State v. Chicago Great Western Railway Co.

Increase in Gross Earnings las. State v. Great Northern Ry. Co., infra, page 303, sustaining the validity of chapter 253, Laws 1903, increasing the gross earnings tax of railroad companies of the state to four per cent., followed and applied.

Action in the district court for Ramsey county to recover $24,979.-42, the unpaid balance due to the state from the defendant upon its gross earnings for the year 1905 at the rate of four per cent. The answer set up that defendant was the successor of the Minnesota & Northwestern Railroad Company, which by section 2 of chapter 47, Laws of 1856, agreed to pay a two per cent, gross earnings tax, and that as to it the gross earnings tax law of 1903 impaired the obligation of contract between the state and the company. The history of legislation in reference to the predecessors of defendant is stated in the opinion. The case was tried before Hallam, J., who made findings and ordered judgment in favor of defendant. From the judgment entered pursuant to this order, plaintiff appealed. Until 1871, all laws of Minnesota providing for the taxation of railroad property on the gross earnings basis were unconstitutional. By the constitutional amendment of-1871 (article 4, § 32a) all such laws were validated subject to the reserved right of amendment or repeal. This is because of Const, art. 9, §§ 1, 3. A tonnage tax upon the product of mines is certainly no more objectionable to these sections than is the railroad gross earnings tax, and yet the tonnage tax was swept aside. State v. Lakeside Land Co., 71 Minn. 283, 286. Both the original invalidity of all such laws and their ratification by the constitutional amendment of 1871, with the reservation of the right to amend or repeal, is fully established by State v. Luther, 56 Minn. 156; State v. Stearns, 72 Minn. 200; State v. Duluth & I. R. R. Co., 77 Minn. 433. Because it failed to build the road, or any part of it, until 1885, the charter of the Minnesota & Northwestern Company was not earned and did not become a contract until that year, and in so far as it then took on a contractual character, it was subject to the constitution as amended in 1871. The two per cent, gross earnings tax provision therefore was subject to amendment or repeal, if it had not been repealed already by the adoption of the constitution in 1858. If the charter is not earned by doing the things specified in the grant, it is abandoned. And if after the lapse of many years the corporate enterprise is proceeded with, by legislative permission, it is in all respects subject to the laws then in existence. The exemption ceases whenever the owner ceases to use it for the special purpose in view when the exemption was granted. 12 Am. & Eng. Enc. (2d Ed.) 381, note 1. The effect of the state constitution was' to withdraw the special form of taxation and it was perfectly competent for the state to do so at that time in view of the failure of the company to earn the same. A bare unexecuted power to consolidate with other corporations is not, so long as it continues unexecuted, a vested right protected from revocation by the legislature— at least so far as it applied to parallel or competing lines. Pearsall v.. Great Northern R. Co., 161 U. S. 646. An unearned immunity from taxation is just as much subject to withdrawal as an unexecuted power to consolidate with a parallel line. The one is as much in derogation of common right and against public policy as the other. Planters’ Ins. Co. v. Tennessee, 161 U. S. 193. The two per cent, gross earnings tax provision was personal to the Minnesota & Northwestern Railroad Company and could not be transferred to any other company. Neither the privilege nor the accompanying obligations are extended to successors or assigns. Morgan v. Louisiana, 93 U. S. 217; Wilson v. Gaines, 103 U. S. 417; Gulf & S. I. R. Co. v. Hewes, 183 U. S. 66; Chesapeake & O. R. Co. v. Miller, 114 U. S. 176. An immunity from taxation does not pass under the terms “property and franchises” in a deed of trust and foreclosure thereunder. Lake Drummond v. Com., 103 Va. 337, 506; City v. Rochester, 182 N. Y. 99; Norfolk & W. R. Co. v. Pendleton, 156 U. S. 667; Covington & L. T. R. Co. v. Sandford, 164 U. S. 578; Phoenix E. & M. Ins. Co. v. Tennessee, 161 U. S. 174. Under these decisions it is clear that by the weight of authority, as well as the better opinion, there is no language in the charters of the Minnesota &■ Northwestern Company or any of the amendments thereof, or in the act of 1883, which is sufficient to authorize the transfer or to transfer the commuted tax privilege. In so far as chapter 83, Sp. Laws 1883, was an attempt to consent to, or provide for, the transfer of the two per cent, gross earnings tax as an irrepealable contract right, it was unconstitutional. Trask v. Maguire, 85 U. S. 391; Louisville & N. R. Co. v.' Palmes, 109 U. S. 244; Keokuk & W. R. Co. v. Missouri, 152 U. S. 301; Yazoo & M. V. R. Co. v. Adams, 180 U. S. 1. This court has never adjudged that a territorial charter exemption from taxation was appurtenant to the railroad so as to pass therewith into the ownership of a