Tucker v. Ferguson/Opinion of the Court
APPEAL from the Circuit Court for the Western District of Michigan.
The Flint and P ere Marquette Railway Company was a railway corporation of Michigan, and the present suit was a bill in equity brought by Tucker et al., trustees for the holders of bonds issued by the said company, which bonds were secured by a mortgage and deed of trust executed by the company to them, the said Tucker et al., as trustees, upon lands granted by Congress to the State of Michigan, and by that State granted, in a qualified way, to the company to aid in constructing a road which it was about to make; the object of the bill having been to restrain one Ferguson et al., who were supervisors and assessing officers of Osceola County, Michigan, from levying and collecting local taxes upon the said lands situate in the said county.
The general purpose of the bill was to restrain the assessment of taxes at any time on the lands granted by Congress, during the term allowed for the completion of the road. But if the court should think there was no ground for so general a restraint, then to restrain the collection of taxes which had been already assessed on the lands for the year 1873; the bill alleging that in no event were they taxable prior to April 1st, 1874.
The case, more particularly stated, was thus:
On the 3d of June, 1856,  Congress granted to the State of Michigan, to aid in the construction of certain proposed railroads, including one from Flint, in the southeasterly part of the State, to P ere Marquette, on Lake Michigan, in the northwestern part-a distance of about one hundred and seventy miles, much of the western part of which especially was a wilderness-every alternate section of land designated by odd numbers, for six sections in width on each side of said roads, 'which lands,' said the act of Congress granting them, 'shall be held by the State of Michigan for the use and purpose aforesaid.' By the terms of the first section of the act the lands were to be located in no case further than fifteen miles from the lines of the road, and it was enacted that they should be 'exclusively applied' in the construction of the road; 'disposed of only as the work progressed, and applied to no other purpose whatsoever.'
Section third enacted that the lands thus granted to the State, should 'be subject to the disposal of the legislature thereof for the purpose aforesaid, and no other, and that the railroads shall be and remain public highways for the use of the government of the United States, free from toll or other charges upon the transportation of any property or troops of the United States.'
'That the lands hereby granted to said State shall be disposed of by said State only in manner following; that is to say, that a quantity of land not exceeding one hundred and twenty section for each of said roads, and included within a continuous length of twenty miles of each of said roads, may be sold; and when the governor of said State shall certify to the Secretary of the Interior that any twenty continuous miles of any of said roads is completed, then another quantity of land hereby granted, not to exceed one hundred and twenty sections for each of said roads having twenty continuous miles completed as aforesaid, and included within a continuous length of twenty miles of each of such roads, may be sold, and so, from time to time, until said roads are completed; and if any of said roads is not completed within ten years, 2 no further sales shall be made, and the lands unsold shall revert to the United States
Section fifth enacted that the United States mail should be transported over the road, under the direction of the Post-Office Department, at such price as Congress might by law direct.
On the 12th of February, 1857, and, of course, after the passage of the act of Congress, the Flint and P ere Marquette Company was organized under the general railroad law of Michigan. And two days after this, again, that is to say, on the 14th of February, 1857, the State of Michigan by an act enacted,
'That the lands, franchises, rights, powers, and privileges granted to, and conferred upon, the State of Michigan by an act of Congress, approved June 3d, 1856, be, and the same are hereby, accepted, with the restrictions and upon the terms and conditions contained in said act of Congress.'
'SECTION 2. So much of the aforesaid lands, &c., as are or may be granted and conferred in pursuance of said act of Congress, to aid in the construction of a railroad, . . . from Flint to p ere Marquette, are hereby vested fully and completely in the Flint and P ere Marquette Railway Company, according to the provisions of the act of Congress relating thereto, and the direction of the board of control hereby appointed. The said railroad company shall be subject to all the conditions, restrictions, and obligations imposed upon them by this act, as hereinafter provided.
'SECTION 3. The lands, &c., hereby conferred upon and vested in the railroad company, shall be exclusively applied in the construction of its line of road, and to no other purposes whatsoever.'
Section seventh enacted that after the completion of twenty continuous miles of road, the company might sell sixty sections of land in any twenty continuous miles of line of road, &c.; 'and after the full and final completion of the entire length of its road, and the acceptance of the same by the board of control herein provided, then the company may sell the remainder of the lands, &c., and not before.' The act further enacted,
'None of the lands hereby granted shall be liable to taxation for seven years from 1st September next [i. e., shall not be liable till September, 1863], except such parts as shall be sold or be improved.'
