The United States, by leave of court, duly filed in this court its original bill in equity against the state of Michigan, to which bill the defendant has filed a demurrer substantially for want of equity, and also because it appears therefrom that the complainant has been guilty of gross laches in regard to the matters therein set forth. It will be most convenient to set forth the bill, with the exception of some portions thereof which do not seem to be material, and it is as follows:
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(This act, although not set forth in the bill, is given in the margin.)
Act No. 17, Public Acts 1881
An Act to Authorize the Board of Control to Transfer the Saint Marys Falls Ship Canal, with the Property Belonging to the Same, to the United States.
Whereas, Congress, at its last session, included in the river and harbor bill the following:
For improving and operating the Saint Marys River and Saint Marys Falls canal, two hundred and fifty thousand dollars. 'And the Secretary of War is hereby authorized to accept, on behalf of the United States, from the state of Michigan, the Saint Marys canal and the public works thereon: Provided, Such transfer shall be so made as to leave the United States free from any and all debts, claims, or liability of any character whatsoever, and said canal, after such transfer, shall be free for public use: And provided further, that, after such transfer the Secretary of War be, and hereby is, authorized to draw, from time to time, his warrant on the Secretary of the Treasury to pay the actual expense of operating and keeping said canal in repair.' Therefore, [190 U.S. 379, 388] 'By the terms of said act the board of control of said canal, constituted by defendant for its management, was authorized and empowered, at any time when they might deem it proper, to transfer all material belonging to said canal and to pay over to the United States all moneys remaining in the canal fund, excepting so much as might be necessary to put the canal in repair for its acceptance in accordance with the act transferring the same to the United States; and the Congress of the United States in turn passed an act authorizing the Secretary of War to accept, on behalf of the United States, from the state of Michigan, the said canal and the public works thereon, and appropriating $250,000 to improve and operate the same, the same being the act approved June 14, 1880, found in 21 Stat. at L. 189, chap. 211.' (This act is correctly set forth in the preamble to the foregoing act of the state of Michigan.)
___ Sec. 1. The People of the State of Michigan enact, That the board of control of the Saint Marys Falls ship canal be, and hereby is, authorized and directed to transfer the said canal and the public works thereon, with all its appurtenances and all the right and title of the state of Michigan in and to the same, to the United States in accordance with (the) provisions of the above-mentioned clause: Provided, That this cession is upon the express condition that the state of Michigan shall so far retain concurrent jurisdiction with the United States over the Saint Marys Falls ship canal, and in and over all lands acquired, or hereafter acquired, for its use, that any civil or criminal process issued by any court of competent jurisdiction, or officers having authority of law to issue such process, and all orders made by such court, or any judicial officer duly empowered to make such orders, and necessary to be served upon any such person, may be executed upon said Saint Marys Falls ship canal, its lands, and in the buildings that may be erected thereon, in the same way and manner as if jurisdiction had not been ceded as aforesaid.
Sec. 2. The board of control of the Saint Marys Falls ship canal are hereby authorized and empowered, at any time when they may deem it proper, to transfer all material belonging to said canal, and to pay over to the United States all moneys remaining in the canal fund, excepting so much as may be necessary to put the said canal in repair for its acceptance in accordance with the act above recited: Provided, Such transfer of material and payment of moneys shall be in consideration of the construction, by the United States, of a suitable dry dock, to be operated in connection with the Saint Marys Falls ship canal for the use of disabled vessels.
This act is ordered to take immediate effect.
Approved March 3, 1881. [190 U.S. 379, 389] 'And thereupon said canal actually was transferred to the officers of the government of the United States connected with the War Department thereof, and your orator shows, avers, and charges that no tools, implements, personal property, chattels, goods, moneys, or effects of any name or nature that were in the treasury of the state of Michigan, or should or might have been therein at the time of such transfer, or within the custody of said state of Michigan, defendant herein, or might have been in such custody, connected with or belonging to said canal or lock, its funds, its management, and control, were so transferred and turned over.
The bill prayed for an accounting as to the sales of the lands, the prices obtained therefor, the application of the proceeds of the sales or exchange of such lands to the cost of the construction of the canal, the tolls received, their application, and also an accounting as to the tools on hand at the time of the transfer of the canal to the United States.
