STA.TE 0'" TENNESSEE V. WHITWORTH.
to pay the taxes assessed upon his shares. There is much in the statute that seems inappropriate to the case of corporations other than banks and similar associations t where capital is employed in the form of money and securities; butt in view of the decision of the supreme court of the state, already referred tOt no question is raised on the point. The case originally instituted in a state court was removed to this court on the ground that its decision necessarily involved a question arising under the constitution of the United Statest it being claimed on the part of the defendant that the shares of stock sought to be subjected to assessment for taxation were exempt by a contract with the state contained in the charter of the Nashville t Chattanooga & St. Louis Railroad Company. It is now claimed on behalf of the state that it has the right to have the shares of stock in this corporation assessed for taxes by the tax collector of Davidson county, where it has its principal place of business t as the property of the holder,a at the time of the filing of the petition, for as many years as the books of the corporation show the stock to have been continuously owned -.by them since the passage of the act of 1869; that these taxes t when assessed, become a lien upon the stock t for the payment of which the corporation itself is responsible to the extent of any dividends declared or settlements had by it with the shareholders since the filing of the petition; but when the stock has changed hands during years for which it was liable for taxation t it is not insisted that it is now to be assessed for such omitted taxes, so as to hold either the stock or the present owner liable therefort nor that the assessment can go back prior to the year 1875, at which time, as appears by the answer, the old stock was sUl'rendered, and the present stock created and issued. The act to incorporate the Nashville & Chattanooga Railroad Company was passed on December llt 1845. The thirty-eighth section of that act is as follows:
"The capital stock of said company shall be forever exempt from taxation, and the road, with all its fixtures and appurtenances, including work-shops, warehouses, and vehicles of transportation, shall be exempt from taxation for the period of twenty years from the completion of the road, and no longer."
A provision in the same language was contained in the charter of the Nashville & Northwestern Railroad Company; all of whose propertyand road t including all its rights and franchises t and the foregoing exemption t it is admitted, passed by a judicial sale to the Nashville & Chattanooga Railroad Company. The name of thEllatter was changed to the Nashville, Chattanooga & St. Louis Railway Company, and to enable it to pay for this and other roads acquired by it, this company was authorized to increase its capital stock to thepres ent amount of $6,670,331.20, divided into shares of $25 each. It is claimed for the defendant in this proceeding that the perpetual exemption of the capital stock of the company from taxation covers the individual interest therein of the stockholders, the attempted violation of which is repugnant to that clause of the constitution of the
United States which forbids the states from pa.ssing laws impairing the obligation of contracts. The issue presented is one of the construction of the clause of the charter quoted above; the question being, what is the legislative intent embodied in the language of that exemption? It must be admitted at the outset that it was competent for the legislature of the state to distinguish between the interest of a corporate body in its capital or capital stock and that of the individual shareholder, as separate subjects of taxation; so that one may be taxed and the other exempt, or both governed by the same rule of taxation or exemption, at the discretion of the legislature. It was accordingly held by the supreme court of Tennessee, in the case of Union Bank v. State, 9 Yerg. 490, that a provision in the charter of a bank, "that in consideration of the privileges granted by the charter the bank agrees to pay to the state annually onehalf of one per cent. on the amonnt of the capital stock paid in by the stockholders other than the state,l" operated by way of contract to restrict the state in taxing the corporation in respect of its capital stock to the rate mentioned, but not to prohibit the state from a separate and additional taxation of each stockholder upon his individual interest as a stockholder. In that case it will be observed, however, that the language of the charter did not exempt from taxation, in whole or in part, the capital stock of the company as a subject of taxation, without regard to its ownership, but was an agreement directly and expressly with the corporation itself, as distinct from its shareholders, as to a tax to be paid by the corporate body, measured by a rate upon the amount of its capital stock paid in. An exemption was thereby implied as extended to the corporation not to tax it on that account at any greater rate; but that exemption, it was held, could not be judicially extended so as to embrace the case of individual stockholders chargeable in respect to their separate interests as sllch. In that respect that case differs from the present, for here the exemption is not of a person, but of a thing; it is not that no tax shall be required of the corporation in respect to its capital stock, but that. the capital stock itself shall be forever exempt from taxation,-that is, shall not be regarded as a lawful basis or subject of taxation,-thus removing the thing itself from the list of taxables under any authority deriving its powers from the state. This exemption is not limited to the interest of the corporation in its capital stock by calling it "the capital stock of the company," as though this was intended to convey the idea of property and ownership in the company of its stock. It is the capital stock of the company, not as belonging to the corporation 8S property, but merely as designating and describing it as the capital stock authorized by that act, and to be known as the capital stock of the particular company by the name it bears. Nor can the exemption be limited by the idea that the clause is in a contract between the state and the corporation as such, and not,
