the funds in the following order of priority, to wit:

'First. To the said corporation the amounts required, from day to day, for the actual current expenditures in operating said railroad and carrying on the ordinary business of said corporation, including all sums that may be necessary for keeping said railroad in a good state of repair, and all sums that may be necessary, for time to time, for such additions to the rolling stock, buildings, and appurtenances of said road, as may be required to enable said corporation to accommodate and transact the business of their said railroad; and,'Second, the amount of his salary as fund commissioner, in monthly instalments; and,

'Third, the interest upon said mortgage bonds, as the same shall fall due; and,

'Fourth, the cost of construction and equipment of said railroad as aforesaid; and,

'Fifth, the accruing dividends on preferred stock, not exceeding six per cent. per annum thereon, in accordance with the provisions of this act in relation thereto; and,

'Sixth, the interest due on the outstanding bonds of the State of Missouri heretofore loaned to said corporation; and,

'Lastly, the surplus remaining shall be applied to the payment of the principal of said first mortgage bonds until the same shall be fully paid off, or, if more of said bonds shall have become due, then to the payment of the principal of the said bonds of the State of Missouri if any still outstanding; and the balance shall be paid to the North Missouri Railroad Company, and the said office of fund commissioner shall then cease and be vacated.


text: Talk:North Missouri Railroad Company v. Maguire


text:
North Missouri Railroad Company v. Maguire/Opinion of the Court

'SECTION 9. The holders of the bonds of the State of Missouri, heretofore issued to the North Missouri Railroad Company, are hereby authorized to convert the same, which interest accrued thereon, into preferred stock of the North Missouri Railroad Company, and the holders thereof shall be entitled to receive a special dividend thereon, not exceeding the rate of six per cent. per annum, in the manner and in the order of priority above herein provided.'

The thirteenth section provided for an acceptance of this act by the stockholders, and enacted that in the event of its being so accepted,

'It shall be and become of full force and binding effect upon the said corporation and the State of Missouri.'

The act was accepted in due form by the stockholders.

On the 8th of April, 1865, a convention of the people of Missouri adopted 'An ordinance for the payment of State and railroad indebtedness.' This ordinance levied on the railroad company an annual tax of ten per centum of all its gross receipts for the transportation of freight and passengers, and directed that it should be appropriated by the General Assembly to the payment of the principal and interest now due, or hereafter to become due, upon the bonds of the State, and the bonds guaranteed by the State, issued to the company.

The provisions of the ordinance will be seen more fully on pages 39-40, supra, beginning near the bottom of the former page, at the place marked with a *.

Under this ordinance, the assessor of St. Louis County assessed $68,257 (being ten per cent.) upon the gross receipts of the company from October 1st, 1866, to October 1st, 1867, and delivered the same to one Maguire, collector of taxes, who, on the company's refusal to pay the bill, levied upon its engines, cars, &c. The company thereupon sued him in trespass in one of the State courts, where a case was stated for the judgment of the court, and by which it was agreed that if the court should be of opinion that the ordinance referred to was unconstitutional, there should be judgment for the company for costs and nominal damages; and if of the opinion that it was constitutional, judgment for Maguire for costs.

The Supreme Court of Missouri, where the case finally got referring among other clauses of the act of 1865, to that which provided for the payment in the first place of the 'amounts required from day to day, for the actual current expenditures for carrying on the ordinary business of the corporation'-within which it considered the payment of taxes to fall-rendered judgment for Maguire, and the company brought the case here.

One Jessup, who claimed the whole road under a sale, also stood in some way on the record as a plaintiff in error.

Mr. J. C. Orrick, for the plaintiff in error:

I. The act of February 16th, 1865, is a contract between the company and the State.

The act itself declares that if accepted by the stockholders it shall become of full force and binding effect upon the said corporation and the State of Missouri. The act was accepted by the stockholders.

In addition, its provisions contain all the elements of a contract. The railroad company was a corporation, vested with certain franchises under a charter from the State, and the act of 1865 gives certain other franchises, and imposes certain restrictions, which required the assent of the corporation to make them valid, and the contract was: That the State would release its lien to a certain extent; authorize the company to issue $6,000,000 of first mortgage bonds, and grant other privileges to the company, in consideration that the State, through an officer of its own, should be permitted to take charge of all the funds and earnings of the company, coming from whatever source, and disburse them in a particular way, and for certain objects specified in the act, amongst which was the payment of these very bonds for which the State was liable, and the accrued interest thereon which the State had paid, and which had thus become a debt due by the company to the State.