company which did not undertake to and did not construct or complete the road covered by the charter and to secure the construction of which the same was granted. The Stevens County case, 36 Minn. 467, and the Traverse County case, 73 Minn. 417. Even though the two per cent, tax was a contract right as to the Minnesota & Northwestern Company, it did not survive the consolidations. The respondent, a foreign corporation,' cannot claim any contract right, for it was subject to the constitution and other laws of Minnesota in force at the time of its organization and entry into the state. It was therefore incapable of taking or holding any irrepealable contract right to a special or limited form of taxation. Coming into the state in 1892 as a foreign corporation, the respondent could get only the franchises and privileges which the legislature was then competent and willing to give to it. At that time the legislature could not confer an irrepealable contract right to a special form of taxation. There was no other source from which such a right could be drawn. Certainly no private corporation could confer what the state, by its constitution, was prohibited from giving. Trask v. Maguire, supra; Louisville & N. R. Co. v. Palmes, supra; Mercantile Bank v. Tenn., 161 U. S. 161; Dow v. Beidelman, 125 U. S. 680; Wellman v. Chicago, 83 Mich. 592; Memphis & L. R. Co. v. Railroad Commrs., 112 U. S. 609; Chesapeake & O. R. Co. v. Miller, 114 U. S. 176; Yazoo & M. V. R. Co. v. Adams, supra; Rochester Ry. Co. v. Rochester, 205 U. S. 236. If the power to amend the charter originally granted to the Minnesota & Northwestern Company be reserved by the charter in the state, the defendant company must be held amenable to the provisions of chapter 253, Laws 1903. Section 9 of chapter 58, Laws 1855, was a reservation of power in the territory or future state, to repeal, amend or modify the charter of the defendant, after the expiration of the limitation of twenty years as set out in the statute. The proviso in that section does not appertain to taxation. The year following the passage of the re-, servation of power clause, the territory of Minnesota passed an act (Taws 1856, c. 47, § 2), providing for a different rate of taxation of the company, and it does not appear that the company ever claimed any violation of its contract rights. With a view to giving meaning and application to the proviso clause, and providing for compensation in proper cases, it must follow on account of the sovereign power of the state and its ability to compensate, that: (1) The power is vested in the state to amend the charter, and (2) compensation for damages is a condition subsequent. It follows that since the passage of the reservation of power clause there can be no such thing as an irrevocable contract in the charter of the defendant company. Jackson v. Walsh, 75 Md. 304. The failure of the company to build the line within the period provided by the charter did not ipso facto work a forfeiture of the company’s charter rights and powers. The act of 1856 was not a unilateral contract. It was an agreement complete in itself with a valid consideration moving from each side. There could be no question about an unearned immunity from taxation. It is plain from the reading of the contract that, until a forfeiture took place, the charter fixed the rights of the parties definitely and finally from that time forward. The transaction took on a contractual character when the charter was granted and accepted, and not thirty years later when the line of road was completed. If this is not so, then the Dartmouth College case might as well never have been decided. The provisions of a charter granted to a corporation and duly accepted are not forfeited by a mere failure to comply with its conditions. There must be some affirmative act of the legislature or the judgment of a court of competent jurisdiction in the nature of a forfeiture found. By section 4 of the act of 1855, if the company failed to construct fifty miles of line between certain points within three years and the remainder within another definite period, all grants were to be void. By the act of 1856 the time was changed and extended without adding any condition of forfeiture for failure to build. Finally, in 1883 the route was changed without limitation as to time. Under these conditions it does not seem possible to say that there is any provision in the charter for a forfeiture upon failure to construct the road; but in any event it would require an affirmative act finding and declaring the forfeiture to bring about that result. There is no question but that a grant of lands made upon conditions similar to the ones here involved could not be forfeited even after default, without an affirmative act on the part of the legislature making the grant. Minneapolis & St. C. R. Co. v. Duluth & W. R. Co., 45 Minn. 104, and cases cited. The same rule applies to any grant of rights and powers. U. S. v. Minnesota & N. W. R. Co., 1 Minn. 103 (127); Minnesota &' N. W. R. Co. v. Rice, 1 Minn. 358; Application of B. E. R. Co., 125 N. Y. 434; Foster v. Fitch, 36 Conn. 236; Farnsworth v. Lime Rock, 83 Me. 440; Peo: pie v. Bank, 1 Douglas (Mich.) 282; B. & O. R, Co. v. Supervisors, 3 W. Va. 319; Briggs v. Cape Cod, 137 Mass. 71; In re Petition of N. Y. Ele. R. Co., 70 N. Y. 327; Farnsworth v. Minnesota & P. R. Co., 92 U. S. 49; Chesapeake v. Baltimore, 4 Gil. & J. (Md.) 1, 127; People v. Ottawa, 115 111. 