STATE 0' TENNESSEE
with the natural persons composing it as stockholders. That suppo. sition, in the first place, is not accurate. The contract of the charter is with all who become parties to it by accepting its proposals,.as all do, who subscribe to the capital stock it authorizes upon the terms and conditions expressed and implied. But even were it; as claimed, technically a contract between the state and the corporate body only, yet that would not change the meaning of the clause in question, which does not refer to persons, but operates distinctly upon the very things it describes. But that the stockholders are the real par. ties to the contract appears not less from the whole purview of the statute as from the particular provisions of the thirty.fourth section relating to amendments to the charter, which, it is provided, when accepted and adopted unanimously by the president and directors, "shall be obligatory on the stockholders, and not otherwise." A clause of exemption in a railroad charter, identical with that under discussion here, was considered and construed by the supreme court of the United States in the case of Railroad Cos. v. Gaines, 97 U. 8. 697. It was there contended on the part of the railroad company that the capital stock of the company exempted not only was the capital which belonged to the corporation, but consisted of the very property into which the original capital contributed by individual subscribers had been converted by investment, and so embraced that much, at least, of the road, fixtures, etc., which represented sub. scribed capital as distinct from borrowed capital, although it was, by the express words of the clause, to be exempt from taxation only for 20 years from the completion of the road. But this view was not adopted, the court holding that the property expressed to be exempted for 20 years only could not be a part of that which was exempted forever. It follows, therefore, necessarily, that the capital stock of the company, which is not subject to taxation, is a distinct thing altogether from any part of the property belonging to the company, whether exempt from taxation for a limited period or not at all. It does not include the franchil;les of the company to be a corporation, or to make and operate a railroad; for, in the first place, the phrase .is not an appropriate one to convey such a meaning; and, in the next, the value of the franchises of the company necessarily is in· eluded in the value of the property of the company used for corporate purposes, as that use cannot be separated from the. property used, in any rational estimate of the value. What, then, remains of possible subjects to which the exemption may be applied? For we are not at liberty to suppose the exemption has nothing on which it can take effect, and is therefore void and without meaning. It is suggested in argument, as an alternative meaning, that the exemption is a stipulation merely that the corporation shall not be taxed upon the money paid in, or capital stock, at its. full nominal value, but, as an encouragement to investment, only upon the property acquired by the company, at its value as asoertained
from time to time, as other similar property may be valued for purposes of taxation, and not upon that until after the lapse of 20 years. But that assumes that the object of the exemption is the corporation, whereas the thing exempted is the capital stock itself; and the natural reading of it is that, as to the capital employed by the 'Jompany for corporate purposes, in the form of its road and fixtures, etc., that shall be exempt for 20 years; and as to the capital stock itself, held and owned by individual subscribers, who have incurred the risk of the investment, and depend on the success of the enterprise for the return of profits, it shall be forever exempt from taxation. This conclusion seems to be required by the decision of the supreme court of the United States in the case of Farrington v. Tennessee. 95 U. S. 679. In that case, the bank charter provided that the bank "shall pay to the state an annual tax of one-half of one per cent. on each share of the capital stock subscribed, which shall be in lieu of all other taxes." It was held that the words "in lieu of all other taxes," as thus used, meant, in lieu of all other taxes that might be imposed on that subject of taxation, viz., the shares of the capital stock; and that, accordingly, it excluded a tax on those shares assessed upon them against the individual shareholder as his property. Mr. Justice SWAYNE, delivering the opinion of the court, said:
"There is no question before us as to the tax imposed on the shares by the charter, but the state has, by her revenue laws, imposed another and an additional tax on these same shares. This is one of those' other taxes.' which it had stipulated to forego. The identity of the thing doubly taxed is not af· fected by the fact that in one case the tax is to be paid vicariously by the bank, and in the other by the owner of the share himself. The thing thus taxed is still the same, and the second tax is expressly forbidden by the contract of the parties. After the most careful consideration we can come to no other conclusion. Such, we think, must have been the understanding and intent of the parties when the charter was granted and the bank organized. Any other view would ignore the covenant that the tax specified should be in 'liou of all other taxes; , it would blot those terms from the context, and construe it A8 if they not a part of it."