An important provision of the contract was that the interest on the $6,000,000 of bonds and the dividends on the preferred stock should be paid before the interest or principal of the State bonds. The ordinance is a violation of this contract.

The ordinance, disregarding the obligation of the State to pay, through its fund commissioner, out of the gross earnings and daily receipts of the corporation what might be necessary to keep the road in a good state of repair, and what might be necessary for such additions to the rolling stock, buildings, and appurtenances of the road, as may be required to enable the corporation to accommodate and transact the business of the road, the amount of salary to the fund commissioner, the interest on the first mortgage bonds as the same fell due, the cost of construction and equipment, the dividends on preferred stock, the principal of the first mortgage bonds, to all of which the gross earnings were pledged before the principal of the State bonds could be paid; provides for the levy of an assessment of ten per cent. of all gross receipts for transportation of freight and passengers for two years, and fifteen per cent. thereafter for the payment of the principal and interest of these bonds until they shall be fully paid.

Thus it will be seen that the contract is impaired in an important particular.

II. The questions then left for consideration are:

First. Whether the assessment of ten per cent. on the gross earnings of the road, provided for by the ordinance of the convention, is a tax?

Second. Whether, if it be considered a tax, there is anything in the act of 1865 manifesting an intention on the part of the State to abandon the right of taxation?

As to the first point it appears by the provisions of the ordinance that there was an existing debt due by the company to the State for interest paid, and that there were bonds of the State outstanding for the payment of which the company might become liable to the State. The ten per cent. is to be applied to the payment of this interest and these bonds, and to this purpose only. The amount collected is to be appropriated by the General Assembly, not to the general purposes of the State, but to the payment of a debt already accrued,-the principal and interest of these bonds. And when the bonds and interest shall have been fully paid the assessment and collection of the money is to cease. And if the company should fail to pay the ten per cent., the road and other property and the franchises of the company are to be sold, and the proceeds of the sale are to be applied to the payment of the bouds and the debt, notwithstanding the fact that the State has agreed that they should be paid in another way. In other words, the State says to the railroad company, 'You owe a debt, and are likely to owe us more on bonds for which we are liable and which we may have to pay. You must discharge that debt and liability by turning over ten per cent. of your gross receipts until we are satisfied that the debt is paid, and if you do not we will sell your franchise and all your property.' What is this but resuming the position of first mortgagee? The ordinance goes farther. It not only makes the State a first mortgagee, in violation of the provisions of the act of 1865, but it changes the mode and time of payment. Can this be considered a tax? Has it any of the elements of a tax?

Taxes are burdens imposed upon persons or property to raise money for public purposes. The money here raised is to be applied to the payment of a particular debt. The road had already been placed, by the act of 1865, in the hands of a receiver or fund commissioner, and the company was required to pay all the gross earnings and daily receipts into his hands under penalty of $10,000 for each instance of neglect to do so.

Calling a thing a tax does not make it a tax; and, as is observed by Cooley in his excellent work on Constitutional Limitations, 'It may happen that an oppressive burden imposed by the government when it comes to be carefully scrutinized, will prove, instead of a tax, to be an unlawful confiscation of property unwarranted by any principle of constitutional government.'

As to the second point. The act of 1865 made a complete disposition of all the funds of the company, from whatever source coming. The company as a corporation owned nothing but its road and the property and appliances with which to work it, and everything derived from this source was by the act appropriated. Moreover who was to pay the taxes? Not the company; for, under heavy penalty, it was to pay all to the fund commissioner. Not the fund commissioner; for he is directed specifically to pay out all the money in a particular way. How the payment of taxes is any part of the ordinary business of the company as the Supreme Court of Missouri argues, it is difficult to understand; but if so, this could not be done by the corporation. The fund commissioner, who was an officer of the State, has control of the funds, and if authority was given to any one to pay the taxes as a part of the expenses of running the road, it was given to him and not to the company.

Indeed, since the passage of the amended charter of January 7th, 1853, the company as a corporation has not been taxed either upon its capital stock or any of its property. By the sixth section of that charter, 'the capital stock, together with all the machines, wagons, cars, engines or carriages belonging to the company, together with all their works and other property, and all profits which should arise from the same,' were vested in the shareholders forever as their personal estate, and as such was exempt from any charge or tax whatsoever for the term of five years. After the expiration of that term the shares were taxable to the individual shareholders, nor was it pretended that any of the property was taxable to the company up to and at the time of the passage of the act of 1865. This was so well understood that there was no necessity of saying anything on the subject of taxation in the act of 1865. That provision of the charter was unchanged by the act of 1865; it was the mode of taxation agreed upon by the State and the corporation. It was left as it was, and to suppose that the State meant, that after the passage of the act of 1865, the corporation should be taxed upon its property or income is to suppose that it should be subjected to a double taxation, because, by the sixth section of the charter all the property and the profits which should arise from the same were vested in the stockholders as their personal property, and as such subject to taxation against them after the expiration of the five years; and if it were taxed again to the corporation it would be double taxation, a thing which the courts will never presume that the legislature intended to do. We do not pretend that there was anything that exempted the shares of stock from taxation; and as the laws of Missouri stood then, and as they stand now, and as they were at the time of the adoption of the convention ordinance, the shares of stock in this corporation were taxable. The ordinance made no change in this respect. The ten per cent. on gross receipts was in addition to the tax on shares, but we do assert that it was the manifest intention of the legislature to exempt the corporation from any tax on its property or its capital.

