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[201 U.S. 543, 544] This case, which is a suit brought by the appellee in the circuit court of the United States for the western district of Michigan, while involving the validity of the railroad tax law of the state of Michigan ( Acts 1901, chap. 173, p. 236), recently considered by this court (ante, page 459) involves the further question of the existence and scope of an alleged contract in respect to taxation. The Detroit & Pontiac Railroad Company was chartered by the legislature of the territory of Michigan, March 7, 1834, the Oakland & Ottawa Railroad Company by the legislature of the state of Michigan, April 3, 1848 (Laws 1848, p. 351). By an act of February 13, 1855 (Laws of 1855, p. 305), the Detroit & Pontiac Railroad was authorized to change its name to the Detroit & Milwaukee Railway Company, to purchase all the rights, property, and franchises of the Oakland & Ottawa Railroad Company for the building and operating a continuous line of road from Detroit to Lake Michigan, and the purchase and sale thus provided for was duly effected. Section 9 of this act provided that-- 'the said company shall, on or before the first day of July, pay the state treasurer an annual tax of 1 per cent on the capital stock of said company paid in, which tax shall be in lieu of all other taxes, except for penalties imposed upon said company [201 U.S. 543, 545] by its act of incorporation, or any other law of this state. The said tax shall be estimated upon the last annual report of said corporation.'
Since 1850 the state Constitution has contained these provisions:
In 1860 certain mortgages on the road were foreclosed and the company reorganized, and again in 1878 the road with its appurtenances and franchises was sold upon mortgage foreclosure and again reorganized as the Detroit, Grand Haven, & Milwaukee Railway Company. These foreclosures and reorganization took place under the authority of act No. 96 (Laws of 1859, p. 52).
On the hearing in the circuit court it was held that 9, above quoted, created a contract between the state and the company which prevented the enforcement against it of the railroad tax law, and a decree was entered accordingly (138 Fed. 264) from which decree the state auditor appealed directly to this court.
Messrs. Timothy E. Tarnsney, John E. Bird, Charles A. Blair, Loyal E. Knappen, and Roger Irving Wykes for appellant.
[201 U.S. 543, 551] Messrs. H. Geer and L. C. Stanley for appellee.
Statement by Mr. Justice Brewer:
Mr. Justice Brewer delivered the opinion of the ocurt:
Many questions which might otherwise be perplexing are settled by the decision of the supreme court of Michigan in Atty. Gen. v. Joy, 55 Mich. 94, 20 N. W. 806. That was an information brought by the attorney general in the supreme court of the state, charging the defendants with claiming and usurping the corporate rights and franchises of the Detroit, Grand Haven, & Milwaukee Railway Company. The act of 1855 was sustained, notwithstanding some alleged defects in its passage, and it was decided that it did not create a new corporation, but simply authorized the old territorial corporation, the Detroit & Pontiac Railroad Company, to change its name and extend its line of road, and, further, that this act in no respect conflicted with 1 and 8, article 15, of the state Constitution. The court also sustained the act of 1859, under which the foreclosures took place, and held that by them no new company was chartered, that there was simply a reorganization and continuance of the old company.
The latter act provides that upon certain conditions new stock shall be issued in lieu of the old stock, the old officers of the company superseded, ' and the new stockholders and officers shall, in the law, be deemed and taken to be the stockholders and offers of said corporation, the charter and all laws appertaining thereto continuing to be the charter and laws regulating and governing said corporation, except that it may be known and called, and sue and be sued, and may contract and do all acts which in the law it could have done in its old name, in and by the name set forth in the declaration aforesaid.' (P. 253.)
The testimony in this case shows compliance with these conditions. Compliance was also shown in Cook v. Detroit, G. H. & M. R. Co. 43 Mich. 349, 5 N. W. 390, and in that case the validity of the new organization as a continuance of the old corporation was recognized. [201 U.S. 543, 556] We thus come to the question of the effect of 9 of the act of 1855. It has been often decided by this court, so often that a citation of authorities is unnecessary, that the legislature of a state may, in the absence of special restrictions in its Constitution, make a valid contract with a corporation in respect to taxation, and that such contract can be enforced against the state at the instance of the corporation. It is said that we are not concluded by a decision of the supreme court of a state in reference to the matter of contract; that while the rule is to accept the construction placed by that court upon its statutes, an exception is made in case of contracts, and that we exercise an independant judgment upon the question whether a contract was made, what its scope and terms are, and also whether there has been any law passed impairing its obligation. Douglas v. Kentucky, 168 U.S. 488 , 42 L. ed. 553, 18 Sup. Ct. Rep. 199. It is in order to uphold the provision of the Federal Constitution that no state shall pass a law impairing the obligation of a contract that this duty of independant judgment is cast upon this court. But here the supreme court of the state has ruled in favor of the continued existence of a corporation and the applicability of certain statutes, and when, upon the face of such statutes, a valid contract appears, we accept the ruling that the statutes are valied and applicable enactments. In other words, the supreme court of the state having sustained the validity of a statute from which a contract is claimed, this court follows that decision, and starts with the question, What contract is shown by statute?