Messrs. Horace M. Oren and Charles A. Blair for defendant.
[190 U.S. 379, 394] Mr. Marsden C. Burch for complainant.
Mr. Justice Peckham, after making the foregoing statement of facts, delivered the opinion of the court: [190 U.S. 379, 396] By its bill the United States invokes the original jurisdiction of this court for the purpose of determining a controversy existing between it and the state of Michigan. This court has jurisdiction of such a controversy, although it is not literally between two states, the United States being a party on the one side and a state on the other. This was decided in United States v. Texas, 143 U.S. 621, 642 , 36 S. L. ed. 285, 292, 12 Sup. Ct. Rep. 488.
In the consideration of this case, the controlling thought must, of course, be to arrive at the meaning of the parties, as expressed in the various statutes set forth in the bill. While that meaning is to be sought from the language used, yet its construction need not be of a narrow or technical nature, but, in view of the character of the subject, the language should have its ordinary and usual meaning.
Whether, under these circumstances, technical words were used to express the thought that the state was to be a trustee, is not important if, upon a reading of the statutes and a survey of the condition of the country when the acts were passed, it is apparent that the intent was that the state should occupy the position of trustee in the construction and operation of the canal. Winona & St. P. R. Co. v. Barney, 113 U.S. 618, 625 , 28 S. L. ed. 1109, 1111, 5 Sup. Ct. Rep. 606.
The general purpose of these statutes was to build a ship canal, by means of the funds procured from the sale or other disposition of the public lands of the United States, to be used by all those whose business or pleasure should call them to pass through it in order to reach their destination.
As is well known, the Saint Marys river connects the waters of the lakes Huron and Superior. The navigation of the river is interrupted by Saint Marys falls, and it early became necessary, in order to provide conveniences for a rapidly increasing commerce, that there should be built a ship canal around these falls, so that large vessels coming from, or going to, Lake Superior should be thereby enabled to pursue their voyage to the east or to the west without interruption by those falls. The state of Michigan did not feel at that time (1850-1852) able to undertake such work itself, although it was a matter of much importance to many of her citizens. Finally the United States passed the act of 1852, set out in full in the foregoing state- [190 U.S. 379, 397] ment. The state subsequently accepted the same with all the conditions contained therein. We think it sufficiently appears from a perusal of these two acts that it was assumed that the grant of the right of way through the lands of the United States, and the grant of the 750,000 acres of its public lands in the state of Michigan, would pay the cost of construction of the canal, and the tolls to be collected by the state would repay it for all advances made by it in the repairs which would naturally and from time to time be required in such a work. There was no reason why the United States should provide that the state of Michigan should actually receive a profit over and above the payment to it of all its expenses for the construction of the canal and for keeping it in repair. If, through the action of the United States, a public work of national importance were constructed within the boundaries of that state, and the state itself reimbursed for every item expended by it in the construction and in the keeping of such work in repair, it would certainly seem as if the state could properly ask no more. It was clearly not the intention that the state should realize a beneficial interest from the transaction between the United States and the state over and beyond that which would arise from the existence of this canal. The cost of its construction and the keeping of it in repair were not to be borne by the state, even to the extent of a single dollar. That the parties supposed the cost would be borne by the United States is proved by an examination of the statutes; and, if it be a fact, it goes far to show that the state was, in this matter, acting in effect and substance as an agent, or, in other words, as a trustee for the United States, and that the transaction was not to be a source of profit to the state, by reason of getting more from the United States than it would cost to build the canal.
The expectation that the means provided by the United States for the construction of the work would be adequate for that purpose was not a visionary one, and it is proved by the fact, alleged in the bill and admitted by the demurrer, that such means were in truth adequate, and the canal was wholly constructed from the appropriation of the lands granted by the United States, and managed, repaired, and maintained from [190 U.S. 379, 398] the tolls exacted by the state from vessels passing through the canal.