Messrs. Montgomery Blair and F. A. Dick, contra.

Mr. Justice CLIFFORD delivered the opinion of the court.

Much discussion of the evidence in the case will be unnecessary, as the principal facts are embodied in an agreed statement, which is made a part of the record.

By the agreed statement it appears that the plaintiff company is a corporation established by the laws of the State, and that the other plaintiff claims to be the legal owner of all the property lately owned by the corporation. Said company was incorporated on the third of March, 1851, with a capital stock of six millions of dollars divided into shares of one hundred dollars each.

Pecuniary aid in large amounts was furnished to the company by the State, as appears from several legislative acts. Such aid was granted by the act of the twenty-third of December, 1851, in terms as follows: that when evidence is produced satisfactory to the governor that the company has collected fifty thousand dollars on their capital stock, and that they have expended the same in the survey, lecation, and construction of the railroad, the governor shall cause to be issued and delivered to the company special bends of the State to the same amount, as a loan of public credit, bearing interest and payable as therein provided. Provision is also made in the same section that upon like proof that the company have expended the whole of the sum realized from those bonds, and that they have also expended a further sum of the same amount of their own moneys, that the governor shall in like manner cause to be issued and delivered to the company further like bonds for the same amount, and so on in like manner as often as the company shall, from time to time, furnish like evidence that they have expended from their own moneys further sums, of not less than fifty thousand dollars, for the construction of the railroad, and that they have expended for the purpose the whole of the proceeds of the bonds previously issued by the State, the governor shall cause to be issued and delivered to the company further like boods in instalments of the same amount, not exceeding in all the sum of two millions of dollars.

Bonds of the kind were forbidden to be delivered until the acceptance thereof should be signified to the secretary of state by the filing in his office of a certificate of such acceptance under the corporate seal of the company with the signature of the president, and the provision was that the certificate of acceptance so executed and filed should be recorded in the office of the secretary of state, and that it shall become and be, according to all intents and purposes, a mortgage of said road and every part and section thereof, and its appurtenances, to the people of the State, for securing the payment of the principal and interest of the sums of money for which such bonds shall from time to time be issued and accepted.

Legislative aid was also furnished in like form to certain other railroad companies of the State to expedite their construction and the completion of the same, amounting in the whole to the sum of nine millions of dollars, including the amount furnished to the plaintiff company, all of which was secured as a first lien on the respective railroads in like manner.

None of the companies, however, were able to complete their railroads without further aid from the State, and on the tenth of December, 1855, the legislature, by an act entitled 'An act to secure the completion of certain railroads in the State,' enacted that it shall be the duty of the governor, upon the application of any of said companies, with the proof of the investment of any sum in the actual construction and equipment of the trunk line of the railroad, from sources other than the proceeds of the bonds of the State, and not secured upon the road by a lien prior to that of the State, and verified as therein required, to sign and deliver to such company an amount in the bonds of the State equal to twice the amount so proven to have been invested in the construction and equipment of the said railroad since the last application and issue of bonds to such company, and successively from time to time, upon the application for bonds and proof of such investment, the governor shall issue and deliver, in like manner, bonds to such company until the aggregate amount to the plaintiff company shall be two millions of dollars, one million of which shall be exclusively applied to the construction of a portion of said road therein described; and it is made the duty of the governor to expend the other million of dollars for the purchase of the railroad iron necessary to lay the track of said road, from one described point to another, and to purchase the rolling stock for the same, and the provision is that the said iron and rolling stock so purchased shall belong to the State until placed upon the track for use, after which time the State shall have a first lien on said iron and rolling stock, together with all the road and its equipments, constructed and to be constructed, for the security of the payment of the principal and interest of said bonds, and all bonds issued or that may be issued to said company under this or any former act of the legislature granting the credit of the State to the company.

