[239 U.S. 126, 127] Mr. Gilbert Collins for plaintiffs in error.
[239 U.S. 126, 129] Mr. Robert H. McCarter and Mr. Edmund Wilson, Attorney General of New Jersey, for defendants in error.
Mr. Justice McReynolds delivered the opinion of the court:
The court of errors and appeals of New Jersey sustained a tax for the year 1906, levied by the state board of assessors, under the railroad and canal tax act of 1884 and supplements thereto, upon the canal and appurtenances leased by the Morris Canal & Banking Com- [239 U.S. 126, 130] pany to the Lehigh Valley Railroad. 76 N. J. L. 627, 71 Atl. 328. Plaintiffs in error claim the charter of the lessor company exempts the assessed property from taxation, and to subject it to the charge in question would impair the obligation of that contract contrary to the provisions of article I., 10, Federal Constitution.
The Morris Canal & Banking Company was incorporated by a special act of the New Jersey legislature, passed in 1824, for the purpose of constructing a canal across the state. This statute expressly declared that 'said canal when completed shall forever thereafter be esteemed a public highway,' gave the state the right to purchase it after ninety-nine years at a fair valuation, and specified that it should become the sole property of the state after one hundred and forty-nine years; but no power was granted the corporation either to sell or lease its works. Section 4 provides:
An act approved March 14, 1871, amended the original charter as follows:
By indenture dated May 4, 1871, the canal company undertook to let and demise to the Lehigh Valley Railroad its entire canal and navigation works, together with all corporate franchises, rights and privileges, other than that of being a corporation, to have and to hold unto the lessee, its successors and assigns, perpetually. (The words 'rights and privileges' are not contained in the amendment to the charter.) Likewise it bargained and sold to the railroad all of its cars, trucks, boats, etc., and movable property of every kind and description except certain records and specified articles.
Admitting that the provision in the charter of 1824, granting exemption from taxation, constituted a valid contract which subsequent legislation could not impair, the state maintains that it ceased to apply after the lease and sale to the railroad, and the property in question then became subject to assessment.
The doctrine essential to the solution of the question in issue was lucidly stated and the pertinent authorities cited in Rochester R. Co. v. Rochester, 205 U.S. 236 , 51 L. ed. 784, 27 Sup. Ct. Rep. 469, Mr. Justice Moody delivering the opinion. Speaking in respect of the transfer of an immunity from the exercise of governmental power granted by contract, he declared (p. 247):
The results in Wright v. Central of Georgia R. Co. 236 U.S. 674 , 59 L. ed. 781, 35 Sup. Ct. Rep. 471, and Wright v. Louisville & N. R. Co. 236 U.S. 687, 690 , 59 S. L. ed. 788, 792, 35 Sup. Ct. Rep. 475, were based upon the original charters, which were interpreted as contemplating and permitting subsequent transfers without subjecting the fee to taxation. Neither of these cases modifies the principles announced and applied in the opinion quoted from above; it is referred to with approval in the latter of them.
By express terms the charter of the Morris Canal & [239 U.S. 126, 133] Banking Company limited the exemption from taxation to such property 'as is possessed, occupied and used by the said company for the actual and necessary purposes of said canal navigation.' This language must be strictly construed under the settled rule, notwithstanding the rights of purchase and ownership secured by the state, the supposed value of which, it is claimed, was so unusual that a more liberal interpretation should be adopted. After transfer to the railroad the assessed property was not possessed, occupied, or used by the canal company; and the exemption, therefore, no longer applied, unless some legislation plainly authorized or directed its transfer.
Only the act of March 14, 1871, can be relied upon to show such authorization or direction. But this merely permitted the lease of 'the canal of said company, or any part thereof, with all or any of its boats, property, works, appurtenances and franchises;' and, as clearly pointed out in the Rochester Case, an exemption from taxation does not pass under a valid lease or slae of corporate property together with appurtenances and franchises.
We find no error in the judgment of the court below, and it is accordingly affirmed.