An examination of the act of Congress of 1852, set forth in the foregoing statement of facts, will show, as we think, the trust character of the transaction between the United States and the state. There is granted to the state, by 1, the right of locating a canal through the public lands of the United States 400 feet in width; but this right of way is, by the terms of the act, to be used by the state, or under its authority, for the construction or convenience of such canal and the appurtenances thereto; and the use thereof is thereby vested in the state forever, but 'for the purposes aforesaid and no other.' The canal must be at least 100 feet wide, with a depth of water of 12 feet, and with locks at least 250 feet long and 60 feet wide. The act does not grant an absolute estate in fee simple in the land covered by this right of way. It was in effect a grant upon condition for a special purpose; that is, in trust for use for the purposes of a canal, and for no other. The state had no power to alien it and none to put it to any other use or purpose. Such a grant creates a trust, at least by implication. We have just held in Northern P. R. Co. v. Townsend, 189 U. S. --, ante, p. 671, 23 Sup. Ct. Rep. 671, in reference to a grant of a right of way for the railroad, that it was in effect a grant of 'a limited fee, made on an implied condition of reverter, in the event that the company ceased to use or retain the land for the purpose for which it was granted.'
The 2d section granted to the state, 'for the purpose of aiding said state in constructing and completing said canal, 750,000 acres of public lands,' belonging to the United States and lying within the state, which were to be subject to the disposal of the legislature of the state for such purpose and no other, and the canal was to be and remain a public highway for the use of the government of the United States, free from toll or other charge upon the vessels of said government engaged in public service, or upon vessels employed by said government in the transportation of any property or troops of the United States. It was also provided that if the canal should not be commenced within three years and completed within ten years, the state [190 U.S. 379, 399] was bound to pay to the United States the amount it received upon the sale of any part of said lands by the state at not less than $1.25 per acre, although the title to the purchasers from the state should remain valid. The state was bound to cause to be kept accurate accounts of the sales and net proceeds of the lands granted, and of all expenditures in the construction, repair, and operating of the canal and of the earnings thereof, and was to render a statement of the same annually to the Secretary of the Interior, and whenever the state should be fully reimbursed for all advances made for the construction, repairs, and operating the canal, with legal interest on all advances until the reimbursement of the same, or upon payment by the United States of any balance of such advances from the receipts from the lands and canal with such interest, the state was then only to be allowed to tax for the use of the canal such tolls as should be sufficient to pay all necessary expenses for its care, charge, and repairs of the same; and, before the state could dispose of any of the lands, the route of the canal was to be established and a plat thereof filed in the office of the War Department, and a duplicate thereof in the office of the Commissioner of the General Land Office. The 6th paragraph of the bill calls special attention to these facts.
In this Federal statute we find the purpose of the United States in granting the land. It was not for the benefit of the state of Michigan, and the state did not thereby receive any beneficial interests in such lands. As soon as it was repaid its outlay for the cost of the construction and for the maintenance and repairs of the canal, the tolls were to be reduced to such a sum as should be sufficient only to pay the necessary expenses for the care, charge, and repair of the same. Evidently, it was not supposed that the state was to profit from this grant further than such profit as might arise indirectly from the completion and operation of the canal.
Defendant refers to certain grants of land made to Illinois, Indiana, and Ohio, and perhaps to some of the other states, where such grants were made to aid in the construction of canals in those states, and where possible profits from the construction of such canals were within the contemplation of the various grants. [190 U.S. 379, 400] But in the acts referred to there are no restrictions upon the tolls which the states may charge for the use of their respective canals, the only limitation imposed being that the government should have their free use for the passing of its vessels; while, in this act, the tolls which the state may charge are to be only such after the payment for its construction, etc., as should be sufficient to pay the necessary expenses for the care, charge, and repairs thereof.
The state of Michigan, through an act of its legislature, duly accepted the terms of the act of Congress, and agreed to carry out all the conditions therein made obligatory upon that state. An attentive reading of that statute shows its purpose to conform to all of the provisions of the Federal statute. It provides ( 7) for keeping accurate books of account of sales and net proceeds of the lands, and for making returns to the Secretary of the Interior containing such accounts; provides ( 5) for designating the lands granted as 'Saint Marys canal lands;' and also ( 3) provides that, in letting contracts for construction of the canal, the responsibility of the proposed contractor and his ability to carry into effect the object of the act of Congress are to be considered. Reading both statutes, it seems to us the effect was to create a trust, and that the state was made the trustee to carry out the purposes of the act of Congress in the construction and maintenance of the canal. It there were funds arising from the sale of the lands over and above the cost of construction and other expenses of the canal, it could not within reason ( after a perusal of these two statutes, with the provisions for accounting for sales and net proceeds of lands, and the other provisions of the statutes already mentioned) be supposed the parties understood that Michigan was to have for its own treasury the balance arising beyond such cost, maintenance, etc., of the canal. If a surplus arose in the course of the operation of the canal, the tolls were to be at once reduced; and it seems to us that that surplus would, upon a fair and reasonable construction of the acts, belong to the original owner of the lands, by means of which the state, as, in substance, the agent of the United States, was enabled to construct the canal, and secure the tolls arising from its operation, to be expended upon its maintenance [190 U.S. 379, 401] and for necessary repairs. This would certainly be so after the formal transfer of the canal, and after the surplus was conclusively ascertained, and was subject to no further claims for repairs of the canal on the part of the state. The tolls were, in fact, the proceeds of the trust fund (the lands), which belonged to the United States, and should be transferred with the rest of the trust property.