Power is also reserved to the State to enforce the lien on the railroad for the failure on its part to pay punctually principal and interest on the bonds issued for its benefit, as herein and heretofore provided for in such cases; and the company shall pay at the times herein specified, 'to the treasurer of the State one and a quarter per cent., in addition, in each year, on each thirty-year bond, and two and a half per cent. in each year on each twenty-year bond so sold or hypothecated, to be invested at not less than seven per cent. interest, in such securities as are provided in the act.'

By the same section it is also provided, that from the net profits arising from the road after the same shall be completed and in operation, a sum equal to not less than ten per cent. per annum upon the net earnings of the railroad shall be paid by the company to the treasurer of the State as a sinking fund, for the purpose of paying at maturity the bonds of the State so issued and to be issued to the company.

Special provision is also made that the treasurer of the company and the treasurer of the State shall be the commissioners of the sinking fund, and that it shall be the duty of the company to pay or remit the semi-yearly interest to the designated place, as therein provided, and in case the company shall fail to pay such interest or to remit the amount to the designated place, it is made the duty of the treasurer of the State to supply the amount and remit the same, in which event he is required to refund the amount from the sinking fund and charge the same to the defaulting company. In that event the provision is that the defaulting company shall not draw any further State bonds. Moneys, funds, and securities belonging to the sinking fund are declared to be subject to the control, care, and management of the fund commissioners, and the provision is that from time to time they may invest the same in the bonds of the State under the conditions therein provided.

All funds derived from the sale of State bonds were expended, but still the railroad was not completed, and on the third of March, 1857, the legislature made a further loan of credit to the company of one and a half millions of dollars, to be issued in bonds and to be expended upon the railroad south of the junction therein described, which bonds were to be issued in instalments of two hundred thousand dollars, upon proof furnished to the governor of the expenditurn for the same purpose of a sum equal to their par value in the construction of the railroad, and the company was authorized by the same act to establish and keep a ferry across the Missouri River, where its road strikes the same, for all purposes connected with the company, and for general purposes, by paying the usual license-tax provided by law in such cases.

Bonds could not be lawfully issued under that act until the company accepted the act, and it was provided that the failure to pay any part of the principal or interest of the bonds should be a forfeiture of all right in such company to demand or receive any further issue of bonds, and in that event it was made the duty of the governor to foreclose the mortgage of the State and to enforce her lien on the property of the company.

Before the year expired, to wit, on the nineteenth of November following, the legislature authorized the governor to issue to the plaintiff company a further amount of two hundred and fifty thousand dollars in the bonds of the State, to complete a described portion of the road, and the same act provided that the act should not be construed to release the railroad from any penalty or forfeiture to which the company may be liable under such prior laws.

Authority was conferred upon the company by the act of the sixteenth of February, 1865, to issue their own bonds to the amount of six millions of dollars, and to secure the same by a first mortgage of their railroad and appurtenances, as more fully set forth in the act. Such bonds were to be issued in three classes and were to be applied as therein provided, and to facilitate the sale of the bonds the State relinquished her first lien and mortgage upon the main line of the railroad, retaining only a second lien and mortgage thereon until the principal and interest of said bonds are paid in full. By the same act the legislature created a fund commissioner, and enacted that whenever any portion of said bonds shall be issued that they shall be placed in the hands of the fund commissioner to be negotiated, and the proceeds paid over to the corporation for the purposes and under the regulations and restrictions provided in the same act, but the act was not to be operative unless accepted by the company in the mode therein provided. Prior inconsistent provisions in relation to the plaintiff company were repealed by the twelfth section of the act, and the provision is that the work on the west branch should not be expedited to the exclusion of the construction of the main line of the railroad.

Those several acts were duly accepted by the company and were in force on the eighth of April following. Interest was paid by the company on the bonds issued until the year 1860, when the company made default, and such interest has never been paid. On the said eighth of April the people of the State adopted an ordinance as a part of their constitution, which provides to the effect that an annual tax of ten per centum of all their gross receipts, with an immaterial exception, shall be levied and collected of the company and two other companies therein named, for the period of two years, as therein described, and fifteen per centum thereafter, which tax shall be assessed and collected in the county of St. Louis in the same manner as other State taxes are assessed and collected, and shall be appropriated by the legislature to the payment of the principal and interest now due or hereafter to become due upon the bonds of the State issued to the company.

Such receipts for the transportation of freight and passengers for the first of the two years, not including any sum received from the excepted source, amounted to six hundred and eighty-two thousand five hundred and seventy dollars, and the agreed statement shows that a tax of ten per cent., amounting to sixty-eight thousand two hundred and fifty-seven dollars, was assessed in the proper county on the gross receipts of the railroad for that year, under the provisions of the said ordinance. None of the principal of the bonds was due at the time the tax was assessed, but the interest on the same, to an amount greater than the amount of the tax, was due at that time.

