B. C. Brown, for plaintiff in error.

U. M. Rose, for defendant in error.

This is a bill in equity filed in the chancery court of Pulaski county, Arkansas, seeking to enjoin the board of railroad commissioners of the state from appraising, for the purposes of taxation, any part of the property of the plaintiff in error, on the ground that it is exempted from taxation by a contract with the state contained in its charter of incorporation. The supreme court of the state, on appeal, affirmed the decree of the chancery court dismissing the bill. That decree of the supreme court is brought here by writ of error, for review, on the allegation that it enforced a law of the state impairing the obligation of a contract, in violation of the rights of the plaintiff in error under the constitution of the United States.

The question arises, and is to be determined, upon the following case: The Memphis & Little Rock Railroad Company was chartered by an act of the general assembly of the state of Arkansas, approved January 11, 1853. This act authorized the formation of a company to be a body corporate for the purpose of establishing communication by railroad between the city of Memphis, in Tennessee, and Little Rock, in Arkansas, and commissioners were named therein to open books for subscriptions to its capital stock. This was fixed for the purpose of organization at $400,000, to be increased to $2,000,000, at the pleasure of the company. When the necessary amount of capital stock had been subscribed, the subscribers were authorized to organize by the election of a board of directors. The ninth section of the act is as follows: 'Sec. 9. The said company may at any time increase its capital to a sum sufficient to complete the said road, and stock it with anything sufficient to give it full operation and effect, either by opening books for new stock or by selling such new stock, or by borrowing money on the credit of the company, and on the mortgage of its charter and works; and the manner in which the same shall be done shall be prescribed by the stockholders at a general meeting,' etc. It also contains the following: 'Sec. 28. The capital stock of said company shall be exempt from taxation until the road pays a dividend of six per cent., and the road, with all its fixtures and appurtenances, including workshops, warehouses, and vehicles of transportation, shall be exempt from taxation for the period of twenty years from and after the completion of said road.'

The company was organized under this act, and afterwards, in order to borrow money for the prosecution of the enterprise, issued its bonds to the amount of $1,300,000, dated May 1, 1860, having 30 years to run, with interest at 8 per cent. per annum, and, to secure the payment of the same, executed and delivered a mortgage to Tate, Brinkley, and Watkins, as trustees for the bondholders, whereby it conveyed to them, in trust, the Memphis & Little Rock Railroad, its road-bed, right of way, and all works and rolling-stock of or belonging to the company, 'together with the charter by which said company was incorporated and under which it is organized, and all the rights and privileges and franchises thereof,' and also all the lands, etc., belonging to said company. Subject thereto a second mortgage was made by the company on March 1, 1871, conveying all its property and franchises to Henry F. Vail, in trust for the holders of bonds secured thereby, amounting to $1,000,000. Default having been made by the company in the payment of interest on this loan, Vail, the trustee, in execution of the power conferred in the mortgage, sold and conveyed the mortgaged property, the title to which became vested in Stillman Witt and his associate bondholders, who organized the Memphis & Little Rock Railway Company, to which, on November 17, 1873, the said property was conveyed. This railway company, on December 1, 1873, issued its bonds to the amount of $2,600,000, and, to secure the same, by a deed of that date, conveyed all the franchises, privileges, and property so acquired by it to trustees, of whom Pierson, Matthews, and Dow became successors, in trust for the bondholders. The Memphis & Little Rock Railroad Company, the original corporation, made default in the payment of interest accruing upon the bonds secured by the mortgage of May 1, 1860, and its successor, the Memphis & Little Rock Railway Company, also made default in the payment of interest maturing on the bonds secured by the deed of December 1, 1873. Afterwards, on November 12, 1876, a bill in chancery was filed in the circuit court of the United States for the Eastern district of Arkansas, by the trustees against the two companies, to foreclose those mortgages, in which suit a final decree was rendered ordering a sale of the property described in the same, embracing the property and franchises of the said companies, and the charter of the Memphis & Little Rock Railroad Company; and a sale thereof was made and confirmed, and a conveyance of the same executed to Pierson, Matthews, and Dow, in trust for the holders of the bonds of the Memphis & Little Rock Railway Company, secured by the deed of trust executed by that company. On April 28, 1877, the holders of these bonds executed certain articles of association, by which, after reciting the premises, they organized themselves into a company, claiming to become a corporation under the name of 'The Memphis & Little Rock Railroad Company as reorganized,' under and by virtue of the provisions of the act of January 11, 1853, for the incorporation of the original company; and afterwards, on April 30, 1877, Pierson, Matthews, and Dow conveyed to said company the property and franchises, including the charter of January 11, 1853; and thereupon the bill proceeds:

