State v. Manchester & Lawrence Railroad

The policy of the state to limit the profits of persons and corporations to whom it grants the franchise of constructing public highways, and of taking tolls for the use of them as compensation for their services and disbursements, is older than the constitution and has been uniformly maintained. It has been effectuated in various ways.

The act entitled "An act to regulate ferries," passed February 28, 1783 (Laws, ed. 1797, p. 341), and reciting in the preamble that "the demands of ferrymen within this state for carrying the subjects thereof and others across the rivers in the same state are exorbitant and arbitrary," required the courts of general sessions of the peace in each county to establish the rates of ferriage for every ferry in the county, and prohibited ferrymen from charging or taking any greater tolls than those prescribed by the court. In many of the subsequent grants of ferries an equivalent provision, though superfluous, was inserted. Priv. Laws^* 1798, vol. 11, p. 268; 1799, vol. 12, pp. 12, 16, 104, 150; 1800, vol. 13, pp. 118, 247; 1801, vol. 13, p. 247; 1804, vol. 15, p. 174; 1805, vol. 16, p. 116; 1817, vol. 21, p. 8. The act, with amendments not here material, has ever since been in force. Laws, ed. 1830, p. 181; R. S., c. 64, s. 2; G. S., c. 72, s. 2; P. S., c. 80, s. 2.

Toll-bridge charters have contained a similar provision or have specified the rates of toll that may be taken. Priv. Laws 1783, vol. 4, p. 495; 1792, vol. 6, p. 533; 1794, vol. 8, p. 256; 1795, vol. 9, pp. 77, 86, 246; 1802, vol. 12, p. 231; 1805, vol. 16, p. 227; 1836, c. 69; Laws 1878, c. 150. Many charters provided that the bridge should become public property free of toll whenever the proprietors were reimbursed by tolls or otherwise for the expenses of erecting and maintaining the bridge, with interest at a specified rate. Priv. Laws 1839, cc. 30, 32; Laws 1848, c. 795. In some cases the justices of the court were required to so regulate the tolls that the proprietors should receive not more than a named annual percentage of profit upon their investment. Laws 1816, c. 71; 1817, cc. 11, 28; 1818, c. 75; Priv. Laws 1835, c. 6; 1836, cc. 69, 105; 1838, c. 19. In 1877, the legislature — after reciting that the charter of the Portsmouth Bridge granted in 1819 (Laws 1819, c. 50) required the proprietors to exhibit to the justices of the court an account of the sums expended on the bridge and the justices thereupon to fix the tolls, and that the proprietors had negligently omitted to exhibit such account and had themselves without legal authority established excessive and unreasonable rates of toll — resolved "that the justices of the supreme court are hereby instructed to revise the rates of toll now collected by said proprietors of Portsmouth Bridge, and to establish the same at reasonable rates." Laws 1877, c. 180.

Similar provisions are found in canal charters. Priv. Laws 1792, vol. 6, p. 541; 1792, vol. 8, p. 92; 1804, vol. 15, p. 41; 1816, vol. 20, p. 419; 1824, vol. 22, pp. 448, 505, 513, 524; 1827, vol. 24, pp. 325, 339; 1833, vol. 30, p. 86. The last charter, granted in 1836, prescribed the tolls that might be taken and provided that the "rate of toll may be increased or diminished by the court of common pleas, on application to them, as in their opinion justice may require." Priv. Laws 1836, c. 102.

The first turnpike charter was granted June 16, 1796. Laws, ed. 1797, p. 325. It specified the rates of toll and provided "that at the end of every twenty years an account of the expenditures upon said road and the profits arising therefrom shall be laid before the judges of the superior court for the time being; . . . and if the net profits for the said twenty years shall exceed twelve per cent per annum, the said court may reduce the future toll so far as that it may not exceed twelve per cent, and the profits shall not amount to six per cent the said court may raise the toll, so that it shall not be less than six nor exceed twelve per cent." All the numerous subsequent charters of turnpikes, intended and necessary for the common and ordinary use of the general public, have contained a like provision with various modifications of time, rate per cent, and of the method of fixing the tolls, so that the authorized profits should not be exceeded. A few only are cited. Priv. Laws 1799, vol. 12, p. 185; 1802, vol. 13, pp. 79, 326; 1804, vol. 15, pp. 57, 76, 112, 320; 1805, vol. 16, pp. 99, 118, 127, 279; 1807, vol. 17, p. 145; 1809, vol. 18, p. 243; 1812, vol. 19, pp. 154, 181; 1820, vol. 21, p. 537; 1828, vol. 26, p. 135; 1834, vol. 30, p. 297; 1837, c. 3; Laws 1852, c. 1360.