281. The right in the state to forfeit a charter is one which exists, if at all, for the benefit of the state alone. It may or may not enforce the forfeiture according as it is deemed advantageous or otherwise to do so. Hence it is universally recognized that the right to forfeit may be waived. Of course the clearest possible method of effecting a waiver is by recognizing the existence of the corporation notwithstanding the default. The state of Minnesota did this and within all of the decisions such action amounted to an effective confirmation of the charter and a waiver of any ground of forfeiture which may have arisen prior to the passage of the respective acts above mentioned. Foster v. Fitch, supra; Farnsworth v. Lime Rock, supra; In re Petition N. Y. Ele. R. Co., supra; Chesapeake v. Baltimore, supra. The contract for a commuted system of taxation was appurtenant to the line of road eventually constructed and duly passed to the respondent as the successor of the Minnesota & Northwestern Railway Company. When the territorial legislature adopted this policy the gross earnings tax was not, properly speaking, regarded as an exemption or immunity in the same sense that we use the terms today. The bargain between the state and the grantee of the charter was looked upon as a fair one to both parties. It was supposed that the tax secured to the state was, as the court in the Traverse County case has said, “an ultimate and adequate return for the value of the franchises conferred, and which would, in the long run, be the equivalent of the companies’ fair share of taxation.” Moreover, the state was interested not merely in the construction of a road, but also in its maintenance. The company which assumed the maintenance of the road was deemed to be as much within the provision for the gross earnings system as the company which should engage in the actual work of construction. One result was as important to the state as the other. When the state entered into these contracts for a commuted system of taxation they were intended to apply to and be appurtenant to the lines affected for all time and into whosesoever hands they might come. This is the only conclusion which can be drawn from the charters themselves and from the decisions of this court construing them. The rule thus laid down by this court has stood so long and been enforced so often that it has become firmly established as a rule of property in this jurisdiction. State v. Northern Pac. R. Co., 95 Minn. 43; State v. Ruther, 56 Minn. 156; State v. Moffett, 64 Minn. 292; Carson v. Smith, 5 Minn. 58, 61 (78); Roring v. Benedict, 15 Minn. 153 (198); City of Faribault v. Misc.er, 20 Minn. 347, 396; Ames v. Rake Superior & M. R. Co., 21 Minn. 241; Hastings & D. R. Co. v. Whitney, 34 Minn. 538; Green v. Knife Falls B. Corp., 35 Minn. 155; Willis v. Mabon, 48 Minn. 140; Funk v. St. Paul City Ry. Co., 61 Minn. 439; Cameron v. Chicago, M. & St. P. Ry. Co., 63 Minn. 384; County of Traverse v. St. Paul, M. & M. Ry. Co., 73 Minn. 417; State v. Evans, 99 Minn. 220, 229; State Bank of Ohio v. Knoop, 16 How. 369; Powers v. Detroit, G. H. & M. R. Co., 201 U. S. 543. The federal authorities are also in accord with the state holdings on the question of transfer of the tax exemption to the successor corporations. Tennessee v. Whitworth, 117 U. S. 139; Tomlinson v. Branch, 15 Wall. 460; Humphrey v. Pegues, 16 Wall. 244; Central R. & B. Co. v. Georgia, 92 U. S. 665; Philadelphia W. & B. R. Co. v Maryland, 10 How. 376, Under the decisions of this court, the contract for the so-called immunity was complete before the constitution was adopted and attached for all time to the road to be constructed under the original charter into whosesoever hands it might come. The legislature could not, by any act passed in 1883 or at any other time, disturb this situation. All that it was called upon to do and did accomplish by the law in question, was to authorize one company to consolidate its properties with those of another. The tax immunity was a fixed attribute of the properties themselves belonging to the first company. The legislature could not divest the properties of that attribute, and naturally did not attempt to do so. Chicago v. People, 56 111. App. 327; Branch v. Jesup, 106 U. S. 467. The Iowa statute (§ 2036) permitted the Minnesota and Kansas City Companies to consolidate and so did the Illinois statute (Acts 1885, '§ 36), where the word used, “purchase,” is held to effect a consolidation. The legislature of the state has no power to repeal, amend or modify the charter by changing the rate of taxation. Under the rule laid down by the supreme court of the United States in New Jersey v. Yard, 95 U. S. 104, the reserved right to repeal or amend on making compensation for damages, cannot be held to apply at all to the contract for the commuted tax provided for in the act of 1856.