Where Congress grants land to a state, to be used as provided in this statute, we think a trust, or power to dispose of the lands for the purpose of carrying out the improvement, is granted; and, in this case, no beneficial interest passes to the state by the language used, considering the whole statute. Rice v. Minnesota & N. W. R. Co. 1 Black, 358, 378, 17 L. ed. 147, 153.
If any particular part of the statute in this case were ambiguous or its meaning doubtful, of course the intention must be deduced from the whole statute and every part of it. Hence the importance of those provisions which, in effect, if carried out, prevent the state from making any direct profit by the construction of the canal, or from the tolls received from vessels passing through it. And, where words are ambiguous, legislative grants must be interpreted most strongly against the grantee and for the government, and are not to be extended by implication in favor of the grantee beyond the natural and obvious meaning of the words employed. Any ambiguity must operate against the grantee and in favor of the public. Rice v. Minnesota & N. W. R. Co. 1 Black, 380, 17 L. ed. 154. This rule of construction obtains in grants from the United States to states or corporations in aid of the construction of public works. (Id. 10.)
Then, too, there is the almost contemporaneous construction placed upon the Federal statute by the legislature of Michigan in the act No. 175, approved February 14, 1859, in the preamble of which it is said that 'whereas such canal, having been built and accepted by the authorities of this state, is found to need repairs in order to its preservation and use to the due performance of the trust created by said act of Congress and the assent of this state thereto,' etc. Again, the treasurer of the state, who, by virtue of his office, was one of the members of the board of control of the Saint Marys Falls ship [190 U.S. 379, 402] canal, in the course of his annual report for the year 1883, made to the governor and transmitted to the legislature of the state, used the following language:
We do not, of course, assume that the state treasurer could bind the state of Michigan by any admission he might make in a report to the legislature of that state, but it shows simply the understanding of that official, who was so closely connected with the construction and operation of the canal, in relation to the surplus funds in the treasury of the state, arising out of the operation of the canal. That the state legislature in 1859 regarded the state as a trustee is evident from the above language in the portion of the preamble quoted.
Finally, by the joint resolution of the legislature, being No. 20 of the Public Acts of 1897, it was stated as follows:
From these statutes and resolutions we think it quite clearly appears that the state and its public officers thought that a trust had been created, and that the state had received the lands in trust for the purpose of carrying out the provisions of the Federal statute. A surplus arising from the sales of lands and from the tolls, over and above all cost of construction, repairs, etc., after the formal transfer of the canal itself, belongs to the United States, and it is the proper party to recover the same.
The counsel for defendant, however, urged that other action by the United States shows that no such trust existed. He referred to the joint resolution of the state, adopted in 1869, wherein the necessity for the immediate enlargement of the Saint Marys Falls canal, a work of urgent necessity and national importance, was advocated, and it was therein said that the state of Michigan had no funds properly applicable to such purpose, and it was, therefore, resolved that the board of control of the canal should be authorized and directed to transfer the canal, with all its appurtenances and all the right and title of the state of Michigan in and to the same, to the United States, provided the state should be first guaranteed and secured, to the satisfaction of the board, against loss, by reason of its liability, on certain bonds which had been issued by it under authority of an act to provide for the repairs upon the canal, 'and to perform the trust respecting the same,' approved February 14, 1859. Even in this act of 1859, the legislature, as has already been stated, acknowledges the trust, and passes an act for the purpose of performing its obligations respecting the same. But it is said that this resolution ( of 1869) providing for the transfer of the canal was not noticed or accepted by the United States until 1880, when Congress, by an act approved June 14, 1880, authorized the Secretary of War to accept, on behalf of the United States, from the state of Michigan, the [190 U.S. 379, 404] canal, provided 'such transfer shall be so made as to leave the United States free from any and all debts, claims, or liability of any character whatsoever, and said canal, after such transfer, shall be free for public use.'