'Complainant submits that having thus duly purchased said charter of the Memphis & Little Rock Railroad Company under the power therein contained, and having organized thereunder, it is the owner and holder thereof, and that it has and is entitled to all the privileges and benefits in said act of the general assembly mentioned and set forth, among others to the contract contained in said section 28, by which the road, with all the franchises and appurtenances, including work-shops, warehouses, and vehicles of transportation, shall be exempt from taxation for the period of twenty years from and after the date of the completion of said road. Complainant further states that said road was not completed till the fifteenth day of November, 1874, and that the time of the exemption thereafter from taxation has not expired. It further states that the defendant herein first mentioned, acting as a board of railroad commissioners for this state, have demanded from the complainant a detailed inventory of all the rolling stock belonging to the company, and the valuation thereof, as provided in section 48 of an act of the general assembly of the state or Arkansas, approved March 31, 1883, entitled, 'An act to revise and amend the revenue laws of the state of Arkansas,' and have also demanded from the complainant a statement or schedule, showing the length of the main and all the side tracks, switches, and turn-outs in each county in which the road is located, and the value of all improvements, stations, and structures, including the railroad track, as provided in section 46 of the same act. Complainant being willing, so far as it may without injury to itself, to comply with the laws of this said state, has, in compliance with the demand made upon it, made and returned said schedule to the said board, accompanying the same with a protest against any of the property in said schedule contained being assessed for taxation, in which protest complainant stated the grounds upon which said property was exempt from taxation. Complainant states and submits that all this property contained in the said schedules, copies of which it here with files, marked 'I' and 'J,' and all the property described in said sections 46 and 48 of said act, are the identical property which is exempt from taxation by the contract in said charter contained.' On December 9, 1874, an act was passed by the general assembly of Arkansas whereby the purchasers of a railroad of any corporation of the state and their associates acquiring title thereto by virtue of a judicial sale, or of a sale under a power contained in a mortgage or deed of trust were authorized to organize themselves into a body corporate, vested wiht all the corporate rights, liberties, privileges, immunities, powers, and franchises of and concerning the railroad so sold, not in conflict with the provisions of the constitution of the state as fully as the same were held, exercised, and enjoyed by the corporation before such sale. A certificate of such organization was required to be filed in the office of the secretary of state within six months, specifying certain particulars. Laws Ark. 1874-75, p. 57. Prior to the passage of that act there seems to have been no statute authorizing the formation of such corporations, or prescribing a mode for their organization. In 1853, when the Memphis & Little Rock Railroad Company was chartered and organized as a corporation, the constitution of Arkansas, then in force, permitted the enactment of special acts of incorporation, and without any restriction upon the power to exempt corporations and their property from taxation. In 1868 a new constitution was adopted by the people of the state, which provided (article 5, § 48) that 'the general assembly shall pass no special act conferring corporate powers. Corporations may be formed under general laws, but all such laws may from time to time be altered or repealed. * * * The property of corporations, now existing or hereafter created, shall forever be subject to taxation the same as the property of individuals,' and in article 10, § 2, that 'laws shall be passed taxing by a uniform rate all moneys, credits, investment in bonds, joint stock companies, or otherwise; and also all real and personal property, according to its true value in money.'

It was decided by the supreme court of Arkansas, in the case of Oliver v. Memphis & L. R. R. Co. 30 Ark. 128, that the twenty-eighth section of the act of January 11, 1853, incorporating that company, already quoted, was a contract between it and the state, which could not be impaired by these provisions of the state constitution, because it was protected by the constitution of the United States.

On October 13, 1874, the present constitution of Arkansas was adopted and took effect. Among its provisions are these: That the general assembly shall pass no special act conferring corporate powers, (article 12, § 2;) that corporations may be formed under general laws, which laws may, from time to time, be altered or repealed, (article 12, § 6;) that all property subject to taxation shall be taxed according to its value; that the following property shall be exempt from taxation: public property used exclusively for public purposes, churches used as such, cemeteries used exclusively as such, school buildings and apparatus, libraries and grounds used exclusively for school purposes, and buildings and grounds and materials used exclusively for public charity, (article 16, § 5;) that all laws exempting property from taxation, other than as above provided, shall be void, (article 16, § 6;) that the power to tax corporations and corporate property shall not be surrendered or suspended by any contract or grant to which the state may be a party, (article 16, § 7;) and that the general assembly shall not remit the forfeiture of the charter of any corporation then existing, or alter or amend the same, or pass any general or special law for the benefit of such corporation, except upon condition that such corporation should thereafter hold its charter subject to the provisions of the constitution, (article 17, § 8.)

It was in April, 1877, that the plaintiff in error was organized as a corporation, deriving its authority for that purpose, as it claims, under the special act of January 11, 1853, but without power to do so, as is claimed on behalf of the defendant in error, except as enabled by the act of December 9, 1874.

[Argument of Counsel from pages 615-617 intentionally omitted]

MATTHEWS, J.