The particular section which it is claimed creates the contract (9 of the act of 1855) provides that the company shall pay an 'annual tax of 1 per cent on the capital stock of said company paid in, which tax shall be in lieu of all other taxes, except for penalties imposed upon said company by its act of incorporation, or any other law of this state.' It is contended in the first place that this is a mere gratuity, which can be withdrawn at any time,-a statute in respect to taxation subject to change like other revenue statutes; and Wisconsin [201 U.S. 543, 557] & M. R. Co. v. Powers, 191 U.S. 379 , 48 L. ed. 229, 24 Sup. Ct. Rep. 107, is cited as authority. But the difference between that case and this is obvious. That arose on a general law in respect to taxation; this, on a provision in a special act having reference to a particular corporation,- an act which called for and received acceptance by the corporation. It was in the opinion in that case (p. 385, L. ed. p. 230, Sup.Ct.Rep. p. 108):
That there was ample consideration for a contract in this case, if consideration be necessary is shown by the opinion of the supreme court in Atty. Gen. v. Joy, supra, when it says (p. 101. N. W. p. 809):
See further, Home of the Friendless v. Rouse, 8 Wall. 430, 436, 19 L. ed. 495, 497, in which we said:
Surely no clearer case of contract can be presented than one in which a legislature passes an act in respect to a particular corporation making special provision concerning taxation, and does so with a view of inducing large expenditures by the corporation and the completion of an unfinished road whose completion is deemed of great public importance, and where the special provision is, as required, formally accepted, the expenditures made, and the roal completed.
It is suggested that this provision is not in terms made perpetual. A sufficient answer to this is found in Home of the Friendless v. Rouse, 8 Wall. 437, 19 L. ed. 497:
It is further contended that the contract provided in 9 is one relating to the property of the shareholders, and not to that of the corporation. The terms 'share,' 'stock,' 'capital,' 'capital stock,' are of frequent and not uniform use, and we have often to turn to the context to see what is intended by their use in a particular case. That a distinction exists between that which is the property of the shareholder, and subject to taxation as other property belonging [201 U.S. 543, 560] to them, and that which is the property of the collective incorporated person we call a corporation, and subject to taxation as such, has been repeatedly pointed out. See Farrington v. Tennessee, 95 U.S. 679 , 24 L. ed. 558; Memphis & C. R. Co. v. Gaines, 97 U.S. 697 , 24 L. ed. 1091; St. Louis, I. M. & S. R. Co. v. Loftin, 98 U.S. 559 , 25 L. ed. 222; Bank of Commerce v. Tennessee, 104 U.S. 493 , 26 L. ed. 810; Tennessee v. Whitworth, 117 U.S. 129 , 29 L. ed. 830, 6 Sup.Ct.Rep. 645; Bank of Commerce v. Tennessee, 161 U.S. 134 , 40 L. ed. 645, 16 Sup. Ct. Rep. 456; Shelby County v. Union & P. Bank, 161 U.S. 149 , 40 L. ed. 650, 16 Sup. Ct. Rep. 558; Central R. & Bkg. Co. v. Wright, 164 U.S. 327 , 41 L. ed. 454, 17 Sup.Ct.Rep. 80; New Orleans v. Citizens' Bank, 167 U.S. 371 , 42 L. ed. 202, 17 Sup.Ct.Rep. 905; Owensboro Nat. Bank v. Owensboro, 173 U.S. 664 , 43 L. ed. 850, 19 Sup.Ct.Rep. 537; Citizens' Bank v. Parker, 192 U.S. 73 , 48 L. ed. 346, 24 Sup.Ct.Rep. 181; Delaware, L. & W. R. Co. v. Pennsylvania, 198 U.S. 341 , 49 L. ed. 1077, 25 Sup.Ct.Rep. 669.
In the first of these cases a bank's charter provided that the company 'shall pay to the state an annual tax of 1/2 of 1 per cent on each share of the capital stock subscribed, which shall be in lieu of all other taxes,' and it was held that that was a contract in reference to the property of the shareholders, and prevented further taxation upon their separate property. In the opinion it was said (pp. 686, 687, L. ed. p. 560):
In the second is this ruling (p. 707, L. ed. p. 1093):
And in Tennessee v. Whitworth, 117 U.S. 136 , 29 L. ed. 832, 6 Sup.Ct. Rep. 647, this description of separable elements of value was given:
In several of the cases attention is called to the qualifying words which show an intent on the part of the legislature of something other than that generally embraced within the term 'capital stock.' But it is unnecessary to review these cases in detail.
By 9 the tax is 'on the capital stock of said company paid in.' Clearly that refers to the property which the corporation has received and presumably holds. It is not the individual property of the shareholders which is contemplated, but that which is in the treasury of the corporation, or included among its assets. This, as we have seen from the quotations, is the ordinary meaning of the term 'capital stock.' Further, we find that this tax is to be 'in lieu of all other taxes, except for penalties imposed upon said company.' In other words, the tax upon the company of 1 per cent may be increased by any penalties imposed upon the company, and in no other way. Again, the tax is to 'be estimated upon the last annual report of said corporation.' While such report might be expected to include not merely the property belonging to the corporation but also the number and names of the stockholders and the number of shares held by each, and possibly also the amount paid in by each, yet the word 'estimated' carries with it the idea of valuation rather than of mathematical apportionment. It apparently suggests that the property reported by the corporation is to be the basis upon which the assessors shall make their valuation, so that the tax is 'estimated' upon that property rather than fixed by the mere process of multiplication or division. That the tax is to be paid by the company is of course not conclusive on the question, but it is in harmony with all the other provisions of the section. Still further, we have the practical construction placed by the authorities for a long series of years, continued up to the year 1898. Under those circumstances we are of opinion that the tax provided for by 9 is a tax upon the prop- [201 U.S. 543, 562] erty of the corporation, and not a tax upon the shares of stock held by the shareholders. There was, therefore, a contract between the state and the corporation which prevented the subjection of the property of the corporation to any other than the tax prescribed in the statute.
The decree of the Circuit Court is affirmed
Mr. Justice White dissented.
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