State v. Baltimore & Ohio Railroad

Stookbridge, J., delivered the opinion of the Court. This is a suit by the State of Maryland to require the Baltimore and Ohio Railroad Company to pay taxes upon its g’ross receipts in this State for the years from 1896 to 1908, over and above the amounts already paid, or the difference between the amount of such tax as fixed by the Act of 1878, and the rates established by the Acts of 1890, 1896 and 1906. The suit is sought to be maintained by the State by virtue of the Constitutional Amendment of 1891, which ⁴³⁷ provided that “any cox*poration chartered by this State which shall accept, use, enjoy or in any wise avail itself of any rights, privileges, or advantages that xnay hex*eafter be granted or conferred by any general or special Act shall be conclusively presumed to have thereby surrendered any exemption from taxation to which i t xnay he entitled under its Charter, and shall be thereafter subject to taxation as if no such exemption liad been granted by its charter.” In defense to the action, the Railroad Company sets up the provisioixs of Chapter 155 of the Acts of 1878, as constituting a contract between the State and the Railroad Company, irrepealable in its nature, and under the protection of the Federal Constitution, Axdicle 1, section 10. It has been frequently held by this Coux't that the charter of the B. & O. R. R. Co. granted in 1826, constituted a contract between the Railroad Company' and the State, and such a coixtract that the exemption from taxation conferred by section 18 of that Act was not one which it was within the power of the Legislature to repeal or modify without the assent of the Railroad Company.

There are four grounds xxpon which the present contention is based, three of which are x’eadily disposed of. One of these arises from the insertion in mortgages executed by the Railroad Company of the covenant that .the Railroad Company woxxld pay and discharge all taxes, assessments and governmental charges lawfully imposed upon the lines of railroads “and other premises or property hereby mortgaged, or upon any part thereof, or upon the income and profits thereof, the lien of which would be prior to the lien thereof, so that the priority of this indenture shall be fully preserved in x’espect of such properties, and will also pay and discharge all taxes, assessments and governmental charges lawfully imposed upon the interest of the trustee, or of the holder of any bond or bonds secured hereby in the mortgaged premises; provided, however, that nothing contained in this section shall require the Railroad Company to pay any such tax, ⁴³⁸ assessment or charge, so long as the Railroad Company in good faith shall contest the validity thereof.” The contention is that by the insertion of this covenant the Railroad Company accepted, used or availed itself of certain general or special rights or privileges, and therefore, under the Amendment to the Constitution, Article 3, section 48, previously referred to, the Railroad Company surrendered its right to exemption from taxation. With regard to thisi it is only necessary to say that the point so advanced is conclusively settled by the decision in Musgrove v. B. & O. R. R., 111 Md. 629 , in which it was held that the Acts relating to the taxation of mortgages had no application to mortgages executed by a Railroad Company to a trustee to secure bonds sold to investors. The second contention upon the part of the State was that by the acceptance and user of rights set forth in sundry Ordinances of the Mayor and City Council of Baltimore, there has been such acceptance of rights or privileges as to bring the B. & O. R. R. within the operation of the Amendment to the Constitution of this State.

An examination of the Ordinances discloses them to have related for the most part to the laying of switches or spurs which they were expressly authorized to do under the Charter of the Company, when the power was granted to construct lateral lines. The Railroad Company, it is true, was required by the terms of its charter in laying its tracks upon the streets or public ways of Baltimore City, and to do which it was given express authority, to obtain the assent of the Mayor and City Council of Baltimore before the laying of such tracks. This was for the manifest reason that for a proper exercise of the police power, full power had been granted by the Legislature to the municipal corporation over the streets, ways and alleys within the corporate limits, and in the grant of the right for the construction of lateral lines, in order not to interfere with the power of the City of Baltimore for the proper regulation of its streets, it was necessary to place that requirement upon ⁴³⁹ the Eailroad Company. This was in the exercise of the police power of the municipal corporation.

The same may be said of each and all of the other Ordinances referred to; such for example as the Ordinance granting permission to erect a shed on the lot bounded by Parkin, Pratt and Poppleton streets; for establishing the heighth of the Baltimore & Ohio Central Building; for the construction of a single track on South Howard street, between Dover and Camden street, and a similar one for the construction of a single track on Eutaw street between Barre and Stockholm streets. Each and all of these were only the exercise of the police power of the municipal corporation. They conferred no new privilege or right not already possessed under the original charter of the Eailroad Company and, therefore, they cannot be regarded as a grant of privileges as that expression is used in the Constitutional Amendment of 1890. If it had been proposed to authorize the Eailroad Company to carry on the business of mining coal, to lay an oil pipe line, or to engage for profit in different lines of business from those contemplated by the charter, an entirely different question would have been presented, but where the sole subject-matter was the exercise by the municipal corporation of the Mayor and City Council of Baltimore, of its police power in regulating the manner of exercise of rights conferred by the original charter of 1826, there can be no question but that the privilege, if indeed it was a privilege, was not such an one as was intended to be embraced, and not within the spirit of the amendment to the Constitution by Chapter 195 of the Acts of 1890.

The third ground upon which the tax exemption privilege contained in the original Act of Incorporation is claimed to have been set aside and nullified, arises out of the fact that in 1896, the State’s holding of 5,500 shares of the capital stock of the Washington Branch of the B. & O. R. R. was sold to the Maryland Trust Co. and by it in turn sold and transferred to the B. & O. Eailroad. The claim is that the acquisition of this stock constituted the acquirement or exer ⁴⁴⁰ cise of a privilege by tbe Eailroad Company within the terms of the Constitution. The record in the case fails to bear this out. The State was at this time anxious to dispose of its holdings of this stock.