Payment of the tax being refused the defendant, as the collector, seized the property of the company to satisfy the same, and the plaintiffs here brought an action of trespass against the collector to test the validity of the tax, in the State Circuit Court for the county where the tax was assessed. Service was made and the defendant appeared, when the parties waived a jury and submitted the case to the court upon an agreed statement of facts. Hearing was had and the court rendered judgment for the e plaintiffs and the defendant excepted and appealed to the Supreme Court of the State, where the judgment of the State Circuit Court was reversed and a judgment rendered for the defendant. Whereupon the plaintiffs sued out a writ of error and removed the cause into this court.

Corporate powers were conferred upon the company by the act of the third of March, 1851, but the act of incorporation contains no provision whateve exempting the property of the company from taxation. Three years later the charter was amended, and the sixth section of the amendatory act provided that the capital stock, with all machines, wagons, cars, engines, or carriages belonging to the company, with all their works or other property, and all profits which shall arise from the same, shall be vested in the shareholders in proportion to their shares, and that the same shall be deemed personal estate and shall be exempt from any public charge or tax whatsoever for the period of five years from and after the passage of the act, which period has long since elapsed.

Attempt is made in argument to show that an exemption from taxation may be implied from some of the provisions of the act to provide for the completion of the railroad and its west branch. Based solely on that theory the error assigned is that the ordinance of the State imposing the tax is in violation of that provision of the Constitution which prohibits the States from passing any law impairing the obligation of contracts. Pursuant to that theory the plaintiffs contend that the legislative act to complete the railroad enacted a mode of making payments by the company to the State, which, when the act was accepted by the company, became a binding contract between the parties, within the protection of that provision of the Constitution, and that as such it could not be rescinded by any subsequent legislation, and that the ordinance does impair the obligation of that contract by providing another and a different mode of enforcing the payments without the consent of the company.

Serious difficulty would arise in sustaining the judgment of the State court if the view assumed in the proposition was correct, that the ordinance was a mere change of the order of disbursing the receipts and earnings of the company, instead of being what it purports to be on its face, an expression of the soverign will of the people of the State levying taxes to pay and discharge the indebtedness of the State.

Power to tax is granted for the benefit of the whole people, and none have any right to complain if the power is fairly exercised and the proceeds are properly applied to discharge the obligations for which the taxes were imposed. Such a power resides in the State government as a part of itself, and need not be reserved when property of any description is granted to individuals or corporate bodies.

Unless exempted in terms which amount to a contract not to tax, the property, privileges, and franchises of a corporation are as much the legitimate subjects of taxation as any other property of the citizens which is within the sovereign power of the State. Repeated decisions of this court have held, in respect to such corporations, that the taxing power of the State is never presumed to be relinquished, and consequently that it exists unless the intention to relinquish it is declared in clear and unambiguous terms.

Express exemption is not pretended, nor does the act to provide for the completion of the railroad contain any provision which, when properly construed, affords any support to the proposition that any such contract exists between the company and the State, either express or implied, even if it could be admitted that mere implication is sufficient, which may well be questioned, as the current of the decisions of this court warrant the conclusion that if such an exemption be claimed it must be made to appear in clear, explicit, and unequivocal terms.

Authorities from numerous sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning of the Constitution, even though such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of another, or may impose additional burdens upon one class and release the burdens of another, still the tax must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal sense.

Properties of every kind over which the sovereign power of a State extends are objects of taxation outside of the means and instruments of the Federal government.

Unrestricted by constitutional limitations the only restraint upon the taxing power of the States is the responsibility of those in whom the power is lodged, and the power of appropriation of the proceeds, when not so restrained, is equally unlimited.

Questions not involved in the assignment of errors will not be examined, nor is it necessary, as all agree that the main question in the case is whether the ordinance impairs the obligation of any contract made and concluded between the State and the company before the ordinance was adopted.

Unless the power of the State to tax the company was surrendered by the antecedent act to provide for the completion of the railroad, it must be conceded that the power exists, as it is plain that none of the other acts referred to afford any support whatever to such a proposition.

Five years before that act was passed the company made default in the payment of the interest falling due on the bonds which the State issued for their benefit, and by that act the legislature postponed and released the lien of the State, which was a first lien on all their property to the amount of four millions three hundred and fifty thousand dollars, and accepted in its stead a second lien upon the same property, in order that the company might issue six millions of dollars of bonds of their own and be able to secure their payment, principal and interest, by a first mortgage upon the same property, to complete the main line of the road and its west branch and the bridge therein described.