The present case is even stronger than that for the application of the exemption, for in the case cited the tax imposed was upon the . corporation itself, and to be paid by it. And it might well have been argued with plausibility, as in fact it was, that it was to be in lieu only of all other taxes sought, in respect thereof, to be charged against the corporation, leaving the interest of the individual shareholders unaffected by the stipulation. But here no such consideration applies, for here the exemption is absolute, not in favor of any particular person, but without discrimination and without condition, operating upon the thing itself, known as capital stock of the company. however owned or held, a.nd inhering in it forever. It is true, the word" shares" is not used; and it may be said that the reference is to the aggregate fund paid in and originally transferred to the
STATE OF TENNESSEE
company; but there is no such actual aggregate fund remaining uninvested, and we have seen that it does not possibly include the property of the company resulting from its investment. The capital stock of the company, therefore, has no legal existence, except as an aggregate of the shares owned and held as iudividual property by the separate stockholders. Each share is a part of the whole, and, as the whole is exempt from taxation, it follows that each pari or share must also be exempt. This conclusion is strongly re-enforced by the phraseology of other parts of the statute, in instances too numerous to specify; more strongly still by a practical construction of this charter and the revenue acts of the state during the whole period of their co-existence, which has never drawn in question the exemption claimed for the stockholders of this corpora.tion until the filing of the present petition. Judgment will be rendered for the defendant, dismissing the petition.
(Circuit Court, M. D. Tennessee. 1884.)
TAXATION-NASHVILLE & DECATUR RAILROAD COMPANy-EXEMPTION OF SHAREHOLDERS-OBLIGATION OF CONTRACT.
WHITWORTH, Trustee, etc·
The sixth section of the act passed by the legislature of Tennessee, April 19, 1866, declaring that the Nashville & Decatur Hailroad Company" shall, for its government. be entitled to all the rights and privileges, and subject to all the restrictions and liahilities, conferred and imposed upon the Nashville & Chattanooga Hailroad Company," confers upon the former company the privilege of ex.emption from taxation, as to its capital stock and property, enjoyed by the latter company, under the provisions of its charter, and the act of March I, 1869, the shares of stock owned by individual shareholders in the Nashville & Decatur Railroad Company, impairs the obligation of contract and is void. State of Tennessee v. Wltitworth, ante, 75, followed.
Mandamus. MATTHEWS, JustIce. This is also a petition for a mandamus filed in. the circuit court of Davidson county, and removed into this court on petition of the defendant, on the gronnd that its decision necessarily involves a question arising under the constitution of the United States. All the questions in it are disposed of by the judgment in the previous case [ante, 75] as to the exemption claimed on behalf of the stockholders in the Nashville, Chattanooga & St. Louis Railroad Company, except one. That one is whether the stockholders in the Nashville & Decatur Railroad Company are entitled, under the charter of that company, to a like exemption. On January 23, 1852, the general assembly of Tennessee incorporated the Tennessee & Alabama Railroad Company for the purpose v.22F,no.1-6