The case of the plaintiff in error rests entirely upon the words of the ninth section of the act of incorporation of the Memphis & Little Rock Railroad Company of January 11, 1853, by which it was empowered to borrow money 'on the credit of the company and on the mortgage of its charter and works.' It is argued that these words confer power upon the company to convey to its bondholders, by way of mortgage and on foreclosure, to purchasers absolutely, all the property of the company, and all its franchises, including the franchise of becoming and being a corporation, in the sense of acquiring the right to organize as such under the act as successor to, and substitute for, the original company, precisely as if the act had named them as corporators and endowed them with the corporate faculty. And this being assumed, it is thence inferred that the exemption contained in section 28 of the act applies to the substituted corporation as though no change of corporate existence had taken place; and thus, it is insisted, the case is taken out of the rule of decision established in Morgan v. Louisiana, 93 U. S. 217; Wilson v. Gaines, 103 U. S. 417; and Louisville & N. R. Co. v. Palmes, 109 U. S. 244; S. C. 3 SUP. CT. REP. 193. According to the principle of those decisions, the exemption from taxation must be construed to have been the personal privilge of the very corporation specifically referred to, and to have perished with that, unless the express and clear intention of the law requires the exemption to pass as a continuing franchise to a successor. This salutary rule of interpretation is founded upon an obvious public policy which regards such exemptions as in derogation of the sovereign authority and of common right, and therefore not to be extended beyond the exact and express requirement of the grants, construed strictissimmi juris.

It is not claimed that the assignment of the charter, by way of mortgage and subsequent judicial sale, constituted the purchasers to be the identical corporation that the mortgagor had been, for that would involve an assumption of its obligations and debts as well as an acquisition of its privileges and exemptions; but it is insisted that it resulted in another corporation in lieu of the original one, entitled to all the provisions of the charter, by relation to its date, as though it had been originally organized under it. But such a construction of the words authorizing a mortgage of the charter and works of the company is, in our opinion, beyond the intention of the law, and altogether inadmissible. There is no express grant of corporate existence to any new body. At the time when this charter was granted, in 1853, there was no general law in existence in Arkansas authorizing the formation of corporations. All such grants were by special act. Neither was there any law authorizing the purchasers of railroads at judical sale under mortgages of the property and franchises of the company, to organize themselves into corporate bodies, such as was first passed in 1874. There is not in the act of January 11, 1853, for the incorporation of the Memphis & Little Rock Railroad Company, any reference to such a right, as vested in the mortgage bondholders or other purchasers at a sale under a foreclosure of the mortgage, nor is there any mode or machinery prescribed in the act for such an organization. The desired conclusion rests entirely on the inference deduced from the mortgage of the charter, and is an attempt to create a corporation by a judicial implication. But, as was said by this court in Central R. & B. Co. v. Georgia, 92 U. S. 665-670, 'it is an unbending rule that a grant of corporate existence is never implied. In the construction of statute every presumption is against it.'

The application of this rule is not avoided by the claim that the present is not the case of an original creation of a corporate body, but the transfer, by assignment of a previously existing charter, and of the right to exist as a corporation under it. The difference is one of words merely. The franchise of becoming and being a corporation, in its nature, is incommunicable by the act of the parties and incapable of passing by assignment. 'The franchise to be a corporation,' said HOAR, J., in Com. v. Smith, 10 Allen, 448-455, 'clearly cannot be transferred by any corporate body of its own will. Such a franchise is not, in its own nature, transmissible.' In Hall v. Sullivan R. Co. 21 Law Rep. 138, (2 Red. Amer. R. Cas. 621, 1 Brunner, Collected Cas. 613,) Mr. Justice CURTIS said: 'The franchise to be a corporation is therefore not a subject of sale and transfer, unless the law, by some positive provision, has made it so, and pointed out the modes in which such sale and transfer may be effected.' No such positive provision is contained in the act under consideration, and no mode for effecting the organization of a series of corporations under it is pointed out, either in the act itself or in any other statute prior to that of December 9, 1874.

The franchise of being a corporation need not be implied as necessary to secure to the mortgage bondholders, or the purchasers at a foreclosure sale, the substantial rights intended to be secured. They acquire the ownership of the railroad and the property incident to it, and the franchise of maintaining and operating it as such; and the corporate existence is not essential to its use and enjoyment. All the franchises necessary or important to the beneficial use of the railroad could as well be exercised by natural persons. The essential properties of corporate existence are quite distinct from the franchises of the corporation. The franchise of being a corporation belongs to the corporators; while the powers and privileges, vested in and to be exercised by the corporate body as such, are the franchises of the corporation. The latter has no power to dispose of the franchise of its members, which may survive in the mere fact of corporate existence after the corporation has parted with all its property and all its franchises. If, in the present instance, we suppose that a mortgage and sale of the charter of the railroad company created a new corporation, what becomes of the old one? If it abides for the purpose of responding to obligations not satisfied by the sale, or of owning property not covered by the mortgage nor embraced in the sale, as it may well do, and as it must if such debts or property exist, then there will be two corporations co-existing under the same charter. For, 'after an act of disposition which separates the franchise to maintain a railroad and make profit from its use, from the franchise of being a corporation, though a judgment of dissolution may be authorized, yet, until there be such judgment, the rights of the corporators and of third persons may require that the corporation be considered as still existing.' Coe v. Columbus, P. & I. R. Co. 10 Ohio St. 372-386, per GHOLSON, J.