'SECTION 8. . . . For the purpose of properly managing and disposing of the lands . . . the governor of the State of Michigan, together with six commissioners to be nominated by the governor and confirmed by the senate, are hereby constituted a board of control of the same, whose duty it shall be to manage and dispose of such lands in aid,' &c.
'SECTION 12. The said railroad company shall at all times and in all matters be subject to the laws of this State, and to such rules and regulations as may from time to time be enacted and provided by the legislature of the State of Michigan, in regard to the management and disposition of the said lands, not inconsistent with the provisions of this act and the act of Congress making the said grant of lands to this State, and they shall be entitled to all the immunities and privileges conferred by said laws.'
'Provided, That nothing herein contained shall be so construed as to relinquish the right of the State to any specific tax imposed upon any railroad company within this State.'
The company was bound by the nineteenth section to complete and put in running order at least twenty continuous miles during each year after 1st December, 1857, and to complete the road within seven years from 15th November next, 1857, i. e., by the 16th of November, 1864; a term, however, by both State legislation and act of Congress subsequently enlarged till March 3d, 1876.
At the time when the Flint and P ere Marquette Railway Company was organized, all railroad companies in Michigan were liable, under a general railroad act (section forty-five), to a specific tax of one per cent. on their 'paid in capital stock.' Of course, in the case of a company like the P ere Marquette, and the other companies provided for in the act of Congress,-built, all of them, chiefly by the land grant,-the tax was a light one.
The twentieth section of the present act, which raised one of the important questions in the case, now made for the Flint and P ere Marquette Company, as well as for the others, a heavier tax. The section was as follows:
'SECTION 20. In consideration of the grants of land and other privileges hereby conferred . . . the said several railroad companies are hereby required, within sixty days from and after the first day of each and every year, to pay into the treasury of this State, as a specific annual tax, one per cent. upon the cost of the road and its equipments and appurtenances of whatever kind; and it shall be lawful for the legislature of this State, in their discretion, after ten years, to impose upon either or each of said railroad companies the payment of a further tax upon the gross or total earnings of such road of not exceeding two per cent.; which said above several taxes shall be in lieu of all other taxes to be imposed within this State.'
The Flint and P ere Marquette Company accepted the grant made by this act.
It may be here stated, that it was afterwards enacted by Congress that the State of Michigan might authorize the sale of sixty sections, whenever the governor might certify that ten additional miles was completed. The original act, it will be remembered, had prescribed a sale of one hundred and twenty sections, on a certificate of twenty miles completed, &c. This last matter is, perhaps, unimportant.
As the reader will doubtless have observed, in reading what goes before, Congress granted the lands which it did grant to the State, to be disposed of 'only' in a certain manner in the act of grant stated. They were to be 'sold'  from time to time, as certain lengths of the road were completed; and no other manner of disposing of them is stated in the act as contemplated. And the State of Michigan in accepting the lands, accepted them 'with the restrictions and upon the terms and conditions contained in said act of Congress.'  It was soon found, however, as the road progressed westward, that it was coming to regions which were uninhabited, and that the land there being in a wilderness could not be sold for twenty miles ahead of even a completed twenty miles of road; that is to say, could not be sold in advance of the construction of the road through them. It was the road itself which first gave value to them. Thus is happened that no money could be got out of the lands by sale in advance of a road through the twenty miles. A plan of obviating this difficulty now suggested itself. It being found that the bonds of the company (which now had a part of its road completed) could be sold, and the funds requisite to finish the rest of the road raised on such bonds, provided they were secured by mortgage with power of sale in the mortgagee on the unsold lands, it was resolved to carry out an arrangement on this basis. The company did accordingly in September, 1866, by a mortgage and trust deed containing a power of sale and terms and conditions for the management of the trust, convey to Tucker et al. as trustees, 153,600 acres of land as security for bonds to the amount of $500,000, which bonds were issued and sold, and which were now outstanding . . . except such portions thereof as had been taken up and cancelled from the proceeds of land sold for that purpose.
Subsequently the company, desiring to raise a further sum of money to enable it to prosecute the further construction of its road, made, September, 1868, a second mortgage and trust deed, by which it mortgaged and conveyed all the remaining lands of the land grant for the purpose of securing bonds to the amount of $2,500,000, which were issued and sold upon the market.
It did not appear from anything in the transcript of the record sent here, what value the lands mortgaged bore to the amount of bonds issued.
Tucker and the other, as trustees, were to hold said lands together with other property in said trust deed mentioned, as security for such bondholders. The second mortgage and trust deed, like the first, contained a power of sale.