Moneys belonging to the company from that time were to be placed in the hands of the fund commissioner created by the act, and were to be disbursed by him as follows: (1.) Amounts required for the actual current expenditures in operating the railroad and carrying on the ordinary business of the corporation, including all sums that may be necessary for keeping the same in a good state of repair, and for such additions to the rolling stock, &c., as may be required to enable the company to transact the business of the railroad. (2.) Amounts sufficient to pay the salary of the fund commissioner. (3.) Amounts sufficient to pay the interest upon said first mortgage bonds, as the same shall fall due. (4.) Amounts necessary to pay the cost of the construction and equipment of the railroad. (5.) Amounts sufficient to pay accruing dividends on preferred stock, not exceeding six per cent. per annum thereon, as provided in the act. (6.) Amounts sufficient to pay the interest due on the outstanding bonds of the State previously loaned to the company. (Lastly.) He shall disburse the surplus to the payment of the principal of said first-mortgage bonds until the same shall be fully paid off, or if none of such bonds shall have become due, then to the payment of the principal of the bonds of the State, if any are still outstanding, and the balance shall be paid over to the company.

Further examination of those provisions is certainly unnecessary, as it is too plain for argument that they do not afford the slightest support to the views of the plaintiffs. On the contrary, they are entirely silent upon the subject of taxation, and fully justify the remarks of the State court when they say that the subject of taxation forms no part of the contract contained in the act under consideration.

Nothing is said about taxation, and it does not seem to have entered into the contract between the parties, but was obviously left where the law had placed it before the act was passed, nor was any provision made for the payment of taxes unless it may be held that the disbursements for that purpose may fairly be included in such as are required to pay the current expenditures in carrying on the ordinary business of the corporation.

Reference is also made to some other sections of the act as supporting the proposition submitted by the plaintiffs, but it is so obvious that they cannot be so regarded without departing from the established rules of law applicable in such cases, that it is not necessary to pursue the discussion.

Like controversy exists between the State and another of the railroads mentioned in the ordinance, in which case it is contended that the ten per cent. charge imposed by that instrument is not a tax within any correct meaning of that word, that it is an appropriation of the property of the company without due process of law, or the taking of the property of the company without just compensation, but no such questions are open for examination in this case, as no such errors are assigned in the record.

JUDGMENT AFFIRMED.

The CHIEF JUSTICE dissented. STRONG J., did not sit.


text: Talk:North Missouri Railroad Company v. Maguire/Opinion of the Court


text:
Oregon Steam Navigation Company v. Winsor

ERROR to the Supreme Court of the Territory of Washington.

The Oregon Steam Navigation Company sued Winsor et al. in one of the courts of the Territory of Washington, to recover $75,000 as stipulated damages for the breach of a certain agreement between the parties. The complaint set forth the following facts: That in 1864, the California Steam Navigation Company being engaged in steam and other transportation on the several routes of travel on the rivers, bays, and waters of the State of California, sold to the plaintiff, the said Oregon Steam Navigation Company (being a company engaged in the like business on the Columbia River and its branches, in Oregon and Washington ), the steamer New World, for $75,000, subject to a stipulation, amongst other things, that the latter company should not run or employ, or suffer to be run or employed, the said steamer upon any of the routes of travel, rivers, bays, or waters of the State of California, for the period of ten years from the 1st day of May, 1864; that on the 18th day of February, 1867, the Oregon company sold the same steamer to Winsor and others for the sum of $75,000, subject to a stipulation and covenant that she should not be run or employed upon any of the routes of travel, or the rivers, bays, or waters of the State of California, or the Columbia River and its tributaries, for the period of ten years from the 1st day of May, 1867; and that for a breach of said covenant the vendees should pay $75,000 as actual liquidated damages. The complaint further averred, that at the time of the second sale of the steamer, and up to the commencement of the suit, the California Steam Navigation Company were engaged with numerous steam and other vessels in navigating the waters of the State of California; and that the Oregon company, the plaintiffs, were likewise engaged in the navigation of the Columbia River and its branches; and that at the time of said sale to the defendants, the latter were engaged in navigating the waters of Puget Sound, and were in nowise engaged in the navigation of the waters of Oregon or California, or of any of the waters described in the stipulation. The breach complained of was that the steamer had been engaged from the 1st of November, 1868, to the commencement of the suit, in the transportation of passengers and freight from the city of San Francisco to Vallejo, in the State of California, being a route of travel on the waters of the State of California embraced in the stipulation and covenant.