The Eailroad Company was desirous of acquiring the same. There was no one to whom the stock had greater value than to the Company itself. With the State the question was, how could it realize the largest amount from the interest which it held, and it not unnaturally sought to ascertain the price which the B. & O. R. R. Co. would be willing to pay for it. Legislative action was requisite to effect any sale at all and the session of the Legislature of that year was drawing to a close.

The Eailroad Company did not make a direct offer to the State,' but it did guarantee the State that there should be a bid for the State’s holding of the stock, made by a responsible bidder, of at least $2,500,000. If the State had deemed this amount inadequate or that a higher price could be obtained from others, it had full power to take the legislative action which may have been requisite to enable the Board of Public Works to have disposed of this stock to any outside parties. That it was not so considered by those who were the officials of the State at the time, is shown in the action which was taken, but even under the action taken, though the time was short, it was ample for outside parties to have interposed á bid larger than the $2,500,000. What actually did happen was a bid for the stock by the Maryland Trust Co. of tihe sum named for the stock and it was sold at that figure.

It makes no difference, so far as this case is concerned, whether the Maryland Trust Company was purchasing for its own account or whether it was acting for and on behalf of the Eailroad Company. The real question is, was it a fair sale, made in a manner sanctioned by law and for an adequate price in the light of all the facts as those facts were then understood ? These must be answered in the affirmative and, therefore, the sale by the State of its interest in the Washington Branch of the B. & O. R. R. Co. was not the granting of any ⁴⁴¹ privilege or right within the contemplation of the constitutional amendment provided by Chanter 195 of the Acts of 1890. Suppose, for example, instead of the method which was adopted, the State had advertised for bids for the stock to be filed with the Board of Public Works, by a certain date, and on the date named, a number of bids had been filed which when opened disclosed that they were made by responsible bidders, and the State oificials had accepted the most advantageous offer, and disposed of the stock; that the stock so acquired had been subsequently offered for sale on the stock boards of New York, Baltimore and other cities and had there been purchased by or on behalf of the Railroad Company, would anyone claim for one moment that thereby the Railroad Company had acquired a peculiar privilege which would destroy important and valuable charter rights ?

If not, it is impossible to see how any other or different result can flow from what was actually done. There now remains for consideration the most important question involved in this case, and that is the Act of T878, Chapter 155; The title of that Act was as follows: “An Act to adjust and settle finally by an agreement all pending controversies between the B. & O. R. R. Co. and the State of Maryland, by subjecting the franchises and property of said company within this State to taxation for State purposes to a certain extent and by providing for the payment of certain indebtedness of the said B. & O. R. R. Co. to the said State, and for the establishment by contract or certain rates of toll and transportation for coal, lumher, pig iron, ores of all kinds and stone, transported by the said B. & O. R. R. Co. to the basins of the Chesapeake and Ohio Canal Company, at or near Cumberland and by providing on certain conditions for the release of the right of the State to any proportion of the moneys received by the said Company for the transportation of passengers on its railroad between Baltimore and Washington, otherwise than ⁴⁴² by way of dividends upon its stock in the Washington Branch Bailroad of said company.” Following the title were two preambles, the second of which was in this language: “Whereas, It is deemed by this General Assembly to be just and proper as an equitable settlement of all controversies now pending between said company and • the State, that the said company in consideration of its release from the said contract and in lieu of its obligation of payment thereunder, shall agree to a modification of its contract with the State for exemption from taxation, as provided by the eighteenth section of the Act of 1826, Chapter 123, incorporating said company, by submitting to taxation to the extent of one-half of one per centum of its gross receipts within the State as hereinafter provided.” The Act then begins as follows: “Section 1. Be it enacted by the General Assembly of Maryland, That all the franchises and property of every description and gross receipts of the B. & O. R. R. Co. within the State of Maryland, shall be subject to taxation for State purposes to the extent of an annual tax of one-half of one per centum on the gross receipts of its railroad and branches within the State, including its Metropolitan Branch R. R. and from its entire Washington Branch R. R. and from all other sources within this State, but to no further or greater extent nor otherwise; and provided, the said company, in consideration of the release of its obligation to pay to the State the one-fifth of its gross receipts for the transportation of passengers over the Washington Branch of its road, as provided by the eighth section of the Act of 1832, Chapter 175, shall agree on its part in the manner and upon the terms hereinafter provided, to modify its contract for exemption from taxation as contained in the 18th section of the Act of ⁴⁴³ 1826, Chapter 123, incorporating said company, by submitting all its franchises and property of every description, and all its gross receipts within the State of Maryland to taxation for State purposes to the extent and in the manner above named, and to no further or greater extent nor otherwise, and shall also accept the provisions of this Act in the manner hereinafter provided, then no other further or greater tax or burden for State purposes shall ever hereinafter be levied or imposed by the authority of this State or by any law thereof, upon any of the franchises or property of any description or receipts whatsoever of said company; provided that nothing in this Act shall be construed as exempting any property or franchises of the said railroad company from taxation for county and municipal purposes, which by existing laws and the decisions of the Court of Appeals of this State, is now held liable to taxation; and the exemption from taxation created and) provided for by the 18th section of the Act of 1826, Chapter 123, entitled An Act to incorporate the B. & O. R. R. Co.,' be and the same is hereby declared to be modified to the extent of substituting the tax imposed upon said company by the second section of this Act, in lieu of the tax imposed by the 8th section of the Act of 1832, Chapter 175,