This offer under the act of 1880 was accepted by the state by act No. 17, Public Acts of Michigan of 1881, supra, and the board of control was authorized and directed: First. 'To transfer the said canal and the public works thereon, with all its appurtenances, and all the right and title of the state of Michigan in and to the same, to the United States,' in accordance with the provisions of the act of Congress approved June 14, 1880; and, second, 'at any time when they may deem it proper, to transfer all material belonging to said canal, and to pay over to the United States all moneys remaining in the canal fund, excepting so much as may be necessary to put the said canal in repair, for its acceptance in accordance with the act above recited: Provided, Such transfer of material and payment of moneys shall be in consideration of the construction, by the United States, of a suitable dry dock, to be operated in connection with the Saint Marys Falls shipcanal for the use of disabled vessels.'
It is argued from this legislation that Congress thereby recognized and acknowledge the ownership of the canal by the state, free from any trust connected therefor with, and that the provisions by the state for transferring all material belonging to the canal and for paying over to the United States all moneys remaining in the canal fund, etc., were upon the condition just quoted; and it is stated that there was no proof that such dry dock had been constructed, and hence there was no liability on the part of the state to pay the moneys or deliver the tools. But, if the original transaction amounted to a trust, as we think it did, the attempt of the state to impose a condition upon its payment of the moneys and the transfer of the tools did not take away its liability as trustee, nor make it necessary that the United States should build the dry dock before it should be entitled to the money and the tools. The United States might have been satisfied to permit the state to retain its nominal title and to remain in possession, and to operate the canal under its original obligations; and when, in 1880, it authorized the Secretary [190 U.S. 379, 405] of War to accept the canal from the state without any liability on its part for debts or claims in regard to the canal, it did not thereby in any manner admit the nonexistence of any trust theretofore created. Assuming that the land grant and the tolls had been sufficient to construct the canal and operate and repair it, there was no reason why the United States should assume or agree to pay any debts or claims which might exist in regard to the canal. The consideration for the transfer of the material and the payment of the moneys amounted, at most, to a provision in the nature somewhat of a condition subsequent, and the right to such transfer and payment did not rest upon the prior building of the dry dock by the United States. There was nothing in this legislation, in our opinion, which changed the character in which the state had acted as trustee up to the time of such transfer of the canal, and the liability of the state was not altered by reason of the act of 1880 or that of 1881.
We are of opinion that the bill shows a cause of action against the state of Michigan as trustee, and its liability to pay over the surplus moneys (if any), which upon an accounting it may appear have arisen from the sale of the granted lands, over and above all cost of the construction of the canal and the necessary work appertaining thereto, and the supervision thereof, together with the surplus money arising from the tolls collected, which latter sum by the demurrer is admitted to amount to $ 68,927.12. This sum the United States in substance (especially in the 4th paragraph of the bill) admits is all that is due from the state on account of such tolls. It is not entitled to go back of that amount and call for an accounting as to the tolls prior to the transfer of the canal to the United States. The latter is also entitled to recover the value of the tools, etc., mentioned in the bill, as of the time of the transfer of the canal.
We think there is no ground of defense arising from any alleged laches on the part of the United States in bringing this suit. Assuming the existence of what would be laches in a private person, the defense that might arise therefrom is not available ordinarily against the government. United States v. Beebe, 180 U.S. 343, 353 , 45 S. L. ed. 563, 570, 21 Sup. Ct. Rep. 371. [190 U.S. 379, 406] There must be judgment overruling the demurrer, but as the defendant may desire to set up facts which it might claim would be a defense to the complainant's bill, we grant leave to the defendant to answer up to the first day of the next term of this court. In case it refuses to plead further, the judgment will be in favor of the United States for an accounting and for the payment of the sum found due thereon.
Demurrer overruled and leave to answer given, etc.