The first railroad charter, enacted January 1, 1833 (Priv. Laws 1832, vol. 29, p. 215), created the Boston Ontario Railroad corporation, granted tolls to be fixed by the directors, and provided that "if at the expiration of ten years from and after the completion of said road, the net income or receipts from tolls and other profits, taking the ten years aforesaid as the basis of calculation, shall have amounted to more than ten per cent per annum upon the cost of the road, then the legislature may take measures to alter and reduce the rate of tolls and other profits in such manner as to take off the surplus for the next ten years, . . . and at the expiration of every ten years the same proceedings may be had"; and "that the legislature shall not at any time so reduce said tolls and other profits as to produce less than ten per cent per annum upon the cost of said road without the consent of the corporation." Under this charter no effective action was taken. The Concord Railroad was next incorporated, June 27, 1835. Priv. Laws 1835, c. 1. The charter granted a toll to be fixed by the directors and provided that "if at the expiration of five years from and after the opening of said road for use, the net income or receipts from tolls and other profits shall have amounted to more than ten per cent per annum upon the whole cost of the road from the time of the disbursements, the legislature of this state may take measures to alter and reduce the rate of tolls and other profits in such manner as to take off the overplus for the next five years, calculating the amount of transportation upon the road to be the same as the five preceding years; and at the expiration of every five years the same proceedings may be had." The same provision in nearly identical terms is found in the other twelve railroad charters granted before December 25, 1844, except that in four of them the net profits were limited to eight per cent. Priv. Laws 1835, cc. 7, 14, 37; 1836, c. 66; 1837, c. 1; 1839, cc. 18, 20; 1842, c. 3; 1844, cc. 111, 112, 113, 188.

The obvious purpose of the legislature in limiting and providing for the regulation of the tolls granted was to restrict the profits of the grantees within limits deemed reasonable, and thereby to secure to the public the enjoyment of the property devoted to public use at reasonable rates. In the railroad charters, as well as in many others, the authorized net profits were made the standard of reasonable tolls.

The eleventh section of "the general railroad law" (Concord Railroad v. Greely, 23 N.H. 237, 242), approved December 25, 1844 (Laws 1844, c. 128), provided that "such corporations shad keep exact accounts of all their receipts and expenditures and make annual reports thereof to the railroad commissioners, who shall annually communicate the same to the legislature, and in any and every year when their net receipts shall be found to exceed the average of ten per cent on their expenditures from the commencement of their operations, the excess shall be paid into the treasury of the state until otherwise directed by the legislature." This enactment has ever since remained in force. G. S., c. 144, s. 5; P. S., c. 157, s. 19. To it every railroad charter thereafter granted has been subject. Its operation is uniform. It applies to all railroads in the state. For many years after its adoption (as in the case of ferries), an equivalent but superfluous provision was inserted in railroad charters. Laws 1844, c. 189, s. 4; Ib., c. 190, s. 4; Ib., c. 191, s. 4; Laws 1845, c. 286, s. 4; Ib., c. 287, s. 4; Laws 1847, c. 549, s. 5; Ib., c. 550, s. 4; Laws 1849, c. 906, s. 4; Ib., c. 907, s. 4; Ib., c. 908, s. 4; Laws 1854, c. 1596, s. 4; Laws 1859, c. 2297, s. 4; Laws 1863, c. 2792, s. 4; Laws 1866, c. 4318, s. 4; Laws 1867, c. 85, s. 4; Laws 1868, c. 100, s. 4; Laws 1869, c. 70, s. 4; Laws 1870, c. 58, s. 4; Ib., c. 59, s. 5; Ib., c. 60, s. 4; Laws 1871, c. 71, s. 4; Ib., c. 72, s. 4.