The complaint was demurred to, and the demurrer was sustained and the action dismissed. The plaintiff brought a writ of error to the Supreme Court of the Territory, which affirmed the judgment, and that judgment was now here on the present writ of error.

The sufficiency of the complaint was of course the matter brought up; and the case turned mainly upon the question, whether the covenant entered into by the defendants, whereby they agreed 'not to run or employ, or suffer to be run or employed, the said steamboat New World upon any of the routes of travel, or the rivers, bays, or waters of the State of California, or the Columbia River and its tributaries, for the period of ten years from the first day of May, 1867,' &c., was valid. The objection urged against it was that it was a contract in restraint of trade, and as such contrary to public policy.

Mr. G. H. Williams, for the plaintiff in error; Messrs. B. F. Dennison and L. Holmes, contra.

Mr. Justice BRADLEY delivered the opinion of the court.


text: Talk:Oregon Steam Navigation Company v. Winsor


text:
Oregon Steam Navigation Company v. Winsor/Opinion of the Court

It is a well-settled rule of law that an agreement in general restraint of trade is illegal and void; but an agreement which operates merely in partial restraint of trade is good, provided it be not unreasonable and there be a consideration to support it. In order that it may not be unreasonable, the restraint imposed must not be larger than is required for the necessary protection of the party with whom the contract is made. A contract, even on good consideration, not to use a trade anywhere in England, is held void in that country, as being too general a restraint of trade; but a contract not to use a trade at a particular place, if it be founded on a good consideration, and made for a proper and useful purpose, is valid. Of course, a contract not to exercise a trade generally would be obnoxious to the rule, and would be void.

The application of the rule is more difficult than a clear understanding of it. In this country especially, where State lines interpose such a slight barrier to social and business intercourse, it is often difficult to decide whether a contract not to exercise a trade in a particular State is, or is not, within the rule. It has generally been held to be so, on the ground that it would compel a man thus bound to transfer his residence and allegiance to another State in order to pursue his avocation.

But this mode of applying the rule must be received with some caution. This country is substantially one country, especially in all matters of trade and business; and it is manifest that case may arise in which it would involve too narrow a view of the subject to condemn as invalid a contract not to carry on a particular business within a particular State. Suppose the case of two persons associated in business as partners, and engaged in a manufacture by which they supply the country with a certain article, but the process of manufacture is a secret; and they agree to separate, and one of the terms of their separation is, that one of the parties shall not sell the manufactured article in Massachusetts, where the other resides and carries on business; and that the latter shall not sell the article in New York, where his associate is to reside and carry on business. Can there be any doubt that such an agreement would be valid and binding? Cases must be judged according to their circumstances, and can only be rightly judged when the reason and grounds of the rule are carefully considered.

There are two principal grounds on which the doctrine is founded, that a contract in restraint of trade is void as against public policy. One is, the injury to the public by being deprived of the restricted party's industry; the other is, the injury to the party himself by being precluded from pursuing this occupation and thus being prevented from supporting himself and his family. It is evident that both these evils occur when the contract is general, not to pursue one's trade at all, or not to pursue it in the entire realm or country. The country suffers the loss in both cases; and the party is deprived of his occupation, or is obliged to expatriate himself in order to follow it. A contract that is open to such gave objection is clearly against public policy. But if neither of these evils ensue, and if the contract is founded on a valid consideration and a reasonable ground of benefit to the other party, it is free from objection, and may be enforced.

In accordance with these principles it is well settled that a stipulation by a vendee of any trade, business, or establishment, that the vendor shall not exercise the same trade or business, or erect a similar establishment within a reasonable distance, so as not to interfere with the value of the trade, business, or thing purchased, is reasonable and valid. In like manner a stipulation by the vendor of an article to be used in a business or trade in which he is himself engaged, that it shall not be used within a reasonable region or distance, so as not to interfere with his said business or trade, is also valid and binding. The point of difficulty in these cases is to determine what is a reasonable distance within which the prohibitory stipulation may lawfully have effect. And it is obvious, at first glance, that this must depend upon the circumstances of the particular case; although, from the uncertain character of the subject, much latitude must be allowed to the judgment and discretion of the parties. It is clear that a stipulation that another shall not pursue his trade or employment at such a distance from the business of the person to be protected, as that it could not possibly affect or injure him, would be unreasonable and absurd. On the other hand, a stipulation is unobjectionable and binding which imposes the restraint to only such an extent of territory as may be necessary for the protection of the party making the stipulation, provided it does not violate the two indispensable conditions, that the other party be not prevented from pursuing his calling, and that the country be not deprived of the benefit of his exertions.