In this way funds were obtained and the road was in process of completion, when a difficulty occurred between the trustees and the assessors of Osceola County, which was the cause of the present suit.
The reader will remember that by the twentieth section of the act of the legislature of Michigan accepting the grant from Congress, it was enacted that the railroad company should pay into the treasury of the State, as a specific annual tax, one per cent. upon the cost of the road and its equipments and appurtenances of whatever kind; and that the said twentieth section made it lawful for the legislature of the State, after ten years, to impose upon the company the payment of a further tax upon the gross or total earnings of such road of not exceeding two per cent.; 'which said above several taxes,' the section declared, 'shall be in lieu of all other taxes to be imposed within this State.' 
By two subsequent acts-one of the 14th and one of the 15th of February, 1859-this twentieth section was repealed; the company was to sell one hundred and twenty sections on completing twenty miles, and not sell any sections before; was to have a right when the road was finished through its entire length and accepted by the board of control, to sell all the remaining lands; all the lands granted were declared to be free from taxation for seven years, from September 1st, 1859, i. e., till September 2d, 1866, and the company was declared to be subject to the tax imposed in the already mentioned forty-fifth section of the general railroad law of 1855, by which section a tax of one per cent. upon the capital stock paid in was imposed, which tax of one per cent. upon the capital stock paid in, it was by the new acts enacted—
'Shall be in lieu of all other taxes upon the property of the said company, whether real, personal, or mixed, except penalties by this act imposed.'
This tax of one per cent. on capital paid in-necessarily a very small tax, as we have already remarked, in the case of a road built chiefly or wholly by land grants of Congress-was, of course, more favorable to the company than that laid by the twentieth section of the old act now repealed.
On the 18th of April, 1871, came another act, laying by its thirty-seventh section-an act and a section of much importance in this case-a new tax; that is to say, 'an annual tax upon gross receipts.' The section, after laying this tax, proceeded:
'This tax shall be in lieu of all other taxes upon the property of said company, whether real, personal, or mixed, except penalties imposed by law, except real property not necessary for carrying on the ordinary operations or franchises of their road.
'Provided, Only such lands granted to any railroad company shall be liable to local taxation as are or may be opposite to and coterminous with the constructed portion and portions of said roads respectively.
'And provided further, That no such lands shall be subject to taxation until after the expiration of three years from and after the 1st day of April, A.D. 1871, and until after three years from the date of the certificate showing that such lands have been earned by said railroad company, after which time said lands shall be taxed as other lands, except as hereinafter provided.
'And provided further, That the lands of the several land-grant railroad companies, opposite to and coterminous with their lines as now in operation, shall be subject to taxation in two years from said 1st day of April, A.D. 1871.'
Finally, came an act of May 1st, 1873, a 'general railroad law,' as it was called, and the cause of the present difficulty. This act, which provided for the incorporation of railroad companies, the details of their organization, and which prescribed a great variety of rules, regulations, &c., in regard to their stock, routes, rights, liabilities, power to borrow money, obligation to pay, & c., &c., enacted:
'SECTION 3. Every company . . . shall, on or before the 1st day of July in each year, pay to the State treasurer an annual tax upon the gross receipts of said company; which amount or tax shall be in lieu of all other taxes upon the property of such companies, except such real estate as is owned and can be conveyed by such corporation under the laws of this State and not actually occupied in the exercise of its franchises, and not necessary or in use in the proper operation of its road; but such real estate so excepted shall be liable to taxation in the same manner, for the same purposes, and to the same extent, and subject to the same conditions and limitations as to assessment for taxation, to taxation, and to the collection and return of taxes thereon as is other real estate in the several townships within which the same may be situated.'
Under this law-the Flint and P ere Marquette Railway not being yet finished, but on the contrary having forty miles yet to make out of the hundred and seventy which if finished it would consist of-the defendants below, Ferguson and others, supervisors of Osceola County, taxed for the year 1873 the lands which the company had by the two mortgages already mentioned, mortgaged with power of sale to Tucker and others, to raise funds to complete the road; these lands being none of them opposite to or coterminous with the line of the railroad in operation in April, 1871.
There had been issued and sold of the bonds, and were still outstanding in the hands of purchasers, on the 1st of January, 1873:
Under the mortgage and trust deed of 1863, $146,
" " "" 1868, 2,224,
^1 11 Stat. at Large, 21, § 1.
^3 Supra, p. 530.
^4 Supra, pp. 530, 531.
^5 See supra, p. 532.