The general statute was not a change of policy, but of method. Its purpose was not to obtain revenue, but to enforce the established policy of the state. The profits of the proprietors of railroads were limited to ten per cent for the sole purpose of securing to the public reasonable rates of toll. The reason for the change of method is obvious. Railroads were in their infancy. It was impossible to estimate with reasonable accuracy the cost of building or the expense of maintaining and operating them. The rates of toll requisite to give the grantees of the franchise their authorized profits, and no more, could not, as in the case of bridges and turnpikes, be approximately estimated in advance, nor was it practicable for the legislature, the court, or for any official board, except the officers of the corporations, to make the frequent modifications of the tolls necessary to bring the net income up to and not exceeding the authorized limits. Ten per cent annual profits remained, as before, the standard of reasonable tolls. Any inducement to maintain or to increase them so as to reap greater profits was effectually taken away. If they were established so as to yield a greater income than ten per cent, the legislature deemed it reasonable that the excess should as nearly as practicable be returned to those who suffered from the exaction, — that is to say, to the taxpayers of the state. It was impossible to return to each individual the excess above a reasonable toll that he had been compelled to pay for transportation. Excessive tolls were injurious, not only to the immediate patrons of the road, but to every citizen who resided within the scope of its influence, — more or less, in fact, to every property owner in the state. Refunding to them the excess of tolls taken was the nearest approach to exact justice that was possible.

The defendants say in argument that the state can take the property of citizens against their will in one of three ways only, namely: (1) Under the power of eminent domain; (2) under that of taxation; and (3) in the exercise of the police power, by imposing fines or forfeitures as punishment. Whether this proposition is or is not sound need not be considered. The state in this action is not seeking to take the defendants' property against their will, except as every action to enforce a legal obligation is a proceeding against the defendant's will. It seeks to recover its own property. Unless it shows that the defendants have in their hands $750,000, or some part of that sum, legally belonging to the state, its action must fail. The action is, in effect, for money received by the defendants for the use of the state. A judgment in favor of the state and its enforced satisfaction will be no more a taking of the defendants' property against their will than would be a levy by the state an execution upon the lands of a recognizor against whom it had obtained judgment. The state in this action stands precisely as an individual in a like action. It is subject to the same rules of law and evidence. It has no greater power, rights, or privileges than any plaintiff. It must establish the defendants' legal indebtedness, or it must fail.

The fifth section of the defendants' charter provides "that in any and every year when the net receipts from the use of said road shall exceed the average often per cent per annum from the commencement of their operations, the excess shall be paid into the treasury of the state until otherwise ordered by the legislature." Priv. Laws 1847, c. 549. This clause of the defendants' charter is identical with the general railroad law of 1844 (Laws 1844, c. 128, s. 11), and was superfluous. Opinion of the Justices,66 N.H. 629, 671-673. The general law and the charter imposed on the defendants no duty which they did not directly and voluntarily assume. They presented to the defendants a proposition which they were at liberty to accept or to reject. The defendants accepted the charter subject to the burdens by it imposed. The provision that they should pay to the state the excess above ten per cent was a qualification of, or burden imposed upon, the franchise granted them, exactly like the various other duties required of them, as, for example, in case their road should cross any canal, turnpike, or other highway, to so construct it as not to "obstruct the safe and convenient use of such canal, turnpike, or other highway," and to maintain in good repair all bridges "they may construct for the purpose of conducting their railroad over any canal, turnpike, or other highway, or any private way, or for conducting such private way, turnpike, or other highway over said railroad." Charter, ss. 11, 13. The limitation of their income to ten per cent was no more a tax upon their property than were the various obligations imposed upon them. It and they alike were burdens upon the granted franchises, diminishing their value, and to be considered in assessing the value of the defendants' property for the purpose of taxation or under the law of eminent domain.

The objection that the provision of the charter, as well as the general law, violates the principle of uniformity and equality has no foundation in fact. All railroad corporations in the state, by virtue of express provisions of their charters or of the general law, are subject to the same obligation. The law applies uniformly and equally to all railroads. It is said, how: ever, that it does not apply to other corporations and therefore is unequal. But this is not an unconstitutional discrimination. It might as well be claimed that laws regulating the business of dentists (P. S., c. 134) are unconstitutional because they do not apply to farmers.