To apply these principles to the case before us: The California Steam Navigation Company, being engaged in the business of transportation on the rivers, bays, and waters of California, was willing to sell one of their steamers to the Oregon Steam Navigation Company, which was engaged in a similar business on the Columbia River and its tributaries, provided the latter company would agree that the steamer should not be used in the California waters for the period of ten years from the first day of May, 1864. This stipulation was necessary to protect the former company from interference with its own business. It had no tendency to destroy the usefulness of the steamer, and did not deprive the country of any industrial agency. The transaction merely transferred the steamer from the employment of one company to that of another situated and doing business in another State. It involved no transfer of residence or allegiance on the part of the vendee in order to pursue its employment, nor any cessation or diminution of its business whatever. The presumption is that the arrangement was mutually beneficial to both companies, and that it promoted the general interests of commerce on the Pacific coast. Again, the Oregon company were afterwards willing to dispose of the same steamer to the defendants, who were engaged in the like business of transportation in the waters of Puget Sound, Washington Territory, provided that the latter would agree that the steamer should not be run or employed upon any of the routes of travel or rivers, bays, or waters of California, or the Columbia River and its tributaries, for the period of ten years from the first day of May, 1867. This stipulation excluded the steamer from the territory covered by the former stipulation exacted by the California company, and also from the territory occupied by the Oregon company itself. The latter portion of the stipulation stands on the same ground and reason as did the first stipulation between the California and Oregon companies. The former portion was necessary in order that the Oregon company might faithfully keep its covenant with the California company. It is true that the stipulation in question covers a period of time which extends three years beyond the period for which the Oregon company is bound to the California company. The latter would expire on the first of May, 1874, and the stipulation in question extends to the first of May, 1877. This extra period of three years, in reference to the waters of California, is not necessary to the protection of the Oregon company. That company is under no obligation with regard to those three years. But the suit is brought and the breach is alleged for a portion of time during which the Oregon company is bound to protect the California company from the interference of said steamer. And the question arises whether the contract is so divisible in relation to the California portion that it can stand for the seven years for which the Oregon company is bound, though it be void as to the remaining three years. We think it is so divisible. It is laid down by Chitty as the result of the cases, and his authorities support the statement, 'that agreements in restraint of trade, whether under seal or not, are divisible; and, accordingly, it has been held that when such an agreement contains a stipulation which is capable of being construed divisibly, and one part thereof is void as being in restraint of trade, whilst the other is not, the court will give effect to the latter, and will not hold the agreement to be void altogether.' The cases cited in support of this proposition are Chesman et ux. v. Nainby, Wood v. Benson, Mallan v. May, Price v. Green, Nicholls v. Stretton. In Price v. Green the contract was not to exercise the trade of a perfumer in London, or within six hundred miles thereof; and it was held divisible and good for London only. This case was carried through all the courts. In Nicholls v. Stretton the stipulation was that an attorney's apprentice, who was to serve five years, should not, after his term expired, be concerned as attorney for any persons who had, previous to the expiration of said apprenticeship, been a client of the attorney with whom the contract was made, or who should at any time thereafter become his client. It was strenuously and fully argued that whilst the contract might have been good as to past clients it was certainly not good as to future ones, and being an entire contract, the whole was was bad. But the court followed the previous decision of the Exchequer Chamber in Price v. Green, held the contract divisible, and sustained the action. We see no reason why this principle should not be followed in the present case. The line of division between the period which is properly covered by the restriction and that which is not so, is clearly defined and easily drawn. It is subject to no confusion or uncertainty, and the court can have no difficulty in applying it.

Regarding this objection, therefore, as removed, the covenant made by the defendant seems to stand on the same ground as that made by the plaintiffs with the California company. The same observations may be made with reference to it. The public was not injured by being deprived of any of the business enterprise of the country. The vendees did not incapacitate themselves from carrying on business just as they had previously done, and in the same locality. Their business was rather facilitated by the arrangement. Finally, the stipulation, it will be presumed, was founded on a valuable consideration in its influence upon the price paid for the steamer; its object and purpose was simply to protect the vendors, and if we except the three years before considered in its relation to California, its restraining effect extended no farther than was necessary for their protection.

We are unable, therefore, to see anything in the contract, so far as it is now in question, which militates against public policy.

There are no other points adverted to which demand the serious consideration of the court.

JUDGMENT REVERSED, and the case remanded to be proceeded in

ACCORDING TO LAW.

Dissenting, Justices CLIFFORD, SWAYNE, and DAVIS.


text: Talk:Oregon Steam Navigation Company v. Winsor/Opinion of the Court