Memphis & Little Rock Railway Co. v. Berry
1. TAXATION: Exemption from in charter of corporation.
Exemption from taxation in the charter of a corporation amounts to a contract, and is protected by that clause of the federal constitution which forbids State laws impairing the obligation of contracts.
2. SAME: Exemption from, not transferable.
The provision in the charter of the Memphis and Little Rock railroad company, authorizing the company to mortgage its charter and works, and exempting it from taxation, does not transfer the exemption to the purchasers under the mortgage. Exemption from taxation granted to a railroad corporation is not attached to the road and property, and does not pass with it, but is a personal immunity and incapable of transfer without express statutory direction.
APPEAL from Pulaski Chancery Court.
HON. D. W. CARROLL, Chancellor.
B. C. Brown and J. M. Rose, for Appellant.
By sections 9 and 28 of the Act 1853, January 11, the M. & L. R.R. Co. was given authority to mortgage its charter, and was exempted from taxation for twenty years from its completion. By the foreclosure and purchase, the purchasers became the owners of the original charter, and entitled to all the exemptions thereby granted, including exemption from taxation.
The answer admits all the material allegations of the bill. Gantt's Dig., Sec. 4608.
The exemption constitutes a contract between the State and the corporation, which cannot be impaired by subsequent legislation. 18 Wall., 351; 13 Ib., 264; 8 Ib., 430; 7 Cr., 164; 1 Black, 536; 20 Wall., 36; 4 Wheat., 518; 18 Wall, 206; 21 Ib., 497; 15 Ib., 460; 30 Ark., 677; Ib., 693; Ib., 128. Nor can it be impaired by a constitutional provision. 13 Wall, 646; 25 Ark., 625.
Section 9, Act January 11, 1853, expressly gives the company power to mortgage its charter and works, and the purchasers succeeded to all the rights and were entitled to all the exemptions of the old company, and had the right to organize by complying with the provisions of the charter. The grant of a power implies everything necessary to carry that power into effect. Cooley, Const. Lim., 64, 194, N. 1; 2 Cr., 358; 4 Wheat., 428; 25 Ark., 289, 299; 70 Ill., 634. In granting the charter, all incidental powers which are necessary * * * may be presumed to be conferred by implication. Morawetz on Corp., Sec. 191, 2 Kent, 298; 18 B. Mon. (Ky.), 431; 10 N.J. Eq., 352; 15 Conn., 475; see also Pierce on Railroads, 500; 11 Allen, 326, 334; 40 N.Y., 168; 27 N.H., 86, 94; 42 Md., 581; 62 Mo. 329. The charter contains an express power to mortgage the charter. Is there any rule of law which will make the power to mortgage the charter void? Such mortgages are valid when made by legislative consent. Field on Corp., Sec. 271; Phila. v. W. U. Tel. Co., 11 Phila., Pa., 327; 22 Ohio St., 411, 428; 10 Ohio St., 373–8; 14 Pet., 45, 48; 11 Allen, 65; 4 Met., 566; 10 Allen, 446, 455; 22 N.J. Eq., 423; 9 Sm. & M., 394, 431; 4 Biss., 35, 42; 2 Redf. R. Cas., 621–3; 22 Oh. St., 428.
The mortgage conveyed all the "franchises, rights, privileges and immunities," etc. Exemption from taxation is a privilege, an immunity, and one that would pass by mortgage. Humphrey v. Pegues, 16 Wall, 244; 15 Wall, 460; 20 Ib., 36; 30 Ark. 677, 693, 701; 3 Fed. Rep., 266, 280; 4 Zab., 555; 42 Conn., 103.
The mere fact that general laws existed under which the purchasers might have organized the new corporation raises no presumption that they actually did organize under such acts. The presumption is the other way, for when a party has two courses before him, and has acted without indicating which he has followed, the law presumes that he has taken the course best for his own interest. The legislature gave the company the power to mortgage its charter; the act of April 29, 1873, gave the right to the purchasers to buy the charter, property, privileges and immunities. The legislature had given the parties plain and explicit permission to make the contract, and they had made it prior to the adoption of the constitution of 1874, and the provisions of that constitution could not impair its obligation. As the mortgage conveyed the privileges and immunities of the old company, the appellant obtained the exemption by force of those terms. Humphrey v. Pegues, 16 Wall., 244; Trask v. Maguire, 18 Wall, 391.
The case of Morgan v. Louisiana, 93 U.S. Rep., does not apply, for there the mortgage only purported to convey the property and franchises. There was no power to mortgage the charter, and no attempt to do so.
C. B. Moore, attorney-general, and U. M. & G. B. Rose, for Appellees.
If any doubt should arise as to the existence of the exemption, it should be resolved in favor of the State. Exemption laws are to be strictly construed, and most strongly against the corporation. Every reasonable doubt is to be resolved adversely. Nothing is to be taken as conceded but what is given in unmistakable terms. 97 U.S., 659, 666.
The question as to the power to mortgage the charter is quite subordinate to the main consideration of the present company to receive it. A power to sell a thing, though given by statute, will not give power necessarily to buy it. Could a private person or an infant or a married woman buy in and operate this great highway of commerce? The charter did not purport to create any ability in the purchaser to exercise corporate functions. It might have done so, and provided that the purchaser might organize a new company, and enjoy all the immunities of its predecessor; but it was not done, and courts cannot supply the missing link. No corporation has arisen or been called into being by mere implication. 92 U.S., 670.
At the time of the organization of the present company there were two acts in force, under which the legality of the proceedings was undoubted—the act of April 29, 1873, and the general railroad law of 1868. Both of these statutes were enacted while the constitution of 1868 was in force. The constitution contained the most stringent provisions against exemptions from taxation.—Art. X, Sec. 2; Art. V, Sec. 48. Section 1 of the Act of April 29, 1873, could not therefore exempt the corporation from the payment of any lawful tax.
The sale of the road and the organization of the present company took place in 1877, when the constitution of 1874 was in force. That constitution also contains stringent inhibitions of all special exemptions from taxation. Art. XVI. Secs. 5, 6, 7; Art. V, Sec. 25; Art. XII, Sec. 6.
The appellant says that it has not complied with the provisions of either of these statutes; but this assertion of its own dereliction is unavailing. It claims to be a corporation organized at a certain time, under the laws then in force. Non-compliance with those laws cannot give any more or larger rights than could have secured by a strict compliance; and as long as it claims to be a corporation it is estopped from saying that it is not bound by laws which would apply to it as a corporation, created when it asserts that it was created. Gaines v. Bank of Mississippi, 12 Ark., 769.
The word "charter," as used in the act of 1853, means no more than the franchise to operate the road. "Franchises" and "charter" are often loosely used as being synonymous. Morgan v. Louisiana, 93 U.S., 221.
The exemption from taxation was a personal privilege or immunity granted to the old Memphis & Little Rock Railroad Company, and did not pass to the new company "as reorganized," dating from 1877. Morgan v. Louisiana, supra; Louisville Railroad Company v. Palmes, 3 Sup. Court Rep., 193; Trask v. McGuire, 18 Wall, 408; State v. Sherman, 22 Ohio St., 412.
[Opinion of the court by Special Justice J. W. Martin.]