In answer to the plaintiff's claim that the action is founded upon the defendant's contract, they say that by the law of this state, whatever may be the federal law, a charter is not a contract, — that is to say, not a contract within the meaning of the clause in the federal constitution which forbids the enactment by the states of any law impairing the obligation of contracts. Whether this proposition is sound or unsound need not be considered. It is not here material whether the legislature, in the absence of a reserved right and without the grantees' consent can or cannot repeal or alter a charter which they have granted. The question is not whether the defendants' charter may be repealed or modified, but whether as long as it subsists they are bound by its provisions. No case has been cited or found in which it has been held or suggested that the grantees of a franchise are not obligated to do and perform all things expressed in the grant to be by them performed as long as they enjoy the benefit of the grant. The obligation to the public imposed on the grantees of the right to take tolls is always a part, and not infrequently the whole, of the consideration of the grant. By the common law, one who accepts a grant from the sovereign containing a provision that he shall perform acts therein specified to be performed by him covenants that he will perform them; and for their non-performance an action of covenant lies, where that form of action is an appropriate remedy. Ewre v. Strickland, Cro. Jac. 240; Bret v. Cumberland, Cro. Jac. 399, 521; Lyme Regis v. Henley, 3 B. A. 32; Lyme Regis v. Henley, 2 C. F. 331, 349, 350.

There is nothing in the Opinion of the Justices, 66 N.H. 629, that supports any position taken by the defendants. There the state claimed that, regardless of the seventeenth section of the charter of the Concord Railroad, it could take the road upon paying its owners less than its value upon the grounds (1) that the constitution does not require compensation to be made for private property taken for public use, and that the state is not bound by contract or otherwise to refrain from partial confiscation; and (2) that, by the terms of the charter, "the legislature may at any time hereafter alter, amend, or modify this act or any of its provisions," and therefore that, short of total confiscation, there was no limit to the power of amendment. It was the opinion of the justices that neither of these positions could be sustained for the obvious reasons (1) that the property of a partnership called a corporation is as fully protected by the constitution as that of an individual; and (2) that authority to alter, amend, or repeal the charter of a corporation is not authority to confiscate the corporate property, or any part of it, either during the existence of the corporation or after its dissolution. The third and principal ground on which the state claimed authority to take the road was founded upon the seventeenth section of the charter, by which it was expressly provided that the state might purchase the road at any time after twenty years from its completion, by paying to the corporation "the amount expended in making the road" and "such additional sum as, together with the tolls and profits of every kind which they shall have received from said railroad, will be equal to a net profit of ten per cent per annum on the cost of said road from the time of payment thereof by the stockholders to the time of purchase." This position of the state the justices did not sustain for the sole reason that, in their opinion, section 17 of the Concord Railroad's charter and section 11 of the general railroad act of 1844 to the same effect were repealed in 1867. By the repeal the state renounced or released its right of purchase. It was not claimed by the counsel for the road, nor intimated by the justices, that section 17 of the charter, or the general law, was unconstitutional and therefore void. It was conceded by the parties and assumed by the justices that the state was entitled to purchase the road at the price stated, unless the clauses in the charter and the general statute authorizing the purchase were repealed. Upon no question now presented was any opinion expressed.

All the rights, powers, and property vested in the state are held by it in trust for the people. Lumber Co. v. Company, 65 N.H. 290, 387. One of its powers is that of granting franchises. The franchise of taking tolls is property. Ever since the act of June 27, 1816 (Laws 1816, c. 33), it has been subject to attachment and levy like other property. R. S., c. 184, s. 13; P. S., c. 220, ss. 7, 15. A grant by the state of such a franchise differs in no respect that is here material from its grant of any other property — as, for example, the public lands — which it has the power to convey.

An individual may convey his property upon such terms and conditions consistent with law as he pleases. The power of the state cannot be less. It is sovereign except in so far as its powers are limited by the state and federal constitutions. No constitutional provision has been pointed out or discovered which denies to the state the power to convey whatever it has the right to convey — whether lands or franchises — upon such terms and conditions as to the legislature may seem fit. The grantee need not accept the grant unless he chooses to do so. It is for him to say whether the benefits conferred outweigh the burdens imposed. He may reject the gift; but if he accepts it, he must take it with all the qualifications and burdens that are thereto annexed.

The defendants by accepting their charter and acting under it bound themselves to do all things therein required of them. For their non-performance of their various obligations the law provides appropriate remedies. 2 Mor. Corp., ss. 1132-1136. For the non-payment of moneys which they have bound themselves to pay to the state, debt or covenant is a proper remedy.

Demurrer overruled.

All concurred.

^* Private acts prior to 1835 have, with some exceptions, never been printed. The references to private laws enacted before 1835 are to the volumes of manuscript laws in the custody of the secretary of state.